<PAGE>
As filed with the Securities and Exchange Commission on June 20, 2000
Registration No. 333-38478
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
Vignette Corporation
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7372 74-2769415
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>
901 South Mopac Expressway
Austin, TX 78746
(512) 306-4300
(Address, Including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
----------------
Gregory A. Peters
President, Chief Executive Officer and Chairman of the Board
Vignette Corporation
901 South Mopac Expressway
Austin, TX 78746
(512) 306-4300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
copies to:
<TABLE>
<S> <C> <C>
Bruce K. Dallas, Esq. Mark Pine Michael J. Kennedy, Esq.
David W. Ferguson, Esq. Chairman and Chief Executive Robert T. Ishii, Esq.
Davis Polk & Wardwell Officer George F. Parker, Esq.
1600 El Camino Real OnDisplay, Inc. Wilson Sonsini Goodrich & Rosati
Menlo Park, CA 94025 12667 Alcosta Boulevard, Suite Professional Corporation
(650) 752-2000 300 One Market, Spear Tower
San Ramon, CA 94583 San Francisco, CA 94105
(925) 355-3200 (415) 947-2000
</TABLE>
----------------
Approximate Date of commencement of proposed sale to the public: The offer
commenced on June 2, 2000, the date the prospectus and tender offer materials
were first filed and distributed to stockholders.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus may be changed. We may not sell these +
+securities until the registration statement filed with the Securities and +
+Exchange Commission is effective. This prospectus is not an offer to sell +
+these securities and we are not soliciting offers to buy these securities in +
+any state where the offer or sale Is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Preliminary prospectus dated June 20, 2000
Vignette Corporation
Offer to Exchange
Each Outstanding Share
of Common Stock
of
OnDisplay, Inc.
for
1.58 Shares of Common Stock
of
Vignette Corporation
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON JUNE 29,
2000 UNLESS EXTENDED. SHARES TENDERED PURSUANT TO
THIS OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION OF THE OFFER, BUT NOT DURING ANY
SUBSEQUENT OFFERING PERIOD.
On May 21, 2000, we entered into an Agreement and Plan of Merger with
OnDisplay for Vignette to acquire all of the outstanding shares of OnDisplay
common stock. The members of the OnDisplay board of directors, excluding John
Mandile who was excused from participating, unanimously approved the merger
agreement, determined that the offer is fair to, and in the best interests of,
OnDisplay stockholders and recommend that OnDisplay stockholders accept the
offer and tender their shares pursuant to the offer.
Through Wheels Acquisition Corp., our wholly owned subsidiary, we are
offering to exchange 1.58 shares of Vignette common stock for each outstanding
share of OnDisplay common stock that is validly tendered and not properly
withdrawn.
Our obligation to exchange Vignette common stock for OnDisplay common stock
is subject to the conditions listed under "The Offer--Conditions of the Offer."
Vignette's common stock is quoted on the Nasdaq National Market under the
symbol "VIGN," and OnDisplay's common stock is quoted on the Nasdaq National
Market under the symbol "ONDS."
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF IMPORTANT FACTORS
THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. Any request for proxies will be made only pursuant to separate proxy
solicitation materials complying with the requirements of Section 14(a) of the
Securities Exchange Act of 1934.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under
this prospectus or determined if this prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
The date of this prospectus is June , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION...................... ii
WHERE YOU CAN FIND MORE INFORMATION....................................... v
SUMMARY................................................................... 1
The Offer and Merger..................................................... 1
The Companies............................................................ 1
Reasons for the Offer.................................................... 2
OnDisplay's Recommendation .............................................. 2
The Offer................................................................ 2
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 8
Selected Historical Financial Data of Vignette........................... 8
Selected Historical Financial Data of OnDisplay ......................... 9
Selected Unaudited Pro Forma Combined Condensed Financial Data........... 10
Comparative Per Share Data............................................... 11
Comparative Market Price Information..................................... 12
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 13
RISK FACTORS.............................................................. 19
Risks Related to the Proposed Offer and Merger........................... 19
Risks Related to Our Business............................................ 22
Risks Related to the Internet Industry................................... 30
Risks Related to the Securities Markets.................................. 31
INFORMATION REGARDING VIGNETTE............................................ 32
Business................................................................. 32
Recent Developments...................................................... 33
INFORMATION REGARDING ONDISPLAY........................................... 33
Business................................................................. 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 40
Recent Development....................................................... 49
THE OFFER................................................................. 50
Timing of Our Offer...................................................... 50
Extension, Termination and Amendment..................................... 50
Exchange of OnDisplay Shares; Delivery of Vignette Common Stock.......... 51
Cash Instead of Fractional Shares of Vignette Common Stock............... 52
Withdrawal Rights........................................................ 52
Procedure for Tendering.................................................. 53
Guaranteed Delivery...................................................... 53
Background of the Offer.................................................. 55
Reasons for the Offer and Merger ........................................ 57
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Recommendation of the OnDisplay Board; Factors Considered................. 57
Material Federal Income Tax Consequences.................................. 59
Purpose of the Offer; The Merger; Appraisal Rights........................ 62
Conditions of the Offer................................................... 62
Regulatory Clearances..................................................... 64
Possible Effects of Our Offer............................................. 64
Relationships with OnDisplay.............................................. 66
Accounting Treatment...................................................... 66
Fees and Expenses......................................................... 66
Nasdaq National Market and Vignette and OnDisplay Common Stock............ 67
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION................ 68
OPINION OF ONDISPLAY FINANCIAL ADVISOR..................................... 69
INTERESTS OF ONDISPLAY OFFICERS AND DIRECTORS IN THE MERGER................ 69
THE MERGER AGREEMENT AND THE STOCKHOLDER AGREEMENT......................... 71
The Offer................................................................. 71
The Merger................................................................ 71
OnDisplay Board of Directors.............................................. 72
Treatment of OnDisplay Stock Options and Restricted Stock................. 72
Covenants and Representations and Warranties.............................. 72
Conditions of the Offer................................................... 74
Conditions of the Merger.................................................. 74
Termination of the Merger Agreement....................................... 74
Termination Fees.......................................................... 75
Amendments................................................................ 76
The Stockholder Agreement................................................. 76
DESCRIPTION OF VIGNETTE CAPITAL STOCK...................................... 77
COMPARISON OF VIGNETTE AND ONDISPLAY STOCKHOLDER RIGHTS.................... 78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 82
LEGAL MATTERS.............................................................. 84
EXPERTS.................................................................... 84
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
<TABLE>
<C> <S> <C>
LIST OF ANNEXES
Annex A Agreement and Plan of Merger..................................... A-1
Annex B Stockholder Agreement............................................ B-1
Annex C Opinion of FleetBoston Robertson Stephens Inc.................... C-1
</TABLE>
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT
VIGNETTE AND ONDISPLAY FROM DOCUMENTS FILED WITH THE SEC THAT HAVE NOT BEEN
INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE AT
THE INTERNET WEB SITE THE SEC MAINTAINS AT HTTP://WWW.SEC.GOV, AS WELL AS FROM
OTHER SOURCES. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE V.
YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM US, WITHOUT CHARGE, UPON
WRITTEN OR ORAL REQUEST TO MACKENZIE PARTNERS, INC., 156 FIFTH AVENUE, NEW
YORK, NY 10010, (212) 929-5500 OR CALL TOLL FREE (800) 322-2885 IN ORDER TO
RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST MAKE YOUR REQUESTS NO LATER
THAN JUNE 15, 2000.
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION
Q: What are Vignette and OnDisplay proposing?
A: Vignette proposes to acquire all outstanding shares of OnDisplay common
stock. Vignette has entered into a Merger Agreement with OnDisplay pursuant
to which we are offering, through Wheels Acquisition Corp., our wholly-owned
subsidiary, to exchange shares of Vignette common stock for each outstanding
share of OnDisplay common stock. After the offer is completed, subject to
approval by the stockholders of OnDisplay if necessary, Wheels Acquisition
Corp. will merge with OnDisplay. As a result of the offer and the merger,
OnDisplay will become a wholly owned subsidiary of Vignette.
Q: What would I receive in exchange for my OnDisplay shares?
A: We are offering to exchange 1.58 shares of Vignette common stock for each
outstanding share of common stock of OnDisplay that is validly tendered and
not properly withdrawn.
Q: How long will it take to complete the offer and merger?
A: We hope to complete the offer in the third quarter of 2000, or soon
thereafter. We expect to complete the merger shortly after we complete the
offer, or if stockholder approval for the merger is required, shortly after
the special meeting of the stockholders to approve the merger, if we obtain
the required stockholder approvals at that meeting. We must also obtain
regulatory clearance prior to completion of the merger.
Q: Do I have to pay any fees or commissions?
A: If you are the record owner of your shares and you tender your shares in the
offer, you will not incur any brokerage fees. If you own your shares through
a broker or other nominee who tenders the shares on your behalf, your broker
may charge you a fee for doing so. You should consult your broker or nominee
to determine whether any charges will apply.
Q: Does OnDisplay support the offer and the merger?
A: Yes. The members of the OnDisplay board of directors, excluding John Mandile
who was excused from participating, determined by unanimous vote that the
offer is fair and in the best interests of OnDisplay stockholders, and
recommend that OnDisplay stockholders accept the offer and tender their
shares pursuant to the offer. OnDisplay's board of directors has approved by
unanimous vote of the directors participating in the meeting and declared
advisable the merger agreement and the merger. Information about the
recommendation of OnDisplay's board of directors is more fully set forth in
OnDisplay's Solicitation/ Recommendation Statement on Schedule 14D-9, which
is being mailed to OnDisplay stockholders together with this prospectus.
Q: Has OnDisplay received a fairness opinion in connection with the offer and
the merger?
A: Yes. OnDisplay has received an opinion from FleetBoston Robertson Stephens
Inc. dated May 21, 2000, to the effect that, as of that date, the
consideration to be received by OnDisplay stockholders pursuant to the
merger agreement is fair from a financial point of view to the stockholders
of OnDisplay. The opinion is included as Annex C to this prospectus.
Q: Have any OnDisplay stockholders agreed to tender their shares?
A: Yes. Stockholders of OnDisplay, including directors and executive officers,
have agreed to tender into the offer outstanding shares representing
approximately 39% of the outstanding common stock of OnDisplay as of May 21,
2000.
Q: What percentage of Vignette common stock will OnDisplay stockholders own
after the offer and the merger?
A: If we obtain all of the shares of OnDisplay pursuant to the offer and the
merger, former stockholders of OnDisplay would own approximately 15.6% of
the shares of common
ii
<PAGE>
stock of Vignette, based upon the number of shares of Vignette common stock
and of OnDisplay common stock outstanding on May 31, 2000.
Q: What are the conditions to the acceptance of OnDisplay shares in the offer?
A: The acceptance of OnDisplay shares in the offer is subject to several
conditions, including:
. a majority of the outstanding OnDisplay shares, on a fully-diluted basis,
having been validly tendered and not properly withdrawn, which we refer to
as the minimum tender condition,
. waiting periods under applicable antitrust laws having expired or been
terminated,
. the registration statement of which this prospectus is a part having been
declared effective by the SEC, and
. OnDisplay having not breached any covenant, representation or warranty in
a material manner.
These and other conditions to the offer are discussed in this prospectus
under "The Offer--Conditions of the Offer" beginning on page 62.
Q: How do I participate in the offer?
A: To tender your shares, you should do the following:
. If you hold your shares in your own name, complete and sign the enclosed
letter of transmittal and return it with your share certificates to
ChaseMellon Shareholder Services, L.L.C., the exchange agent for the offer
at one of its addresses on the back cover of this prospectus.
. If you hold your shares in "street name" through a broker, ask your broker
to tender your shares.
. For more information about the timing of the offer, extensions of the
offer period and your rights to withdraw your shares from the offer before
the expiration date, please refer to "The Offer" beginning on page 50.
Q: Will I be taxed on the Vignette shares I receive?
A: An OnDisplay stockholder's receipt of Vignette common shares in the offer or
the merger will be tax-free for United States federal income tax purposes
(except for taxes resulting from the receipt of cash instead of any fraction
of a Vignette common share), if (1) the offer and the merger are completed
under the current terms of the merger agreement, (2) the minimum tender
condition for the offer is satisfied, and (3) the merger is completed on or
before December 31, 2000. You are urged to carefully read the discussion
under "The Offer--Material Federal Income Tax Consequences" beginning on
page 59, and to consult your tax advisor on the consequences of
participation in the offer or the merger.
Q: Do the statements on the cover page regarding this prospectus being subject
to change and the registration statement filed with the SEC not yet being
effective mean that the offer has not commenced?
A: No. The offer has commenced and effectiveness of the registration statement
is not necessary for you to tender OnDisplay shares. The SEC recently
changed its rules to permit exchange offers to begin before the related
registration statement has become effective, and we are taking advantage of
the rule changes with the goal of combining Vignette and OnDisplay faster
than similar combinations could be previously accomplished.
Q: Is Vignette's financial condition relevant to my decision to tender my
shares in the offer?
A: Yes. Shares of OnDisplay accepted in the offer will be exchanged for shares
of Vignette and so you should consider our financial condition before you
decide to become one of our stockholders through the offer. In considering
Vignette's financial condition, you should review the documents incorporated
by reference in this prospectus, because they contain detailed business,
financial and other information about us.
iii
<PAGE>
Who should I contact if I have more questions about the offer and the merger?
The Information Agent
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
(212) 929-5500
or call toll free
(800) 322-2885
The Exchange Agent
ChaseMellon Shareholder Services, L.L.C.
By Mail:
Reorganization Department
Post Office Box 3301
South Hackensack, NJ 07606
By Hand:
Reorganization Department
120 Broadway, 13th Floor
New York, NY 10271
By Overnight:
Reorganization Department
85 Challenger Road
Mail Stop--Reorg.
Ridgefield Park, NJ 07660
Facsimile (for eligible institutions only):
(201) 296-4293
Confirm facsimile by telephone ONLY:
(201) 296-4860
iv
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Vignette and OnDisplay file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Room North East Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Suite 1024 Room 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.
The SEC also maintains an Internet worldwide website that contains reports,
proxy statements and other information about issuers, like Vignette and
OnDisplay, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
We filed a registration statement on Form S-4 to register with the SEC the
Vignette common shares to be issued pursuant to the offer and the merger. This
prospectus is a part of that registration statement. As allowed by SEC rules,
this prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement. In
addition, we also filed with the SEC a statement on Schedule TO pursuant to
Rule 14d-3 under the Securities Exchange Act of 1934 to furnish additional
information about the offer. You may obtain copies of the Form S-4 and the
Schedule TO, and any amendments to those documents, in the manner described
above.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this
prospectus. This prospectus incorporates by reference the documents set forth
below that we have previously filed with the SEC. These documents contain
important information about us and our financial condition.
The following documents listed below that we have previously filed with the
SEC are incorporated by reference:
<TABLE>
<CAPTION>
Period
------
<S> <C> <C>
Annual Report on Form 10-K................... Year ended December 31, 1999, as
filed on March 30, 2000
Quarterly Report on Form 10-Q................ Quarter ended March 31, 2000, as
filed on May 12, 2000
The description of Vignette common stock set
forth in Vignette's registration statement
on Form 8-A filed by Vignette pursuant to
Section 12 of the Securities Exchange Act of
1934, including any amendment or report
filed for purposes of updating the
description................................. Filed on February 17, 1999
Current Reports on Form 8-K.................. Filed on: April 25, 2000
March 30, 2000
February 29, 2000
</TABLE>
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 from the date of this prospectus to the date
that shares are accepted for exchange pursuant to our offer, or the date that
our offer is terminated, shall also be deemed to be incorporated by reference
into this prospectus.
v
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM US WITHOUT CHARGE
UPON REQUEST TO OUR INFORMATION AGENT, MACKENZIE PARTNERS, INC., 156 FIFTH
AVENUE, NEW YORK, NY 10010, (212) 929-5500 OR CALL TOLL FREE (800) 322-2885. IN
ORDER TO ENSURE TIMELY DELIVERY, ANY REQUEST SHOULD BE SUBMITTED NO LATER THAN
JUNE 15, 2000. IF YOU REQUEST ANY INCORPORATED DOCUMENTS FROM US, WE WILL MAIL
THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER EQUALLY PROMPT MEANS, WITHIN ONE
BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
We have not authorized anyone to give any information or make any
representation about our offer that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this prospectus. Therefore, if anyone does give
you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document are unlawful, or
if you are a person to whom it is unlawful to direct these types of activities,
then the offer presented in this document does not extend to you. The
information contained in this document speaks only as of the date of this
document unless the information specifically indicates that another date
applies.
vi
<PAGE>
SUMMARY
This brief summary does not contain all of the information that should be
important to you. You should carefully read this entire document and the other
documents to which this document refers you to fully understand the offer. See
"Where You Can Find More Information" on page v.
The Offer and the Merger
We are proposing a business combination of Vignette Corporation and
OnDisplay, Inc. under which Vignette will acquire all outstanding shares of
OnDisplay common stock. We are offering to exchange 1.58 shares of Vignette
common stock for each share of OnDisplay common stock validly tendered and not
properly withdrawn on or prior to the expiration date of the offer. The
expiration date is currently June 29, 2000 but we may extend the offer as
described in "The Offer--Extension, Termination and Amendment" on page 50.
We intend, promptly after completion of the offer, to merge Wheels
Acquisition Corp., a wholly owned subsidiary of Vignette and the purchaser in
the offer, with and into OnDisplay. Each share of OnDisplay common stock which
has not been exchanged or accepted for exchange in the offer would be converted
in the merger into the same number of Vignette shares being paid in the offer.
Vignette seeks to acquire ownership of 100% of the OnDisplay stock through the
offer and the merger.
The Companies
Vignette Corporation
901 South Mopac Expressway
Austin, TX 78746
Telephone: (512) 306-4300
We are a leading global provider of e-Business application software products
and services. Our e-Business solutions are designed to enable companies to
build successful and sustainable online businesses. Our e-Business solutions
allow both traditional brick-and-mortar and startup dot-com businesses to
create and manage Internet business channels that are designed to attract,
engage and retain their customers, partners and suppliers online. Using our V/5
E-Business Platform, our clients gain the ability to rapidly reconfigure their
businesses in response to changing market dynamics and competitive pressures,
better insight into what drives their customers' and partners' behavior and
determines profitability, and the ability to reach their customers and partners
through multiple channels, touch points and devices. To date, we have licensed
our software platform to more than 700 clients worldwide in a variety of
industries including retail, financial services, telecommunications,
technology, media and entertainment. Our clients include American Express,
AT&T, Bank One, Charles Schwab, CBS Broadcasting, Compaq, First Union, Lands'
End, Merrill Lynch, Motorola, Qualcomm, National Semiconductor, Nokia, NY Life,
Preview Travel, Siebel Systems, Snap.com, StarMedia Network, Sun Microsystems,
United Airlines, and US West.
Wheels Acquisition Corp.
c/o Vignette Corporation
901 South Mopac Expressway
Austin, TX 78746
Telephone: (512) 306-4300
Wheels Acquisition Corp. is a wholly owned subsidiary of Vignette. Wheels
Acquisition Corp. was organized on May 17, 2000 for the purpose of acquiring
the OnDisplay shares tendered in response to our offer and merging with
OnDisplay in the merger. It has not carried on any activities other than in
connection with the merger agreement.
OnDisplay, Inc.
12677 Alcosta Boulevard, Suite 300
San Ramon, CA 94583
Telephone: (925) 355-3200
OnDisplay offers a comprehensive suite of software applications that enable
companies to rapidly deploy and easily manage e-Business portals and e-
marketplaces. OnDisplay's solution addresses the unique challenges faced by e-
Business portals and e-marketplaces in both business-to-business and business-
to-consumer interactions. OnDisplay's infrastructure solutions allow both
business-to-business and business-to-consumer online companies to rapidly
automate and continuously manage the
<PAGE>
flow of information and transactional data among their suppliers, distributors
and customers.
Reasons for the Offer
We believe that the offer and merger represent a compelling opportunity to
enhance value for both Vignette and OnDisplay stockholders. We believe the
offer and merger would achieve the following benefits:
. Meet customer demand for broad product platform.
. Increase market presence and penetration.
. Increase selling opportunity.
Achieving these objectives depends on successfully integrating companies
that have previously operated independently and on the other uncertainties
described under "Risk Factors" on page 19.
To review the reasons for the offer and merger in greater detail, see "The
Offer--Reasons for the Offer and Merger" on page 57.
OnDisplay's Recommendation
OnDisplay's board of directors has determined by unanimous vote of the
directors participating in the meeting that the offer is fair and in the best
interests of OnDisplay stockholders, and recommends that OnDisplay stockholders
accept the offer and tender their shares pursuant to the offer. OnDisplay's
board of directors has determined by unanimous vote of the directors
participating in the meeting to approve and declare advisable the merger
agreement and the merger. Information about the recommendation of OnDisplay's
board of directors is more fully set forth in OnDisplay's
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to OnDisplay stockholders together with this prospectus.
The Offer
We have attached the merger agreement governing the offer and the merger as
Annex A to this prospectus. We encourage you to read this agreement because it
is the legal document that governs the offer and the merger.
What OnDisplay Shareholders Will Receive
We are offering, upon the terms and conditions set forth in this prospectus
and the related letter of transmittal, 1.58 Vignette common shares for each
OnDisplay common share that is validly tendered on or prior to the expiration
date of the offer and not properly withdrawn.
Each share of OnDisplay common stock which has not been exchanged or
accepted for exchange in the offer would be converted in the merger into the
same number of Vignette shares being paid in the offer.
Vignette will not issue any fractional common shares in connection with the
offer and the merger. OnDisplay shareholders will instead receive cash for any
Vignette fractional common shares owed to them.
Example:
. If you currently own 10 OnDisplay common shares, after the offer and the
merger you will receive 15 Vignette common shares and a check for the
value of 80% of a Vignette common share, rounded to the nearest one cent.
The value of the Vignette common shares that you receive will fluctuate
as the price of a Vignette common share changes.
. On May 31, 2000, the most recent practicable date prior to the filing of
this document, the last sale price of Vignette common stock on the Nasdaq
National Market was $27.56. Applying the 1.58 exchange ratio to the
Vignette closing price on that date, each holder of OnDisplay common
shares would be entitled to receive Vignette common shares with a market
value of approximately $43.55 for each OnDisplay share. The actual value
of the Vignette common shares to be issued in the merger, however, will
depend on the market price at that time, and may be more or less than the
value given in this example. We urge you to obtain current price
quotations for OnDisplay and Vignette common shares.
2
<PAGE>
The Vignette common shares to be issued to OnDisplay stockholders in the
merger will be included for quotation on the Nasdaq National Market.
Timing of the Offer
Our offer is currently scheduled to expire on June 29, 2000, but we are
obligated, with some exceptions, to extend our offer from time to time as
necessary until all the conditions to the offer have been satisfied or, where
permissible, waived. See "The Offer--Extension, Termination and Amendment" on
page 50.
Extension, Termination and Amendment
We expressly reserve the right, in our sole discretion, but subject to the
provisions of the merger agreement, at any time or from time to time, to extend
the period of time during which our offer remains open, and we can do so by
giving oral or written notice of an extension to the exchange agent. We are not
making any assurance that we will exercise our right to extend our offer,
although we are obligated, with certain exceptions, to do so until all
conditions have been satisfied or, where permissible, waived. During any
extension, all OnDisplay shares previously tendered and not properly withdrawn
will remain subject to the offer, subject to your right to properly withdraw
your OnDisplay shares.
Subject to the SEC's applicable rules and regulations, we also reserve the
right, in our sole discretion, at any time or from time to time, to delay our
acceptance for exchange or our exchange of any OnDisplay shares pursuant to our
offer, regardless of whether we previously accepted OnDisplay shares for
exchange, or to terminate our offer and not accept for exchange or exchange any
OnDisplay shares not previously accepted for exchange or exchanged, upon the
failure of any of the conditions of the offer to be satisfied. We also reserve
our right to waive any condition, other than the minimum tender condition, or
otherwise to amend the offer in any respect, by giving oral or written notice
of the waiver or amendment to the exchange agent and by making a public
announcement.
We intend to request effectiveness of the registration statement filed with
the SEC at least five business days before the initial expiration date of the
offer, which would mean on or before Thursday, June 22, 2000. If the
registration statement has not been declared effective at the initial
expiration of the offer, we intend to extend the offer and announce the
extension via the Dow Jones News Service no later than 9:00 a.m., New York City
time, on Friday, June 30, 2000.
We will follow any extension, termination, amendment or delay, as promptly
as practicable, with a public announcement. Any announcement about an extension
will be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. Subject to
applicable law (including Rules 14d-4(d) and 14d-6(c) under the Securities
Exchange Act of 1934, which require that any material change in the information
published, sent or given to the stockholders in connection with the offer be
promptly sent to stockholders in a manner reasonably designed to inform
stockholders of the change) and without limiting the manner in which we may
choose to make any public announcement, we assume no obligation to publish,
advertise or otherwise communicate the public announcement other than by making
a release to the Dow Jones News Service.
Exchange of Shares; Delivery of Vignette Common Stock
Upon the terms and subject to the conditions of our offer, including, if the
offer is extended or amended, the terms and conditions of any extension or
amendment, we will accept for exchange, and will exchange, shares validly
tendered and not properly withdrawn as promptly as practicable after the
expiration date and promptly after they are tendered during any subsequent
offering period.
Withdrawal Rights
Your tender of OnDisplay shares pursuant to the offer is irrevocable, except
that OnDisplay shares tendered pursuant to the offer may be properly withdrawn
at any time prior to the expiration date, and, unless we previously accepted
them for exchange pursuant to the offer, may also be properly withdrawn at any
time after July 31, 2000.
3
<PAGE>
Subsequent Offering Period
With the consent of OnDisplay, we may, although we do not currently intend
to, elect to provide a subsequent offering period of three to 20 business days
after the acceptance of OnDisplay shares pursuant to the offer if the
requirements under Rule 14d-11 of the Securities Exchange Act of 1934 have been
met. You will not have the right to withdraw any OnDisplay shares that you
tender in the subsequent offering period.
Procedure for Tendering Shares
For you to validly tender OnDisplay shares pursuant to our offer, either:
. A properly completed and duly executed letter of transmittal (or
manually executed facsimile of that document), along with any required
signature guarantees, or an agent's message in connection with a book-
entry transfer, and any other required documents, must be transmitted to
and received by the exchange agent at one of its addresses set forth on
the back cover of this prospectus. In addition, certificates for
tendered OnDisplay shares must be received by the exchange agent at one
of those addresses, or those OnDisplay shares must be tendered pursuant
to the procedures for book-entry tender, in each case before the
expiration date. See the procedures for tendering shares on page 53
under "The Offer--Procedures for Tendering" for more details; or
. you must comply with the guaranteed delivery procedures set forth in
"The Offer--Guaranteed Delivery."
Material Federal Income Tax Consequences (see page 59)
The offer and the merger will qualify as a tax-free reorganization for
United States federal income tax purposes, if (1) the offer and the merger are
completed under the current terms of the merger agreement, (2) the minimum
tender condition for the offer is satisfied and (3) the merger is completed on
or before December 31, 2000. Based on these assumptions, an OnDisplay
stockholder's receipt of Vignette common shares in the offer or the merger will
be tax-free for United States federal income tax purposes (except for taxes
resulting from the receipt of cash, if any, instead of a fraction of a Vignette
common share).
The above described tax treatment of the offer and the merger to OnDisplay
stockholders depends on, among other things, some facts that will not be known
before the completion of the merger. OnDisplay stockholders are urged to
carefully read the discussion under "The Offer--Material Federal Income Tax
Consequences" beginning on page 59. That discussion includes a summary of the
tax consequences of participation in the offer and the merger in the event the
assumptions described above are not satisfied. OnDisplay stockholders are urged
to consult their tax advisors on the consequences of participation in the offer
and/or the merger.
Comparative Per Share Market Price and Dividend Information (see page 68)
Vignette common shares and OnDisplay common shares are both listed on the
Nasdaq National Market under the symbols "VIGN" and "ONDS," respectively. On
May 19, 2000, the last full trading day before the public announcement of the
proposed merger, the last sale price per Vignette common share on the Nasdaq
National Market was $43.81 and the last sale price per OnDisplay common share
on the Nasdaq National Market was $53.25. On May 31, 2000, the most recent
practicable date prior to the filing of this document, the last sale price per
Vignette common share was $27.56 and the last sale price per OnDisplay common
share was $46.00.
What Vignette Stockholders Will Hold After the Merger
Vignette shareholders will continue to own their existing Vignette common
shares after the merger. Vignette stockholders should not send in their stock
certificates in connection with the merger.
Ownership of Vignette After the Merger
Vignette will issue approximately 35,733,000 Vignette common shares to
OnDisplay shareholders
4
<PAGE>
in the offer and merger. These Vignette common shares will represent
approximately 15.6% of the outstanding Vignette common shares after the merger.
This information is based on the number of Vignette and OnDisplay common shares
outstanding on May 31, 2000 and does not take into account stock options of
OnDisplay or Vignette.
Stockholder Vote Required After the Offer to Approve the Merger
The merger requires the affirmative vote of at least a majority of the
shares of OnDisplay common stock outstanding on the record date for the meeting
to approve the merger, unless we have acquired 90% or more of these outstanding
shares in which case the merger can be accomplished without a vote.
If the minimum tender condition is satisfied and we purchase the tendered
OnDisplay shares, we will own a majority of the OnDisplay common stock and
approval of the merger by OnDisplay stockholders will be assured, subject to
the other conditions to the merger.
As of the date of the merger agreement, certain stockholders of OnDisplay
have agreed to tender 8,828,391 outstanding shares of OnDisplay common stock,
which represented approximately 39% of the outstanding common stock of
OnDisplay. See "The Merger Agreement--Stockholder Agreement" on page 76.
No Appraisal or Dissenters' Rights (see page 62)
The offer does not entitle you to appraisal rights with respect to your
OnDisplay shares.
If at the end of the offer, we have received between a majority and 90% of
the outstanding OnDisplay shares, we will effect a long form merger as
permitted under Delaware law, which would require notice to and approval by
OnDisplay stockholders. OnDisplay stockholders who did not tender their
OnDisplay shares during the offer would not have appraisal rights in connection
with a long form merger.
If at the end of the offer, however, we have received 90% or more of the
outstanding OnDisplay shares, we will effect a short form merger as permitted
under Delaware law. In the event of a short form merger, stockholders who did
not tender their OnDisplay shares would have the right under Delaware law to
dissent and demand appraisal rights with respect to their OnDisplay shares, but
only if they comply with certain statutory requirements. Dissenting
stockholders who comply with the applicable statutory procedures will be
entitled to receive a judicial determination of the fair value of their
OnDisplay shares (exclusive of any element of value arising from the
accomplishment or expectation of the merger) and to receive payment of this
fair value in cash, together with a fair rate of interest, if any. In the event
of a short form merger, information regarding these requirements will be
provided to OnDisplay stockholders who have not tendered their OnDisplay
shares.
OnDisplay Board
The merger agreement provides that upon acceptance for payment of OnDisplay
shares, we will be entitled to designate a number of directors of OnDisplay
(rounded up to the next whole number) equal to the product of the total number
of directors on OnDisplay's board and the percentage of outstanding OnDisplay
shares of common stock beneficially owned by us.
Interests of OnDisplay's Officers and Directors in the Merger (see page 69)
When you consider the OnDisplay board's recommendation that OnDisplay
stockholders tender their shares in the offer, you should be aware that some
OnDisplay directors and executive officers may have interests in the offer and
the merger that may be different from, or in addition to, yours.
Accounting Treatment (see page 66)
Vignette will account for the merger as a purchase for financial reporting
purposes.
Regulatory Clearances (see page 64)
The Hart-Scott-Rodino Act prohibits completion of a merger until statutory
notification requirements have been satisfied and waiting periods have expired
or been terminated. The waiting period under the statute applicable to the
merger will expire
5
<PAGE>
on June 25, 2000 unless extended by a request for additional information.
However, the Department of Justice and the FTC have the authority to challenge
the merger on antitrust grounds before or after we complete the merger.
Conditions to the Offer (see page 62)
We shall complete the offer only if specific conditions are satisfied or, in
some cases, waived, including the following:
. a majority of the outstanding OnDisplay shares, on a fully-diluted basis,
having been tendered and not properly withdrawn;
. absence of any law, court order or regulatory action seeking to delay or
prohibit the offer or the merger;
. the registration statement of which this prospectus is a part having been
declared effective by the SEC;
. the shares of Vignette common stock to be issued in the offer and the
merger having been approved for inclusion on the Nasdaq National Market,
subject to official notice of issuance;
. OnDisplay having not materially breached any covenant, representation or
warranty in a material manner;
. expiration or termination of the relevant waiting period under the Hart-
Scott-Rodino Act;
. receipt of opinions of counsel that the offer and merger will be a tax-
free reorganization for federal income tax purposes; and
. the merger agreement not having been terminated in accordance with its
terms.
We also reserve our right to waive any condition (other than the minimum
tender condition, the condition relating to regulatory clearances and the
conditions relating to the absence of an injunction and the effectiveness of
the registration statement for the Vignette shares to be issued in our offer)
or otherwise to amend the offer in any respect, by giving oral or written
notice of any waiver or amendment to the exchange agent and by making a public
announcement.
Termination of the Merger Agreement (see page 74)
Vignette's and OnDisplay's boards of directors can jointly agree to
terminate the merger agreement at any time prior to the first acceptance of
shares of OnDisplay in the offer. In addition, either Vignette or OnDisplay can
terminate the merger agreement if:
. We do not consummate the offer by September 30, 2000 (a party in material
breach of its obligations under the merger agreement cannot terminate it
for this reason);
. a law or court order prohibits the merger;
. the offer shall have expired or been terminated in accordance with the
merger agreement without our having accepted any shares of OnDisplay
common stock pursuant to the offer, other than as a result of our breach
of the merger agreement; or
. any representation or warranty of the other party having become
inaccurate in a material manner, or the other party failing to perform a
covenant.
Vignette can terminate the merger agreement if, prior to acceptance of
shares for exchange pursuant to the offer:
. OnDisplay's board of directors approves or recommends an acquisition
proposal, as defined in the merger agreement;
. OnDisplay's board of directors withdraws, or amends or modifies in any
way adverse to Vignette its recommendation to the OnDisplay stockholders
that they accept the offer and approve and adopt the merger agreement and
the merger;
. OnDisplay fails to include its board's recommendation in certain
documents related to the offer; or
. OnDisplay does not recommend rejection of a competing tender or exchange
offer for 40% or more of OnDisplay's shares.
6
<PAGE>
Termination Fees (see page 75)
OnDisplay must pay Vignette a termination fee of $50 million in cash if:
. the merger agreement is terminated by Vignette, for any of the reasons
described in the immediately preceding four bullet points, where
OnDisplay's board of directors has adversely changed its recommendation
of the merger agreement proposal, has recommended an alternative
transaction; or
. the merger agreement is terminated in circumstances where the offer is
not completed and OnDisplay enters into an agreement to be acquired by
another party within 12 months of the termination of the merger
agreement.
Opinion of OnDisplay Financial Advisor (see page 69)
In deciding to approve the merger, OnDisplay's board of directors considered
the opinion of its financial advisor, FleetBoston Robertson Stephens Inc., to
the effect that the exchange ratio is fair to the OnDisplay stockholders from a
financial point of view. Please see "Opinion of OnDisplay Financial Advisor" on
page 69.
7
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Selected Historical Financial Data of Vignette
The following selected historical financial data should be read in
conjunction with Vignette's financial statements incorporated by reference in
this prospectus. Consolidated statement of operations data for the year ended
December 31, 1996 include results of operations for the period from December
19, 1995, the date of Vignette's inception, through December 31, 1996. The
statement of operations data for the years ended December 31, 1996, 1997, 1998
and 1999 and the balance sheet data as of December 31, 1996, 1997, 1998 and
1999 have been derived from Vignette's audited financial statements not
included in this prospectus. The statement of operations data for the three
months ended March 31, 1999 and 2000 and the balance sheet data as of March 31,
2000 are derived from Vignette's unaudited financial statements not included in
this prospectus. In the opinion of Vignette's management, such unaudited
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information
when read in conjunction with the audited financial statements and notes
thereto. Results for the three months ended March 31, 2000 are not necessarily
indicative of the expected results for the full year. Share and per share data
reflect a 3-for-1 stock split effective April 14, 2000.
<TABLE>
<CAPTION>
Three Months
Year ended December 31, ended March 31,
------------------------------------ -----------------
1996 1997 1998 1999 1999 2000
------- ------- -------- -------- ------- --------
(in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product license........ $ -- $ 1,943 $ 8,584 $ 46,292 $ 4,623 $ 29,148
Services............... -- 1,081 7,621 42,893 4,509 26,081
------- ------- -------- -------- ------- --------
Total revenue......... -- 3,024 16,205 89,185 9,132 55,229
Cost of revenue:
Product license........ -- 37 964 3,306 419 1,361
Services............... -- 1,438 9,340 33,488 4,469 19,689
------- ------- -------- -------- ------- --------
Total cost of
revenue.............. -- 1,475 10,304 36,794 4,888 21,050
------- ------- -------- -------- ------- --------
Gross profit............ -- 1,549 5,901 52,391 4,244 34,179
Operating expenses:
Research and
development........... 892 2,895 6,962 16,447 2,725 7,534
Sales and marketing.... 428 4,964 15,880 49,559 6,553 27,072
General and
administrative........ 503 1,333 4,864 9,494 1,611 4,890
Purchased in-process
research and
development,
acquisition related,
and other charges..... 1,865 -- 2,089 15,641 -- 56,475
Amortization of
deferred stock
compensation.......... -- -- 2,475 5,654 1,669 1,681
Amortization of
intangibles........... -- -- -- 1,796 -- 26,081
------- ------- -------- -------- ------- --------
Total operating
expenses............. 3,688 9,192 32,270 98,591 12,558 123,733
Loss from operations.... (3,688) (7,643) (26,369) (46,200) (8,314) (89,554)
Other income, net....... 62 169 172 3,723 376 6,037
------- ------- -------- -------- ------- --------
Net loss................ $(3,626) $(7,474) $(26,197) $(42,477) $(7,938) $(83,517)
======= ======= ======== ======== ======= ========
Basic and diluted net
loss per share......... $ (0.96) $ (0.70) $ (1.53) $ (0.31) $ (0.10) $ (0.47)
======= ======= ======== ======== ======= ========
Shares used in computing
basic and diluted net
loss per share......... 3,780 10,728 17,094 137,253 77,928 178,725
======= ======= ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------------------ March 31,
1996 1997 1998 1999 2000
------- ------- -------- -------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.... $ 1,863 $ 6,865 $ 12,242 $391,332 $ 406,616
Working capital.............. 1,583 4,255 3,757 375,211 379,629
Total assets................. 2,229 8,499 22,781 514,730 1,075,693
Long-term debt and capital
lease obligation, less
current portion............. 198 833 758 -- 171
Redeemable convertible
preferred stock............. 3,458 13,458 36,258 -- --
Total stockholders' equity
(deficit)................... (1,770) (9,248) (30,767) 437,059 975,014
</TABLE>
8
<PAGE>
Selected Historical Financial Data of OnDisplay
The following selected historical financial data should be read in
conjunction with OnDisplay's financial statements, and "OnDisplay's
Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The statement of operations
data for the period from inception to December 31, 1996 and the balance sheet
data as of December 31, 1996, have been derived from OnDisplay's audited
financial statements not included herein. The statement of operations data for
the year ended December 31, 1997, 1998 and 1999 and the balance sheet data as
of December 31, 1998 and 1999 are derived from the audited financial statements
included in this prospectus. The statement of operations data for the three
months ended March 31, 1999 and 2000 and the balance sheet data as of March 31,
2000 are derived from OnDisplay's unaudited financial statements included in
this prospectus. In the opinion of OnDisplay's management, such unaudited
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information
when read in conjunction with the audited financial statements and notes
thereto. Results for the three months ended March 31, 2000 are not necessarily
indicative of the expected results for the full year.
<TABLE>
<CAPTION>
Period From Three Months
August 14, 1996 Year ended December 31, ended March 31,
(Date of Inception) -------------------------- -----------------
to December 31, 1996 1997 1998 1999 1999 2000
-------------------- ------- ------- -------- ------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
License revenues........ $ -- $ 265 $ 2,229 $ 6,839 $ 628 $ 4,665
Service revenues........ -- -- 1,114 4,259 922 2,376
------ ------- ------- -------- ------- --------
Total revenue......... -- 265 3,343 11,098 1,550 7,041
Cost of revenue:
Cost of license
revenues............... -- -- 2 7 1 2
Cost of service
revenues............... -- -- 1,618 4,251 877 2,393
------ ------- ------- -------- ------- --------
Total cost of
revenues............. -- -- 1,620 4,258 878 2,395
------ ------- ------- -------- ------- --------
Gross profit............ -- 265 1,723 6,840 672 4,646
Operating expenses:
Sales and marketing.... 42 2,810 5,747 11,917 1,600 7,349
Research and
development........... 393 1,986 2,636 4,714 738 2,327
General and
administrative........ 182 1,158 1,201 3,418 564 1,904
322 4,262
Amortization of
deferred stock-based
compensation.......... -- -- 618 3,697 -- 15,300
------ ------- ------- -------- ------- --------
Total operating
expenses............. 617 5,954 10,202 23,746 3,224 31,142
------ ------- ------- -------- ------- --------
Loss from operations.... (617) (5,689) (8,479) (16,906) (2,552) (26,496)
Interest income and
other, net............. 46 173 174 532 85 1,507
Interest expense........ 1 (18) (43) (394) (12) (146)
------ ------- ------- -------- ------- --------
Net loss................ $ (572) $(5,534) $(8,348) $(16,768) $(2,479) $(25,135)
====== ======= ======= ======== ======= ========
Net loss per share--
basic and diluted...... $(0.17) $ (1.62) $ (2.34) $ (3.70) $ (0.59) $ (1.30)
====== ======= ======= ======== ======= ========
Shares used in per share
calculation basic and
diluted................ 3,400 3,410 3,572 4,533 4,203 19,343
====== ======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------------------- March 31,
1996 1997 1998 1999 2000
------ ------- ------- -------- -----------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....... $2,751 $ 3,900 $ 4,648 $109,617 $114,371
Working capital................. 2,663 3,748 4,584 107,140 113,229
Total assets.................... 2,986 4,710 8,253 117,102 325,290
Long-term debt, less current
portion........................ 3 128 240 2,338 4,513
Mandatorily redeemable
convertible preferred stock.... 3 10,200 18,982 -- --
Total stockholders' equity
(deficit)...................... 2,838 (6,098) (13,729) 106,697 302,500
</TABLE>
9
<PAGE>
Selected Unaudited Pro Forma Combined Condensed Financial Data
The following selected unaudited pro forma combined condensed financial data
should be read in conjunction with Vignette's unaudited pro forma combined
condensed financial statements and related notes thereto included in this
prospectus. The selected unaudited pro forma combined condensed financial data
gives effect to the proposed merger of Vignette and OnDisplay, the acquisition
of DataSage, Inc. by Vignette on February 15, 2000, and the acquisition of
Oberon Software Incorporated by OnDisplay on March 31, 2000. Share and per
share data reflect a 3-for-1 stock split effective April 14, 2000.
The selected unaudited pro forma combined condensed statement of operations
data for the year ended December 31, 1999 and the three months ended March 31,
2000 give effect to the above transactions as if they occurred on January 1,
1999. The unaudited pro forma combined condensed statement of operations data
for the year ended December 31, 1999 has been derived by combining the audited
historical statements of operations of Vignette, OnDisplay, and DataSage for
the year ended December 31, 1999 and the unaudited historical statement of
operations for Oberon for the year ended December 31, 1999. The unaudited pro
forma combined condensed statement of operations data for the three months
ended March 31, 2000 has been derived by combining the unaudited historical
statement of operations of Vignette, OnDisplay and Oberon for the three months
ended March 31, 2000, and DataSage for the period from January 1, 2000 to
February 14, 2000.
The selected unaudited pro forma combined condensed financial data do not
include the realization of any cost savings from operating efficiences or other
restructurings that may result from the merger.
The selected unaudited pro forma combined condensed balance sheet as of
March 31, 2000 gives effect to the proposed merger of Vignette and OnDisplay as
if it occurred on March 31, 2000. The unaudited pro forma combined condensed
balance sheet data as of March 31, 2000 has been derived by combining the
unaudited historical consolidated balance sheets of Vignette and OnDisplay as
of March 31, 2000.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results or financial position. The pro forma adjustments are based upon
information and assumptions available at the time of filing of this document.
<TABLE>
<CAPTION>
Three Months
Year ended ended
December 31, March 31,
1999 2000
------------ ------------
(in thousands, except per
share amounts)
<S> <C> <C>
Pro forma Combined Condensed Statement of Operations
Data:
Total revenue....................................... $ 110,767 $ 64,425
Net loss............................................ (594,491) (223,879)
Basic and diluted net loss per share................ $ (3.30) $ (1.03)
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
--------------
(in thousands)
<S> <C>
Pro forma Combined Condensed Balance Sheet Data:
Cash and cash equivalents...................................... $ 520,987
Working capital................................................ 469,602
Total assets................................................... 2,588,596
Long-term debt and capital lease obligation, less current
portion....................................................... 4,684
Total stockholders' equity..................................... 2,442,127
</TABLE>
10
<PAGE>
Comparative Per Share Data
The following table reflects (a) the historical net loss and book value per
share of Vignette common stock and the historical net loss and book value per
share of OnDisplay common stock in comparison with the unaudited pro forma net
loss and book value per share after giving effect to Vignette's proposed merger
with OnDisplay and after giving effect to the acquisition of DataSage by
Vignette on February 15, 2000 and the acquisition of Oberon by OnDisplay on
March 31, 2000, and (b) the equivalent historical net loss and book value per
share attributable to 1.58 shares of Vignette common stock which will be
received for each share of OnDisplay. Share and per share data reflect a 3-for-
1 stock split effective April 14, 2000.
The historical book value per share is computed by dividing common
stockholders' equity as of December 31, 1999 and March 31, 2000, respectively,
by the actual common shares outstanding. The pro forma net loss per share is
computed by dividing the pro forma net loss by the pro forma weighted average
number of shares outstanding, assuming Vignette has merged with OnDisplay at
beginning of the earliest period presented. The pro forma combined book value
per share is computed by dividing total pro forma stockholders' equity by the
pro forma number of common shares outstanding at March 31, 2000, assuming the
merger had occurred on that date. The OnDisplay equivalent pro forma combined
per share amounts are calculated by multiplying the Vignette pro forma combined
per share amounts by the common stock exchange ratio of 1.58.
The following information should be read in conjunction with (a) the
separate historical financial statements and related notes of Vignette,
DataSage, and the unaudited interim condensed consolidated financial statements
of Vignette incorporated by reference in this prospectus, (b) the separate
historical financial statements and related notes of OnDisplay and Oberon and
the unaudited condensed interim financial statements of OnDisplay and (c)
Oberon included in this prospectus, the unaudited pro forma combined condensed
financial information and related notes of Vignette and the selected historical
and selected unaudited pro forma financial data included elsewhere in this
prospectus. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated as of the
beginning of the earliest period presented, nor is it necessarily indicative of
the future operating results or financial position of the combined companies.
<TABLE>
<CAPTION>
Three Months
Year ended ended
December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Historical Vignette:
Basic and diluted net loss per share............... $ (0.31) $ (0.47)
Book value per share at the end of the period...... $ 2.45 $ 5.07
Historical OnDisplay:
Basic and diluted net loss per share............... $ (3.70) $ (1.30)
Book value per share at the end of the period...... $ 5.43 $ 13.63
Vignette and OnDisplay Pro Forma Combined:
Pro forma basic and diluted net loss per Vignette
share............................................. $ (3.30) $ (1.03)
Pro forma basic and diluted net loss per OnDisplay
share............................................. $ (5.21) $ (1.63)
Pro forma book value per Vignette share at March
31, 2000.......................................... $ 10.71
Pro forma book value per OnDisplay share at March
31, 2000.......................................... $ 16.92
</TABLE>
11
<PAGE>
Comparative Market Price Information
The following table sets forth the last sale prices per share of Vignette
common stock and OnDisplay common stock on The Nasdaq National Market on May
19, 2000, the last trading day prior to the public announcement of the proposed
merger, and on May 31, 2000, the most recent date for which prices were
practically available prior to printing this document. The table also sets
forth the value of the Vignette common shares that an OnDisplay stockholder
would have received for one OnDisplay common share, assuming that the merger
had taken place on those dates. These numbers have been calculated by
multiplying 1.58, the exchange ratio of Vignette shares for each OnDisplay
share, by the last sale price per Vignette common share on those dates. The
actual value of the Vignette common shares a stockholder will receive on the
date of the merger may be higher or lower than the prices set forth below.
<TABLE>
<CAPTION>
Last Sale Last Sale Value of
Price of Price of Vignette
Vignette OnDisplay Common
Common Common Stock
Stock Stock Received
--------- --------- --------
<S> <C> <C> <C>
May 19, 2000....................................... $43.81 $53.25 $69.22
May 31, 2000....................................... $27.56 $46.00 $43.55
</TABLE>
See "Comparative Per Share Market Price and Dividend Information" on page 68
for additional market price information.
12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the proposed merger between Vignette and OnDisplay, the
acquisition of DataSage by Vignette on February 15, 2000 and the acquisition of
Oberon by OnDisplay on March 31, 2000, all accounted for as purchase business
combinations. The pro forma combined condensed statements of operations assume
the merger and each of the acquisitions occurred as of January 1, 1999.
On May 21, 2000 Vignette entered into a merger agreement with OnDisplay for
consideration preliminarily valued at $1.5 billion, consisting of 35.8 million
shares of Vignette common stock valued at $1.3 billion and 6.7 million options
to purchase Vignette common stock valued at $163 million, and estimated direct
acquisition costs of $23 million. The estimated direct acquisition costs
consist primarily of investment banker, legal and accounting fees and printing
costs to be incurred by Vignette which are directly related to the merger. The
actual consideration for the merger with OnDisplay cannot yet be determined
since the merger has not been completed. There can be no assurance that
Vignette and OnDisplay will not incur additional charges related to the merger
or that management will be successful in its efforts to integrate the
operations of the two companies. For the purpose of the following pro forma
financial information, the number of shares of Vignette common stock assumed to
be issued in the merger with OnDisplay is approximately 35.8 million. This
amount is based on the number of common shares of OnDisplay outstanding as of
May 21, 2000, the date of the merger agreement. Similarly, the estimated value
of options to purchase Vignette common stock to be issued in the merger with
OnDisplay is based on the outstanding options to purchase OnDisplay common
shares as of May 21, 2000. The actual number of Vignette common shares and
options to be issued will be based on the actual outstanding common shares and
options of OnDisplay as of the date of completion of the merger.
The unaudited pro forma combined condensed balance sheet combines the
unaudited historical condensed balance sheets of Vignette and OnDisplay as of
March 31, 2000.
The unaudited pro forma combined condensed statements of operations give
effect to (1) the proposed merger between Vignette and OnDisplay, (2) the
completed acquisition of DataSage by Vignette, and (3) the completed
acquisition of Oberon by OnDisplay, as if they had occurred on January 1, 1999.
The unaudited pro forma combined condensed statement of operations for the
three months ended March 31, 2000 combines the unaudited historical statements
of operations of Vignette and OnDisplay for the three months ended March 31,
2000, the unaudited historical statement of operations of DataSage for the
period from January 1, 2000 to February 14, 2000, and the unaudited historical
statement of operations of Oberon for the period from January 1, 2000 to March
31, 2000. The unaudited pro forma combined statement of operations for the year
ended December 31, 1999 combines audited historical statements of operations of
Vignette, OnDisplay and DataSage and the unaudited historical statement of
operations of Oberon for the year ended December 31, 1999.
The unaudited pro forma combined condensed financial statements do not
include the realization of cost savings from operating efficiencies, synergies
or other restructurings that may result from the merger.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger and the acquisition had been consummated at
the beginning of the earliest period presented, nor is it necessarily
indicative of future operating results or financial position. The pro forma
adjustments are based upon information and assumptions available at the time of
the filing of this document. The pro forma information should be read in
conjunction with the accompanying notes thereto, Vignette's historical
financial statements and related notes thereto incorporated by reference in
this prospectus, and OnDisplay's historical financial statements and related
notes included elsewhere in this prospectus.
13
<PAGE>
VIGNETTE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Historical Adjustments Pro Forma
Vignette OnDisplay Note(2) Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 406,616 $114,371 $ -- $ 520,987
Marketable securities and
short-term investments....... 11,809 10,977 22,786
Accounts receivable, net...... 54,674 5,112 -- 59,786
Prepaid expenses and other.... 7,038 1,046 (256) e 7,828
---------- -------- ---------- ----------
Total current assets........ 480,137 131,506 (256) 611,387
Property and equipment, net..... 16,224 4,014 -- 20,238
Investments..................... 35,491 -- -- 35,491
Intangibles, net................ 541,253 189,247 (189,247) d
1,377,116 b 1,918,369
Other assets.................... 2,588 523 -- 3,111
---------- -------- ---------- ----------
Total assets................ $1,075,693 $325,290 $1,187,613 $2,588,596
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
expenses..................... $ 42,616 $ 8,127 $ -- $ 50,743
Deferred revenue.............. 55,404 7,768 -- 63,172
Current portion of long-term
debt and capital lease
obligation................... 260 2,382 -- 2,642
Other current liabilities..... 2,228 -- 23,000 a 25,228
---------- -------- ---------- ----------
Total current liabilities... 100,508 18,277 23,000 141,785
Long-term debt and capital
lease, less current portion.... 171 4,513 -- 4,684
---------- -------- ---------- ----------
Total liabilities........... 100,679 22,790 23,000 146,469
Stockholders' equity............ 975,014 302,500 (302,500) c
(256) e
1,467,369 a 2,442,127
---------- -------- ---------- ----------
Total liabilities and
stockholders' equity....... $1,075,693 $325,290 $1,187,613 $2,588,596
========== ======== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
14
<PAGE>
VIGNETTE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Vignette OnDisplay Pro Forma Total
Historical Historical Adjustments Pro Forma Historical Historical Pro Forma Adjustments Pro Forma
Vignette DataSage Note(3) Combined OnDisplay Oberon Combined Note(3) Combined
---------- ---------- ----------- --------- ---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product license... $ 46,292 $ 2,607 $ -- $ 48,899 $ 6,839 $ 3,554 $ 10,393 $ (175) e $ 59,117
Services.......... 42,893 2,726 -- 45,619 4,259 1,775 6,034 (3) e 51,650
-------- ------- --------- --------- -------- ------- -------- --------- ---------
Total revenue..... 89,185 5,333 -- 94,518 11,098 5,329 16,427 (178) 110,767
Cost of revenue:
Product license... 3,306 -- -- 3,306 7 220 227 -- 3,533
Services.......... 33,488 2,098 -- 35,586 4,251 1,720 5,971 -- 41,557
-------- ------- --------- --------- -------- ------- -------- --------- ---------
Total cost of
revenue........... 36,794 2,098 -- 38,892 4,258 1,940 6,198 -- 45,090
Gross profit....... 52,391 3,235 -- 55,626 6,840 3,389 10,229 (178) 65,677
Operating expenses:
Research and
development....... 16,447 3,461 -- 19,908 4,714 4,189 8,903 -- 28,811
Sales and
marketing......... 49,559 3,270 -- 52,829 11,917 5,531 17,448 -- 70,277
General and
administrative.... 9,494 1,432 -- 10,926 3,418 954 4,372 -- 15,298
Purchased in-
process research
and development,
acquisition-
related and other
charges........... 15,641 -- -- 15,641 -- -- -- -- 15,641
Amortization of
deferred stock
compensation...... 5,654 3,486 -- 9,140 3,697 -- 3,697 -- 12,837
Amortization of
intangibles....... 1,796 -- 175,265 b 177,061 -- -- -- 344,279 a 521,340
-------- ------- --------- --------- -------- ------- -------- --------- ---------
Total operating
expenses.......... 98,591 11,649 175,265 285,505 23,746 10,674 34,420 344,279 664,204
-------- ------- --------- --------- -------- ------- -------- --------- ---------
Loss from
operations......... (46,200) (8,414) (175,265) (229,879) (16,906) (7,285) (24,191) (344,457) (598,527)
Other income...... 3,723 4 -- 3,727 138 171 309 -- 4,036
-------- ------- --------- --------- -------- ------- -------- --------- ---------
Net loss........... $(42,477) $(8,410) $(175,265) $(226,152) $(16,768) $(7,114) $(23,882) $(344,457) $(594,491)
======== ======= ========= ========= ======== ======= ======== ========= =========
Basic and diluted
net loss per
share.............. $ (0.31) $ (1.56) $ (3.30)
======== ========= =========
Shares used in
computing basic and
diluted net loss
per share.......... 137,253 144,999 c 179,954 d
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
15
<PAGE>
VIGNETTE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Vignette OnDisplay Pro Forma Total
Historical Historical Adjustments Pro Forma Historical Historical Pro Forma Adjustments Pro Forma
Vignette DataSage Note(3) Combined OnDisplay Oberon Combined Note(3) Combined
---------- ---------- ----------- --------- ---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product license.... $ 29,148 $ 536 $ -- $ 29,684 $ 4,665 $ 530 $ 5,195 $ -- $ 34,879
Services........... 26,081 438 -- 26,519 2,376 671 3,047 (20) e 29,546
-------- ------- -------- --------- -------- ------- -------- -------- ---------
Total revenue...... 55,229 974 -- 56,203 7,041 1,201 8,242 (20) 64,425
Cost of revenue:
Product license.... 1,361 -- -- 1,361 2 111 113 -- 1,474
Services........... 19,689 193 -- 19,882 2,393 747 3,140 -- 23,022
-------- ------- -------- --------- -------- ------- -------- -------- ---------
Total cost of
revenue............ 21,050 193 -- 21,243 2,395 858 3,253 -- 24,496
Gross profit........ 34,179 781 -- 34,960 4,646 343 4,989 (20) 39,929
Operating expenses:
Research and
development........ 7,534 1,101 -- 8,635 2,327 1,824 4,151 -- 12,786
Sales and
marketing.......... 27,072 1,741 -- 28,813 7,349 1,980 9,329 (22) e 38,120
General and
administrative..... 4,890 1,119 -- 6,009 1,904 1,440 3,344 -- 9,353
Purchased in-
process research
and development,
acquisition-related
and other charges.. 56,475 -- -- 56,475 15,300 -- 15,300 -- 71,775
Amortization of
deferred stock
compensation....... 1,681 -- -- 1,681 4,262 82 4,344 -- 6,025
Amortization of
intangibles........ 26,081 -- 21,098 b 47,179 -- -- -- 86,070 a 133,249
-------- ------- -------- --------- -------- ------- -------- -------- ---------
Total operating
expenses........... 123,733 3,961 21,098 148,792 31,142 5,326 36,468 86,048 271,308
-------- ------- -------- --------- -------- ------- -------- -------- ---------
Loss from
operations.......... (89,554) (3,180) (21,098) (113,832) (26,496) (4,983) (31,479) (86,068) (231,379)
Other income
(expense).......... 6,037 134 -- 6,171 1,361 (32) 1,329 -- 7,500
-------- ------- -------- --------- -------- ------- -------- -------- ---------
Net loss............ $(83,517) $(3,046) $(21,098) $(107,661) $(25,135) $(5,015) $(30,150) $(86,068) $(223,879)
======== ======= ======== ========= ======== ======= ======== ======== =========
Basic and diluted
net loss per share.. $ (0.47) $ (0.59) $ (1.03)
======== ========= =========
Shares used in
computing basic and
diluted net loss per
share............... 178,725 182,598 c 217,553 d
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
16
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. General
Vignette will account for the acquisition of OnDisplay as a purchase
business combination. The accompanying unaudited pro forma combined condensed
financial statements reflect an estimated aggregate purchase price of
approximately $1.5 billion, consisting of the fair value of approximately
35,766,000 shares of Vignette common stock issued ($1.3 billion) and 6,729,000
options assumed ($163 million) as well as transaction costs ($23 million).
2. Unaudited Pro Forma Combined Condensed Balance Sheet
The accompanying unaudited pro forma condensed balance sheet has been
prepared as if the acquisition was consummated on March 31, 2000. Pro forma
adjustments were made:
(a) To record the consideration given and the accrual of transaction costs
to be paid by the respective parties in the acquisition of OnDisplay.
(b) To record the allocation of the purchase price to the assets of
OnDisplay (in thousands):
<TABLE>
<S> <C>
Intangible assets........................................... $1,377,116
Net fair value of tangible assets acquired and liabilities
assumed.................................................... 113,253
----------
Net assets acquired......................................... $1,490,369
==========
</TABLE>
The above represents the allocation of the purchase price over the
historical net book values of the acquired assets and assumed
liabilities of OnDisplay as of March 31, 2000, and is for illustrative
purposes only. The actual purchase price allocation will be based on
fair values of the acquired assets and assumed liabilities as of the
actual acquisition date. Vignette has not yet completed its valuation
of OnDisplay. Once the valuation is completed, a portion of the
purchase price may be identified as in-process research and
development. This amount, if any, will be charged to the operating
results of Vignette in the period the acquisition is completed and the
valuation amounts are finalized. Effective July 1, 2000, Vignette will
be required to comply with the provisions of Financial Accounting
Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation ("Interpretation 44"), an
interpretation of Accounting Principles Board Opinion No. 25. For
purchase business combinations completed after July 1, 2000,
Interpretation 44 will require companies to allocate a portion of the
purchase price to deferred stock compensation based on a portion of the
intrinsic value (at consummation date) of unvested options in the
acquired entity exchanged by the acquiror. The pro forma allocation of
the OnDisplay purchase price does not include any adjustment related to
Interpretation 44. Any amount allocated to deferred stock compensation
as a result of the application of Interpretation 44 will reduce amounts
allocated to goodwill. Deferred stock compensation will be amortized
over the remaining service period of the exchanged options.
(c) To record the elimination of OnDisplay's stockholders' equity.
(d) To record the elimination of OnDisplay's historical intangible assets.
(e) To record the elimination of the effect of transactions between
Vignette and OnDisplay.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(CONTINUED)
3. Unaudited Pro Forma Combined Condensed Statements of Operations
The accompanying unaudited pro forma condensed statements of operations have
been prepared as if the acquisition was consummated as of January 1, 1999. Pro
forma adjustments were made to reflect the:
(a) Amortization of acquired intangibles, with amortization periods of 4
years, based on the estimated life of technology.
(b) Amortization of intangibles for the completed acquisition of DataSage
on February 15, 2000, over a useful life of 3 years.
(c) Reflects the issuance of approximately 7,746,000 shares of common stock
for DataSage.
(d) Reflects the issuance of approximately 35,766,000 shares of common
stock issued in consideration for all outstanding shares of OnDisplay
common stock based on the number of OnDisplay shares outstanding as of
May 21, 2000, the date of the merger agreement, net of approximately
811,000 shares of common stock issued for OnDisplay shares subject to
repurchase based on continued employment. The computation of diluted
net loss per share excludes securities outstanding, which could
potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the
periods presented, as their effect would have been antidilutive.
(e) To record the elimination of the effect of transactions between
Vignette and OnDisplay.
The accompanying unaudited pro forma condensed statement of operations does
not reflect the one-time impact of the charge for purchased in-process research
and development that may be incurred in connection with the acquisition.
18
<PAGE>
RISK FACTORS
OnDisplay's stockholders should consider the following matters in deciding
whether to tender their shares of common stock in the offer. You should
consider these matters in connection with the other information that we have
included or incorporated by reference in this prospectus.
Risks Related to the Proposed Offer and Merger
The Vignette Common Shares to Be Received By OnDisplay Stockholders in the
Merger Will Fluctuate in Value.
The market price of the Vignette common shares to be issued in the offer and
merger for the OnDisplay common shares may change as a result of changes in the
business, operations or prospects of Vignette or OnDisplay, market assessments
of the impact of the offer and merger or general market conditions. Vignette's
results of operations, as well as the market price of Vignette common shares
may be affected by factors different from those affecting OnDisplay's results
of operation, and the market price of OnDisplay common shares. Because the
market price of Vignette common shares fluctuates, the value of the Vignette
shares to be received by OnDisplay stockholders will depend upon the market
price of the shares at the time of the merger. There can be no assurance as to
this value. For historical and current market prices of Vignette shares, see
"Comparative Per Share Market Price and Dividend Information" on page 68. On
May 31, 2000, the last practicable date prior to the filing of this document,
the last sale price of Vignette common stock on the Nasdaq National Market was
$27.56. On the basis of this price, the hypothetical value of the merger
consideration for each OnDisplay common share would be $43.55.
Vignette May Face Challenges in Integrating Vignette and OnDisplay And, as a
Result, May Not Realize the Expected Benefits of the Anticipated Merger.
Vignette may not be successful in integrating Vignette and OnDisplay,
including the integration of Oberon. Integrating the operations and personnel
of Vignette and OnDisplay will be a complex process. The integration may not be
completed rapidly or achieve the anticipated benefits of the merger. The
successful integration of Vignette and OnDisplay will require, among other
things, integration of Vignette's and OnDisplay's products and services, sales
and marketing, information and software systems, coordination of employee
retention, hiring and training, and coordination of ongoing and future research
and development efforts. The diversion of the attention of management and any
difficulties encountered in the process of combining the companies could cause
the disruption of, or a loss of momentum in, the activities of the combined
company's business. Further, the process of combining Vignette and OnDisplay
could negatively affect employee morale and the ability of Vignette to retain
some of its or OnDisplay's key employees after the merger.
In addition, Vignette intends after the merger to develop new products and
services that combine the assets of both Vignette and OnDisplay. This may
result in longer sales cycles and product implementations, which may cause
revenue and operating income to fluctuate and fail to meet expectations. To
date, the companies have not completed their investigation into the obstacles,
technological, market-driven or otherwise, to developing and marketing these
new products and services in a timely and efficient way. There can be no
assurance that Vignette will be able to overcome these obstacles, or that a
market for new Vignette products and services will develop after the merger.
Officers and Directors of OnDisplay Have Potential Conflicts of Interest in
the Merger
OnDisplay stockholders should be aware of potential conflicts of interest
and the benefits available to OnDisplay directors when considering OnDisplay's
board of directors' recommendation to approve the merger. OnDisplay officers
and directors have employment agreements and/or benefit plans that provide them
with interests in the merger that are different from, or in addition to,
interests of OnDisplay stockholders. See "Interests of OnDisplay Officers and
Directors in the Merger" on page 69.
19
<PAGE>
Forward-looking Statements May Prove Inaccurate.
We have made forward-looking statements in this prospectus about Vignette,
OnDisplay and the combined company that are subject to risks and uncertainties.
Forward-looking statements include the information regarding:
<TABLE>
<S> <C>
synergies capital spending
efficiencies the timetable for completing the merger
cost savings allocation of intangibles
revenue enhancements integration of operations
product integration
capital productivity
</TABLE>
The sections in this document that have forward-looking statements include
"Questions and Answers About the Proposed Combination," "Summary," "Selected
Historical and Pro Forma Financial Data," "The Offer--Background of the Offer,"
"The Offer--Reasons for the Offer," "Unaudited Pro Forma Combined Condensed
Financial Statements" and "Opinion of OnDisplay Financial Advisor." Our
forward-looking statements are also identified by such words as "anticipates,"
"believes," "estimates," "expects," "intends" or similar expressions.
The safe harbor provided by the Private Securities Litigation Reform Act of
1995 is not available for forward-looking statements made in the context of the
offer. In making these statements, we believe that our expectations are based
on reasonable assumptions. Yet you should understand that the following
important factors (some of which are beyond Vignette's and OnDisplay's
control), in addition to those discussed elsewhere in this prospectus and in
the documents that we have incorporated by reference, could affect the future
results of Vignette and OnDisplay, and of the combined company after completion
of the merger. These factors could also cause the results or other outcomes to
differ materially from those expressed in our forward-looking statements:
Economic and Industry Conditions Operating Factors
. materially adverse changes in . changes in operating conditions
economic or industry conditions and costs
generally or in the markets . interest rates
served by our companies . access to capital markets
Transaction or Commercial Factors
. product and labor prices,
fluctuations in exchange rates
and currency values
. our ability to integrate the
businesses of Vignette and
OnDisplay successfully after the
. capital expenditure requirements merger
. volatility in the stock market
. the challenges inherent in
Political/Governmental Factors diverting management's focus and
resources from other strategic
opportunities and from
operational matters during the
integration process
. political developments and law
and regulations, such as
legislative or regulatory . the process of, or conditions
requirements, particularly imposed in connection with,
concerning privacy and electronic obtaining regulatory clearance
commerce for the merger
. political stability in relevant
areas of the world . our ability to integrate DataSage
or Oberon
Competitive Factors
Technology Advances
. the actions of competitors
. the development and use of new
technology
20
<PAGE>
The Receipt of Vignette Shares Could Be Taxable to You, Depending On Facts
Surrounding the Offer and Merger.
Vignette and OnDisplay have structured the offer and the merger to qualify
as a tax-free reorganization for federal income tax purposes. Davis Polk &
Wardwell has opined that an OnDisplay stockholder's receipt of Vignette common
shares in the offer or the merger will be tax-free for federal income tax
purposes (except for taxes resulting from the receipt of cash instead of any
fraction of a Vignette common share), if (1) the offer and the merger are
completed under the current terms of the merger agreement, (2) the minimum
tender condition for the offer is satisfied and (3) the merger is completed on
or before December 31, 2000. However, the ability to satisfy these factual
assumptions, and therefore the federal income tax consequences of the offer and
the merger, depend in part on facts that will not be available before the
completion of the merger. There can be no assurance that the merger will be
completed, or that these factual assumptions will be satisfied.
If these factual assumptions are not satisfied, an OnDisplay stockholder's
exchange of OnDisplay common shares for Vignette common shares in the offer or
the merger could be a taxable transaction, depending on surrounding facts. You
are urged to carefully read the discussion under "The Offer--Material Federal
Income Tax Consequences" on page 59, and to consult your tax advisor on the
consequences of participation in the offer and/or the merger.
Vignette Will Incur Large Depreciation and Amortization Expenses.
In connection with the offer and the merger, large non-cash charges may make
our results of operations more difficult to interpret and may be viewed
unfavorably by investors and the financial community.
Need for Governmental Clearances May Delay Consummation of the Offer and the
Merger.
The offer is conditioned upon the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the HSR Act). In addition, other filings with, notifications to
and authorizations and approvals of, various governmental agencies with respect
to the offer, the merger and other transactions contemplated by the merger
agreement and the stockholder agreement, relating primarily to antitrust
issues, must be made and received prior to the consummation of the offer and
merger. Vignette and OnDisplay are seeking to obtain all required regulatory
clearances prior to the scheduled completion of these transactions. You should
be aware that all required regulatory clearances may not be obtained on that
timetable, restrictions on the combined operations of Vignette and OnDisplay
may be sought by governmental agencies as a condition to obtaining these
clearances, and operating restrictions imposed could adversely affect the value
of the combined companies. Please refer to the "The Offer--Conditions of the
Offer" and "--Regulatory Clearances" for more information.
Measures Taken to Protect Proprietary Information May Not Be Sufficient to
Deter Misappropriation and Infringement by Us of Others' Rights Could Occur.
The businesses of Vignette and OnDisplay depend in part on the quality of
the companies' technological expertise and proprietary technologies. In order
to protect proprietary information and intellectual property, both companies
enter into license agreements with clients in the ordinary course of business
which contain terms prohibiting unauthorized reproduction or use of their
products and services and those of third parties, requiring confidentiality
agreements with associates, contractors, clients, potential clients and
suppliers who have access to sensitive information, and limiting access to, and
distribution of, their proprietary information. We cannot assure you that these
steps or other procedures we follow will be adequate to deter misappropriation
or infringement of our proprietary rights or independent third party
development of substantially similar products and technology. In addition, we
cannot assure you that our current and future products will not infringe the
proprietary rights of others. Infringement by us of others' rights could result
in lawsuits against us, liabilities to others and adverse effects on our
business, financial condition and operating results.
21
<PAGE>
Our Industry Is Highly Competitive.
The software industry is highly competitive, and we face intense
competition. The combined companies may encounter competition from new
competitors, including established software companies with substantial
resources. Some of our competitors may have financial, technical, marketing or
other capabilities more extensive than ours and may be able to respond more
quickly to new or emerging technologies and other competitive pressures. We may
not be able to compete successfully against our present or future competitors,
and competition may adversely affect our businesses, financial condition or
operating results.
Partners or Customers May React Unfavorably to the Proposed Combination.
Both Vignette and OnDisplay partner with numerous other technology companies
including software and services firms to deliver Vignette and OnDisplay
products to customers. Some of these partners may feel that the combined
company poses new competitive threats to their businesses and as a result may
break their relationships with Vignette or OnDisplay. In addition, some
customers of Vignette or OnDisplay may view the combined company as a
competitor and, therefore, cancel orders with Vignette or OnDisplay.
Each company intends to offer its respective products and services to the
customers of the other company. There can be no assurance that either company's
customers will have an interest in the other company's products and services.
The failure of cross-marketing efforts would diminish the synergies expected to
be realized by this merger.
Failure to Complete the Merger Could Negatively Impact OnDisplay Stock Price
and Future Business and Operations.
If the merger is not completed for any reason, OnDisplay may be subject to a
number of material risks, including the following:
. OnDisplay may be required under limited circumstances to pay Vignette a
termination fee of up to $50,000,000;
. the price of OnDisplay common stock may decline to the extent that the
current market price of OnDisplay common stock reflects a market
assumption that the merger will be completed; and
. costs incurred by OnDisplay related to the merger, such as legal and
accounting fees as well as a portion of the financial advisor fees that
would be payable upon completion of the merger must be paid by OnDisplay
even if the merger is not completed.
Risks Related to Our Business
We Expect to Incur Future Losses.
We incurred net losses of $3.6 million for the year ended December 31, 1996,
$7.5 million for the year ended December 31, 1997, $26.2 million for the year
ended December 31, 1998, $42.5 million for the year ended December 31, 1999 and
$83.5 million for the three months ended March 31, 2000. Because of the
significant amount of goodwill and other intangibles we will recognize as a
result of the merger, we anticipate that our net losses will increase
substantially in the future. We have not achieved profitability and we expect
to incur net losses for the foreseeable future. To date, we have primarily
funded our operations from the sale of equity securities. We expect to continue
to incur significant product development, sales and marketing, and
administrative expenses and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. Although our revenues have
grown significantly in recent quarters, we cannot be certain that we can
sustain these growth rates or that we will achieve sufficient revenues for
profitability. If we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis in the future.
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Our Limited Operating History Makes Financial Forecasting Difficult.
We were founded in December 1995 and thus have a limited operating history.
As a result of our limited operating history, we cannot forecast operating
expenses based on our historical results. Accordingly, we base our expenses in
part on future revenue projections. Most of our expenses are fixed in the short
term and we may not be able to quickly reduce spending if our revenues are
lower than we had projected. Our ability to forecast accurately our quarterly
revenue is limited because our software products have a long sales cycle that
makes it difficult to predict the quarter in which sales will occur. If our
revenues do not meet our projections, we would expect our business, operating
results and financial condition to be materially adversely affected and our net
losses in a given quarter to be greater than expected.
We Expect Our Quarterly Revenues and Operating Results to Fluctuate.
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
. Demand for our products and services;
. The timing of sales of our products and services;
. The timing of customer orders and product implementations;
. Unexpected delays in introducing new products and services;
. Increased expenses, whether related to sales and marketing, product
development or administration;
. Changes in the rapidly evolving market for e-Business applications
solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. The mix of services provided and whether services are provided by our
own staff or third-party contractors;
. The mix of domestic and international sales;
. Our ability to integrate OnDisplay's, DataSage's, and Oberon's business
operations into our own; and
. Costs related to possible acquisitions of technology or businesses.
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the
results of one quarter as an indication of our future performance.
We plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could be
materially adversely affected and net losses in a given quarter would be even
greater than expected.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.
We Depend on Increased Business from Our Current and New Customers and If We
Fail to Grow Our Customer Base or Generate Repeat Business, Our Operating
Results Could Be Harmed.
If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Most of our customers initially make a limited
purchase of our products and services for pilot programs. Many of these
customers may not choose to
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purchase additional licenses to expand their use of our products. Many of these
customers have not yet developed or deployed initial applications based on our
products. If these customers do not successfully develop and deploy their
initial applications, they may not choose to purchase deployment licenses or
additional development licenses. Our business model depends on the expanded use
of our products within our customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
Our Operating Results May Be Adversely Affected By Small Delays in Customer
Orders or Product Implementations.
Small delays in customer orders or product implementations can cause
significant variability in our license revenues and operating results for any
particular period. We derive a substantial portion of our revenue from the sale
of products with related services. In these cases, our revenue recognition
policy requires us to substantially complete the implementation of our product
before we can recognize software license revenue, and any end of quarter delays
in product implementations could harm operating results for that quarter.
In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue We Need to Expand Our Sales and Distribution Capabilities.
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenue. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Our products
and services require a sophisticated sales effort targeted at the senior
management of our prospective clients. New hires will require training and take
time to achieve full productivity. We cannot be certain that our recent hires
will become as productive as necessary or that we will be able to hire enough
qualified individuals in the future. We also plan to expand our relationships
with value-added resellers, systems integrators and other third-party resellers
to build an indirect sales channel. In addition, we will need to manage
potential conflicts between our direct sales force and third-party reselling
efforts.
Failure to Maintain the Support of Third Party e-Business Consultants May
Limit Our Ability to Penetrate Our Markets.
A significant portion of our sales are influenced by the recommendations of
our products made by systems integrators, consulting firms and other third
parties that help develop and deploy e-Business applications for our clients.
Losing the support of these third parties may limit our ability to penetrate
our markets. These third parties are under no obligation to recommend or
support our products. These companies could recommend or give higher priority
to the products of other companies or to their own products. A significant
shift by these companies toward favoring competing products could negatively
affect our license and service revenue.
Our Lengthy Sales Cycle and Product Implementations Make It Difficult to
Predict Our Quarterly Results
We have a long sales cycle because we generally need to educate potential
clients regarding the use and benefits of e-Business applications. Our long
sales cycle makes it difficult to predict the quarter in which sales may fall.
In addition, since we recognize the majority of our revenue from product sales
upon implementation of our product, the timing of product implementation could
cause significant variability in our license revenues and operating results for
any particular period. The implementation of our products requires a
significant commitment of resources by our clients, third-party professional
services organizations or our professional services organization, which makes
it difficult to predict the quarter when implementation will be completed.
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We May Be Unable to Adequately Develop a Profitable Professional Services
Organization Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Clients with the Implementation of Our Products.
We cannot be certain that we can attract or retain a sufficient number of
the highly qualified services personnel that our business needs and we cannot
be certain that our services business will ever achieve profitability. Clients
that license our software typically engage our professional services
organization to assist with support, training, consulting and implementation of
their Web solutions. We believe that growth in our product sales depends on our
ability to provide our clients with these services and to educate third-party
resellers on how to use our products. As a result, we plan to increase the
number of service personnel to meet these needs. New services personnel will
require training and education and take time to reach full productivity. To
meet our needs for services personnel, we may also need to use more costly
third-party consultants to supplement our own professional services
organization. We expect our services revenue to increase in absolute dollars as
we continue to provide consulting and training services that complement our
products and as our installed base of clients grows. We generally bill our
clients for our services on a "time and materials" basis. However, from time to
time we enter into fixed-price contracts for services. On occasion, the costs
of providing the services have exceeded our fees from these contracts and, from
time to time, we may misprice future contracts to our detriment. In addition,
competition for qualified services personnel with the appropriate Internet
specific knowledge is intense. We are in a new market and there is a limited
number of people who have acquired the skills needed to provide the services
that our clients demand.
We May Be Unable to Attract Necessary Third Party Service Providers Which
Could Affect Our Ability to Provide Support, Consulting and Implementation
Services for Our Products.
There may be a shortage of third party service providers to assist our
clients with the implementation of our products. We do not believe our
professional services organization will be able to fulfill the expected demand
for support, consulting and implementation services for our products. We are
actively attempting to supplement the capabilities of our services organization
by attracting and educating third party service providers and consultants to
also provide these services. We may not be successful in attracting these third
party providers or maintaining the interest of current third party providers.
In addition, these third parties may not devote enough resources to these
activities. A shortfall in service capabilities may affect our ability to sell
our software.
Our Business May Become Increasingly Susceptible to Numerous Risks Associated
with International Operations.
International operations are generally subject to a number of risks,
including:
. Expenses associated with customizing products for foreign countries;
. Protectionist laws and business practices that favor local competition;
. Dependence on local vendors;
. Multiple, conflicting and changing governmental laws and regulations;
. Longer sales cycles;
. Difficulties in collecting accounts receivable;
. Foreign currency exchange rate fluctuations; and
. Political and economic instability.
We received 15% of our total revenue in the year ended December 31, 1999,
and 19% of our total revenue in the three months ended March 31, 2000, through
licenses and services sold to clients located outside of the United States. We
expect international revenue to account for a significant percentage of total
revenue in the
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future and we believe that we must continue to expand our international sales
activities in order to be successful. Our international sales growth will be
limited if we are unable to establish additional foreign operations, expand
international sales channel management and support organizations, hire
additional personnel, customize products for local markets, develop
relationships with international service providers and establish relationships
with additional distributors and third party integrators. In that case, our
business, operating results and financial condition could be materially
adversely affected. Even if we are able to successfully expand international
operations, we cannot be certain that we will be able to maintain or increase
international market demand for our products.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenues and costs will be denominated in foreign currencies in
the future. In addition, although we cannot predict the potential consequences
to our business as a result of the adoption of the Euro as a common currency in
Europe, the transition to the Euro presents a number of risks, including
increased competition from European firms as a result of pricing transparency.
To date, we have not engaged in any foreign exchange hedging transactions and
we are therefore subject to foreign currency risk.
In Order to Properly Manage Growth, We Will Need to Implement and Improve Our
Operational Systems on a Timely Basis.
We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls on
a timely basis. If we fail to implement and improve these systems, our
business, operating results and financial condition will be harmed.
We May Be Adversely Affected If We Lose Key Personnel.
Our success depends largely on the skills, experience and performance of
some key members of our management. If we lose one or more of these key
employees, our business, operating results and financial condition could be
materially adversely affected. In addition, our future success will depend
largely on our ability to continue attracting and retaining highly skilled
personnel. Like other software companies, we face intense competition for
qualified personnel. We cannot be certain that we will be successful in
attracting, assimilating or retaining qualified personnel in the future.
Our Future Revenue Is Dependent upon Our Ability to Successfully Deliver and
Market Our Recently Announced V/5 E-Business Product Platform.
In April 2000, we announced our new V/5 product platform. The V/5 platform
will contain new versions of some of our existing products, such as the V/5
Content Management Server and V/5 Personalization Server which were previously
one product, StoryServer and Vignette Syndication Server, as well as the first
versions of new products such as the V/5 Relationship Marketing Server, the V/5
Communication Server, the V/5 Advanced Deployment Server, and the Vignette
Application Power Pack. We have also recently announced our new Vignette
Application Foundation. Historically, we have derived substantially all of our
revenues from the license and related upgrades, professional services, and
support of our StoryServer products, which will be part of our V/5 product
platform. There are significant risks inherent in a large scale product
introduction of this sort. Market acceptance will depend on a significant
market developing for our new products and services and the commercial adoption
of standards on which our products are based. We cannot be certain that our
products will be shipped on time or meet customer performance needs or
expectations when shipped or that they will be free of significant software
defects or bugs. If our products and services do not meet customer needs or
expectations, for whatever reason, our business, operating results and
financial condition would be harmed.
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If We are Unable to Meet the Rapid Changes in e-Business Applications
Technology Our Existing Products Could Become Obsolete.
The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology
enhancements, uncertain product life cycles, changes in client demands and
evolving industry standards. We cannot be certain that we will successfully
develop and market new products, new product enhancements or new products
compliant with present or emerging Internet technology standards. New products
based on new technologies or new industry standards can render existing
products obsolete and unmarketable. To succeed, we will need to enhance our
current products and develop new products on a timely basis to keep pace with
developments related to Internet technology and to satisfy the increasingly
sophisticated requirements of our clients. Internet commerce technology,
particularly e-Business applications technology, is complex and new products
and product enhancements can require long development and testing periods. Any
delays in developing and releasing enhanced or new products could have a
material adverse effect on our business, operating results and financial
condition.
We Face Intense Competition for e-Business Applications Software Which Could
Make it Difficult to Acquire and Retain Clients Now and in the Future.
The Internet software market is intensely competitive. Our clients'
requirements and the technology available to satisfy those requirements
continually change. We expect competition to persist and intensify in the
future.
Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address elements
of e-Business applications, such as BroadVision; and developers of software
that address only certain technology components of e-Business applications
(e.g., content management), such as Interwoven.
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors such as Netscape and Microsoft may bundle their
products in a manner that may discourage users from purchasing our products. In
addition, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult for us to acquire and retain
clients and may require us to reduce the price of our software. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business, operating results and financial condition would be
materially adversely affected.
We Must Successfully Integrate Our Recent Acquisitions of Engine 5, Ltd. and
DataSage and, if Consummated, Our Acquisition of OnDisplay, Including Oberon.
We acquired Engine 5, Ltd. and DataSage on January 18, 2000 and February 15,
2000, respectively. Our failure to successfully address the risks associated
with our acquisitions of these companies, our acquisition of OnDisplay if
consummated, and OnDisplay's acquisition of Oberon could have a material
adverse effect on our ability to develop and market products based on their
respective technologies. In particular, we are developing integrated products
and, accordingly, are devoting significant resources to product development,
sales and marketing. The success of these acquisitions will depend on our
ability to:
. Successfully integrate and manage their operations;
. Retain their key employees; and
. Develop and market products based on the acquired technology.
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Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating
Results.
We may acquire other businesses in the future, which would complicate our
management tasks. We may need to integrate widely dispersed operations that
have different and unfamiliar corporate cultures. These integration efforts may
not succeed or may distract management's attention from existing business
operations. Our failure to successfully manage future acquisitions could
seriously harm our business. Also, our existing stockholders would be diluted
if we financed the acquisitions by issuing equity securities.
The Internet Is Generating Privacy Concerns in the Public and within
Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both.
Businesses use our products to develop, maintain and analyze profiles to
tailor the content to be provided to Web site visitors. Typically, the software
captures profile information when consumers, business customers or employees
visit a Web site and volunteer information in response to survey questions.
Usage data collected over time augments the profiles. However, privacy concerns
may nevertheless cause visitors to resist providing the personal data necessary
to support this profiling capability. More importantly, even the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of our products. In addition, legislative or regulatory
requirements may heighten these concerns if businesses must notify Web site
users that the data captured after visiting certain Web sites may be used by
marketing entities to unilaterally direct product promotion and advertising to
that user. We are not aware of legislation or regulatory requirements of this
type currently in effect in the United States. Other countries and political
entities, such as the European Economic Community, have adopted legislation or
regulatory requirements of this type. The United States may adopt similar
legislation or regulatory requirements. If consumer privacy concerns are not
adequately addressed, our business, financial condition and operating results
could be harmed.
Our V/5 products use "cookies" to track demographic information and user
preferences. A "cookie" is information keyed to a specific server, file pathway
or directory location that is stored on a user's hard drive, possibly without
the user's knowledge, but generally removable by the user. Germany has imposed
laws limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other countries have
urged passage of laws limiting or abolishing the use of cookies. If these kinds
of laws are passed, our business, operating results and financial condition
could be harmed.
We Develop Complex Software Products Susceptible to Software Errors or
Defects that Could Result in Lost Revenues, or Delayed or Limited Market
Acceptance.
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects. Serious
defects or errors could result in lost revenues or a delay in market
acceptance, which would harm our business, operating results and financial
condition.
If We Experienced a Product Liability Claim We Could Incur Substantial
Litigation Costs.
Since our clients use our products for mission critical applications such as
Internet commerce, errors, defects or other performance problems could result
in financial or other damages to our clients. They could seek damages for
losses from us, which, if successful, could have a material adverse effect on
our business, operating results or financial condition. Although our license
agreements typically contain provisions designed to limit our exposure to
product liability claims, existing or future laws or unfavorable judicial
decisions could negate these limitations of liability provisions. We have not
experienced any product liability claims to date. However, a product liability
claim brought against us, even if not successful, would likely be time
consuming and costly.
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Our Product Shipments Could Be Delayed If Third-party Software Incorporated
in Our Products Is No Longer Available.
We integrate third-party software as a component of our software. The third-
party software may not continue to be available to us on commercially
reasonable terms. If we cannot maintain licenses to key third-party software,
shipments of our products could be delayed until equivalent software could be
developed or licensed and integrated into our products, which could harm our
business, operating results and financial condition.
Our Business is Based on Our Intellectual Property and We Could Incur
Substantial Costs Defending Our Intellectual Property From Infringement or a
Claim of Infringement.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend this type of litigation. Although we
are not currently involved in any material intellectual property litigation, we
may be a party to litigation in the future to protect our intellectual property
or as a result of an alleged infringement of other's intellectual property,
forcing us to do one or more of the following:
. Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms; and
. Redesign those products or services that incorporate the infringing
technology.
We rely on a combination of patent, trademark, trade secret and copyright
law and contractual restrictions to protect our technology. These legal
protections provide only limited protection. If we litigated to enforce our
rights, it would be expensive, divert management resources and may not be
adequate to protect our business.
Anti-Takeover Provisions in Our Charter Documents and Delaware Law Could
Prevent or Delay a Change in Control of Our Company.
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. Such provisions include:
. Authorizing the issuance of "blank check" preferred stock;
. Providing for a classified board of directors with staggered, three-year
terms;
. Prohibiting cumulative voting in the election of directors;
. Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. Limiting the persons who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent; and
. Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law and our stock incentive plans may also
discourage, delay or prevent someone from acquiring or merging with us.
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Risks Related to the Internet Industry
Our Performance Will Depend on the Growth of the Internet for Commerce.
If Internet commerce does not continue to grow or grows more slowly than
expected, our business, operating results and financial condition would be
harmed. The Internet infrastructure may not be able to support the demands
placed on it by increased Internet usage and bandwidth requirements. In
addition, delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
government regulation could cause the Internet to lose its viability as a
commercial medium. Even if the required infrastructure, standards, protocols or
complementary products, services or facilities are developed, we may incur
substantial expenses adapting our solutions to changing or emerging
technologies.
Our Performance Will Depend on the New Market for e-Business Applications
Software.
The market for e-Business applications software is new and rapidly evolving.
We expect that we will continue to need intensive marketing and sales efforts
to educate prospective clients about the uses and benefits of our products and
services. Accordingly, we cannot be certain that a viable market for our
products will emerge or be sustainable. Enterprises that have already invested
substantial resources in other methods of conducting business may be reluctant
or slow to adopt a new approach that may replace, limit or compete with their
existing systems. Similarly, individuals have established patterns of
purchasing goods and services. They may be reluctant to alter those patterns.
They may also resist providing the personal data necessary to support our
existing and potential product uses. Any of these factors could inhibit the
growth of online business generally and the market's acceptance of our products
and services in particular.
There is Substantial Risk that Future Regulations Could Be Enacted that
Either Directly Restrict Our Business or Indirectly Impact Our Business By
Limiting the Growth of Internet Commerce.
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. If enacted, these laws, rules or
regulations could limit the market for our products and services, which could
materially adversely affect our business, financial condition and operating
results. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal/consumer information could indirectly affect our
business. The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. In addition, although substantial portions
of the Communications Decency Act were held to be unconstitutional, we cannot
be certain that similar legislation will not be enacted and upheld in the
future. It is possible that this type of legislation could expose companies
involved in Internet commerce to liability, which could limit the growth of
Internet commerce generally. Legislation like the Telecommunications Act and
the Communications Decency Act could dampen the growth in Web usage and
decrease its acceptance as a communications and commercial medium.
The United States government also regulates the export of encryption
technology, which our products incorporate. If our export authority is revoked
or modified, if our software is unlawfully exported or if the United States
government adopts new legislation or regulation restricting export of software
and encryption technology, our business, operating results and financial
condition could be materially adversely affected. Current or future export
regulations may limit our ability to distribute our software outside the United
States. Although we take precautions against unlawful export of our software,
we cannot effectively control the unauthorized distribution of software across
the Internet.
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Risks Related to the Securities Markets
Our Stock Price May Be Volatile.
The market price of our common stock has been highly volatile and has
fluctuated significantly in the past. We believe that it may continue to
fluctuate significantly in the future in response to the following factors,
some of which are beyond our control:
. Variations in quarterly operating results;
. Changes in financial estimates by securities analysts;
. Changes in market valuations of Internet software companies;
. Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. Loss of a major client or failure to complete significant license
transactions;
. Additions or departures of key personnel;
. Sales of common stock in the future; and
. Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of Internet and software
companies.
Our Business May Be Adversely Affected by Class Action Litigation Due to
Stock Price Volatility.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, operating results and financial condition.
We May Be Unable to Meet Our Future Capital Requirements.
We expect the cash on hand, cash equivalents and commercial credit
facilities to meet our working capital and capital expenditure needs for at
least the next 18 months. After that time, we may need to raise additional
funds and we cannot be certain that we would be able to obtain additional
financing on favorable terms, if at all. Further, if we issue equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could harm our business, operating results
and financial condition.
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INFORMATION REGARDING VIGNETTE
Business
We are a leading global provider of e-Business application software products
and services. Our e-Business solutions are designed to enable companies to
build successful and sustainable online businesses. Our e-Business solutions
allow both traditional brick-and-mortar and startup dot-com businesses to
create and manage Internet business channels that are designed to attract,
engage and retain their customers, partners, and suppliers online.
We have architected our new V/5 e-Business platform to address three
critical issues we believe all eBusinesses face. We believe e-Businesses want
the ability to rapidly reconfigure their businesses in response to changing
market dynamics and competitive pressures, better insight into what drives
their customers' and partners' behavior and determines profitability, and the
ability to reach their customers and partners through multiple channels, touch
points and devices.
In response to these customer needs the V/Series offers a scalable, reliable
and high-performance foundation for delivering and managing e-Business
applications. The capabilities of the platform include content management,
personalization, profiling, analyzing and managing interactions across multiple
communication channels such as the Web, pagers, mobile phones and e-mail, as
well as a component applications architecture designed to accommodate rapid
business re-configuration. The V/5 product suite includes the V/5 Content
Management Server, the V/5 Lifecycle Personalization Server, the V/5
Syndication Server, the V/5 Communication Server, the V/5 Relationship
Marketing Server and the V/5 Advanced Deployment Server.
The V/Series architecture also incorporates the Vignette Application
Foundation, an open application framework and methodology, which enables
customers to respond rapidly to changing business needs and market conditions
by implementing reconfigurable and reusable component e-Business applications.
Along with the release of the Vignette Application Foundation we released the
Vignette Application Power Pack, a comprehensive set of reusable, cross-
platform, packaged application components.
Finally, we recently launched our V2B Services e-Business site. V2B Services
allows our customers to streamline the process of purchasing, implementing and
using component e-Business applications. V2B Marketplace is a global center for
trade in e-Business applications, components and services, and V2B Communities
offer support services to both business and technical users. V2B Services is
enabled by the modular, snap-in, and configure-and-go architecture that the
Vignette Application Foundation delivers across our entire product line.
We complement our products with a professional services organization that
offers a range of services including strategic planning, project management and
implementation. We designed these services to improve our clients' competitive
position, shorten time-to-market and reduce project implementation risk. We
believe that our ability to successfully deliver an integrated solution to our
clients provides us with a significant competitive advantage in the market for
e-Business software products and services.
We market our products and services globally through our direct sales force,
resellers and systems integrators to businesses seeking to enhance the value of
their Web-based relationships, maximize the return on their Internet-related
investments and capitalize on the substantial growth of the Internet as a new
marketing and distribution channel. We also leverage strategic alliances with a
number of technology and Internet organizations to increase the penetration and
market acceptance of our e-Business software and professional services. To
date, we have licensed our software to more than 700 clients worldwide in a
variety of industries including retail, financial services, telecommunications,
technology, media and entertainment. Our clients include American Express,
AT&T, Bank One, Charles Schwab, CBS Broadcasting, Compaq, First Union, Lands'
End, Merrill Lynch, Motorola, National Semiconductor, Nokia, NY Life, Preview
Travel, Qualcomm, Siebel Systems, Snap.com, StarMedia Network, Sun
Microsystems, United Airlines and US West.
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Recent Developments
On February 15, 2000, we acquired DataSage, a leading provider of e-
marketing and personalization applications that help organizations create a
comprehensive single enterprise-wide view of their customers. The agreement
provides for the issuance of 9,486,000 shares of our common stock, as adjusted
for the three-for-one split paid on April 14, 2000, in exchange for all the
common stock and options of DataSage. We have accounted for the transaction as
a purchase.
On January 18, 2000, we acquired Engine 5, a developer of enterprise-wide
Java server technology. The agreement provides for the issuance of 336,507
shares of our common stock, as adjusted for the three-for-one split paid on
April 14, 2000, and approximately $9.2 million in cash in exchange for all the
common stock and options of Engine 5. We have accounted for the transaction as
a purchase.
INFORMATION REGARDING ONDISPLAY
References in this section of the prospectus to "we", "our" or "us" and
similar references refer to OnDisplay, and not to Vignette.
Business
We offer a comprehensive suite of software products that enable companies to
rapidly deploy and easily manage e-Business web sites. Our solution addresses
the unique challenges faced by e-Business sites in both business-to-business
and business-to-consumer interactions. Our solutions allow both business-to-
business and business-to-consumer online companies to rapidly automate and
continuously manage the flow of information and transactional data among their
suppliers, distributors and customers. Our products enable our e-Business
portal and e-marketplace customers to: achieve rapid time-to-market, engage and
retain customers, increase revenues and market share and attain agile e-
Business relationships. Our e-Business portal and e-marketplace customers
include AltaVistaShopping.com, American Honda, FASTXchange, Harbinger
Corporation, ICG Commerce, Intelisys, Moore North America Ltd., Order Trust,
PurchasePro.com, SciQuest.com, TPN Register, TRIP.com, Travelocity.com,
Vignette Corporation and W.W. Grainger, Inc.
Industry Background
Companies in all industries around the world face the strategic imperative
of re-creating themselves into e-Businesses. By augmenting or even replacing
their traditional distribution, supply chain and customer-service channels with
Internet-based channels, these companies seek to build new revenue streams and
gain competitive advantage. Although the first generation of e-commerce
consisted primarily of basic Web sites offering product information for
marketing purposes, today the stakes are higher. We believe successful
companies now need to create customized value-added online relationships with
suppliers and distributors and offer differentiated and unique online services
to customers. By extending core business processes over the Internet and
integrating systems with suppliers, distributors and customers, these companies
seek to achieve significant competitive advantage, increased customer
satisfaction and new sources of revenues. This next generation of e-Businesses
is transforming the way business is done and has given rise to the "Internet
economy."
With the evolution of the Internet as a primary means of conducting
business, both in business-to-business and business-to-consumer markets,
competitive pressures have driven new and more sophisticated forms of
e-Business to emerge. In the Internet economy, companies find it increasingly
difficult to differentiate their offerings on the basis of products, price or
location. As a result, vendors must deliver comprehensive business services and
information to offer enhanced value to their suppliers, distributors and
customers. In particular, companies seek to participate in two complementary e-
Business channels--e-Business portals and e-marketplaces--as distinct ways to
capitalize on the Internet, expand their businesses and protect their revenue
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opportunities. These channels are complementary since many vendors will create
an e-Business portal to directly sell their own goods and services in addition
to offering those goods and services through participation in an e-marketplace.
e-Business Portals. An e-Business portal is an online destination site where
vendors create value-added relationships with their suppliers, distributors and
customers by offering an expanded set of information and services. For example,
a business-to-consumer, travel-oriented e-Business portal enables visitors to
gain information about all aspects of the travel experience, including airfare,
hotel availability, cultural activities, weather and current events, and then
purchase all of the goods and services for a particular trip without having to
leave the e-Business portal at any point in the process.
e-Marketplaces. An e-marketplace is a comprehensive trading hub designed to
efficiently manage transactions and services among multiple buyers and sellers.
For example, a business-to-business e-marketplace acts as an intermediary to
enable businesses to interact with potentially thousands of discrete vendors,
compare parts, prices and configurations among those vendors, and then purchase
all of the goods and services from one or several vendors without having to
leave the e-marketplace at any point in the process.
There are many demands placed on the infrastructure of e-Business portals
and e-marketplaces. Companies deploying e-Business portals and e-marketplaces
must be able to offer a broad range of dynamic information and services from a
large, diverse set of trading partners, and do so faster than their
competitors. Compounding this challenge is the fact that these e-Business
relationships require agility in terms of flexible, adaptable connections that
accommodate rapid change. No single standard can be imposed on all suppliers of
information and services offered by e-Business portals and e-marketplaces.
To successfully address these business requirements, e-Business portals and
e-marketplaces must meet complicated technical requirements. Key technical
requirements include:
. Aggregation--capturing and transforming diverse information from a broad
range of sources and in multiple formats;
. Integration--integrating e-Business portals and e-marketplaces with
operational systems to synchronize and automate services and
transactions; and
. Exchange--enabling the exchange of business documents, including purchase
orders and invoices, for secure, real-time business process automation.
Given these requirements, e-Business portals and e-marketplaces face
significant challenges in effectively expanding their businesses to fully
capitalize on the opportunities created by the Internet. Existing approaches
for addressing these challenges are limited. The most common approaches consist
of manual, custom systems, which may be adequate initially, but tend to break
down as the e-Business site expands to provide additional services and
information from an ever-increasing number of suppliers, distributors and
customers. Many of these custom approaches incorporate single-function products
that address particular infrastructure needs but do not offer a comprehensive
solution that spans each of the important requirements.
These custom approaches often lack:
. Speed of deployment;
. Ability to accommodate growth to thousands of discrete participants;
. Agility to accommodate rapid change; and
. Comprehensiveness to meet the demands of a broad range of e-Business
relationships and interactions.
As a result, there is a need for e-Business infrastructure solutions that
provide a comprehensive solution for enabling e-Business portals and e-
marketplaces. This solution must be open, expandable to many concurrent users
and adaptable to enable the rapid aggregation, integration, and exchange of
dynamic information and services.
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OnDisplay Solution
We provide a comprehensive suite of software products that enable companies
to rapidly deploy and easily manage e-Business web sites. Our solution
addresses the unique challenges faced by e-Business portals and e-marketplaces
in both business-to-business and business-to-consumer e-commerce. Our product
suite spans each of the key infrastructure requirements: aggregation and
syndication of diverse content and information; automation of critical
business-to-business transactions; integration with operational systems.
Products
We provide an integrated solution for enabling the rapid deployment and
seamless management of e-Business portals and e-marketplaces. Our products are
complementary, but can be purchased separately, so that online businesses can
select the individual products they need to meet their immediate business
objectives and then add additional CenterStage products as their requirements
evolve.
The license fee for each CenterStage product is based on the number of
servers running the software and the number of different information sources
accessed. The list price of each CenterStage product starts at $75,000. License
fees for installations typically range from $100,000 to $400,000. The
CenterStage product suite includes:
CenterStage eContent--Our CenterStage eContent application enables our
customers to aggregate, or gather, and transform a wide range of information,
or content, for their e-Business portals and e-marketplaces. Whether the source
format is structured, as with database or application data, or unstructured, as
with Web pages, CenterStage eContent lets users specify, select, transform,
update and manage diverse content rapidly and easily. CenterStage eContent can
handle high volumes of data, for example, aggregating text and graphics on
hundreds of thousands of products. As a result, CenterStage eContent enables e-
Business portals and e-marketplaces to deliver a wide array of rich, relevant
information to keep their customers from having to leave their Web sites to
access this information.
CenterStage eBizXchange--Our CenterStage eBizXchange application takes
advantage of advanced technologies to rapidly and securely exchange business
transaction information across a wide array of trading partners. This
information exchange can be accomplished across corporate security systems, or
firewalls, using both "tight" and "loose" collaboration models. CenterStage
eBizXchange's tight collaboration model allows business partners to define a
standard approach for secure business-to-business information exchange, using a
mutually agreed upon format. The product's loose collaboration model, enables
the e-Business to complete a transaction with its online trading partner by
mimicking a user's actions on the trading partner's Web site, without the need
for an explicit format agreement between the partners. CenterStage eBizXchange
can handle thousands of transactions simultaneously, which enables our
customers to expand their e-Business applications to meet the needs of
increasing numbers of users.
CenterStage eIntegrate--Our CenterStage eIntegrate, in combination with
technologies acquired in the Oberon acquisition, provides a complete solution
for connecting e-Business applications with internal business applications. It
offers an end-to-end strategy that allows you to leverage the high quality
information found in enterprise systems and in the systems of outside services
and suppliers. The result is universal consistency, accuracy, timeliness and
accessibility for critical business information. Through its secure Internet-
based platform architecture, CenterStage e-Integrate allows for the continuous
optimization of multi-company business processes, that fully integrate
businesses with their suppliers, customers, and partners. The CenterStage
eIntegrate product family offers:
. Rapid e-Business process automation and optimization;
. Application function and infrastructure abstraction;
. Flexible and scalable integration from the within enterprise and
throughout the internet.
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The CenterStage eIntegrate product family consists of:
eIntegrate--Graphical integration environment with capabilities for
designing, developing, debugging and deploying business process-based
solutions. It is here that you mix, match and manipulate eIntegrate Building
Blocks developing a visual plan--designing the business processes that become
your integrated solutions. eIntegrate Building Blocks are available for a
growing set of business applications, that includes: SAP, J.D. Edwards,
PeopleSoft, Oracle, Siebel and many others.
eIntegrate Building Blocks--Pre-packaged, intelligent components that
abstract and automate integration that would otherwise require custom written
interface code. As add-on components used by eIntegrate, Building Blocks
completely remove the complexity of integrating disparate applications and
infrastructure.
eIntegrate SDK--The Software Developer Kit version of eIntegrate, allows 3rd
parties to build their own Building Blocks--developing an OnDisplay eIntegrate-
based strategy.
CenterStage eNotify--Our CenterStage eNotify product allows e-Businesses to
offer customer-requested updates, or alerts, to build relationships with their
customers. Unlike many existing programs that track each user's behavior
patterns to create targeted sales offers, CenterStage eNotify enables online
visitors to enter their own information requests about specific events on the
e-Business Web site. The CenterStage eNotify system would then deliver
notifications of new requested information via email or pager update directly
to the customer. CenterStage eNotify can support thousands of information
requests, which enables our customers to meet the needs of increasing numbers
of users. This event-based execution enables customers to receive notifications
based on timely information.
CenterStage eSyndicate--Our CenterStage eSyndicate product enables e-
Businesses to offer, or publish, select information from their e-Business
portals or e-marketplaces, based on customers' information requests, or
subscriptions. CenterStage eSyndicate intelligently manages and routes the
requested information using any electronic format, open standard or industry
protocol. CenterStage eSyndicate is capable of routing a wide range of
continuously changing information from an array of original sources, including
databases and Web pages.
XML ConnectTM--Our XML Connect product is a free, downloadable software
product that allows e-commerce participants--including buyers, suppliers and e-
marketplaces--to establish secure, reliable, guaranteed XML business document
exchange, without the need to install and manage closed or proprietary XML
servers. With XML Connect acting as a standardized XML transport, e-Business
participants can achieve secure online document exchange quickly and easily.
Using the CenterStage application suite, an e-Business portal can rapidly
automate and continuously manage the flow of information among its suppliers,
distributors and customers. In the diagram above, the e-Business portal uses
CenterStage eContent to quickly gather and transform diverse product and other
information from a large community of suppliers, regardless of source format.
In addition, the e-Business portal uses CenterStage eBizXchange to automate
business transactions with suppliers and also with e-marketplaces and other
affiliates. CenterStage eIntegrate is used to link the e-Business portal with
internal systems. The e-Business portal may use CenterStage eNotify to
proactively deliver requested notifications to customers, while it uses
CenterStage eSyndicate to publish customized product catalogs and price lists
to affiliates and e-marketplaces.
An e-marketplace may use the CenterStage product suite to automate and
seamlessly manage the flow of information and transactions among multiple
buyers, suppliers and distributors. The e-marketplace is able to use
CenterStage eContent to capture and transform diverse data from multiple
suppliers, while using CenterStage eBizXchange to handle multiple simultaneous
transactions among buyers, affiliates and suppliers. CenterStage eSyndicate can
be used to proactively publish information of interest to buyers and affiliates
using a variety of formats. Concurrently, participant buyers and suppliers can
use CenterStage eIntegrate to link their e-business operations with their
internal applications.
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Each of the participants in the e-Business value chain are able to use our
CenterStage product suite to exchange information and services with other
participants. For example, suppliers may use CenterStage eSyndicate to publish
information to multiple e-marketplaces simultaneously, just as an e-Business
portal is able to publish information to its customers. Similarly, corporate
buyers may use CenterStage eIntegrate to link their Web-based procurement
applications to operational systems.
Services
Our professional services organization works with customers to ensure that
they meet their business objectives and achieve their expected return on
investment. We focus on the rapid deployment of e-Business solutions by taking
advantage of an experienced team of consultants. Our professional services
organization brings a diverse set of skills and experiences--combining both
business and technical expertise to quickly meet our customers' requirements.
Our professional services include:
. Design system and application architectures that best utilize the
functionality of our software;
. Installation of our software and implementation within customers'
existing information technology infrastructure;
. Transformation of data from one format to another;
. Development of interfaces between disparate software applications;
. Training of users at the location of implementation; and
. Maintenance and support of our software by skilled professional services
providers.
Architecture
The CenterStage product suite provides a means to develop and execute agents
for accessing, gathering, transforming and distributing information and
transactions using multiple approaches. Our CenterStage product suite provides
easy application customization capabilities along with a high-performance
execution engine for production environments.
The CenterStage architecture provides the following environments:
. Rapid development environment--graphical development environment for
creating CenterStage agents and for customizing the resulting information
display; and
. Execution/routing environment--featuring a high-volume execution server
for processing information agents.
Rapid Development Environment
At the core of our CenterStage product suite is a graphical development
environment to create and test information retrieval and transformation agents.
These agents have the ability to access information from multiple sources in
many different formats. Some of these sources include the Web, databases,
software applications and various information systems.
Flexible Execution/Routing Environment
Our flexible CenterStage environment can process agents in three ways:
. The Agent Engine processes large batches of information on a one-time or
regularly scheduled basis;
. The Agent Server handles multiple requests simultaneously and also
includes a load balancing feature, which distributes requests across
multiple servers; and
. The Content Broker enables the publishing of agents based on user-defined
events. These agents can be published through a wide variety of delivery
mechanisms, including message brokers, application interfaces, Internet
connections, e-mail and pagers.
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Customers
The following is a representative list of our customers as of March 31, 2000
who have purchased CenterStage products for use in e-Business portal or e-
marketplace applications.
AltaVistaShopping.com Moore North America Ltd.
American Honda OrderTrust
Carlson Travel Group Orlando Sentinel Communications
Classified Ventures PurchasePro.com
Corporate Software and Technologies RMI.NET
Extricity Software, Inc. SciQuest.com
Fashionmall.com TPN Register
FASTXchange Travelocity.com
Harbinger Corporation TRIP.com
ICG Commerce Vignette Corporation
Intelisys W.W. Grainger, Inc.
No customer accounted for more than 10% of our revenues in the year ended
December 31, 1999. For the year ended December 31, 1998, one customer accounted
for 13% of total revenue and a second customer accounted for 11%. One customer
represented 12% of total revenue during the quarter ended March 31, 2000.
Sales and Marketing
We market our CenterStage products and related services primarily through a
direct sales organization. Our direct sales organization focuses on sales to
recently formed companies that are creating e-Business portals and e-
marketplaces and larger corporate customers building or improving their Web
presence. We maintain a sales office in our headquarters in San Ramon,
California and in offices located in 14 metropolitan areas domestically. We
intend to increase our North American sales force by opening additional field
sales offices and adding sales representatives to our existing territories.
Additionally, we are expanding our presence in international markets by
building an international sales force and have opened offices in France,
Holland, the UK and Singapore.
Since our inception, we have invested substantial resources in a broad range
of marketing activities to generate demand, gain corporate brand identity,
establish the e-Business portal and e-marketplace product category and educate
the market about our products and services. These activities have included
advertising, including both print and online, direct marketing, including
direct mail and e-mail and online seminars, public relations, participating in
trade shows and conferences and providing product information through our Web
site.
In addition to the direct sales channel, we have also entered into several
marketing and referral agreements with industry leading software companies. As
part of these agreements these companies introduce our products and services to
prospective customers to generate qualified sales leads. In some cases we pay a
referral fee for these leads. These fees are based on the net license revenue
we receive from these leads and are included in marketing expense when paid.
These agreements enable us to expand our potential market and help to validate
our solution.
As part of our sales and service offerings, we provide comprehensive product
support through a variety of methods. Our experienced support team members
understand the problems our customers face and work closely with them to help
provide solutions. This comprehensive support enables us to ensure our
customers' satisfaction and increases opportunities for repeat sales and
positive customer references.
Competition
The market for our products and services is intensely competitive, evolving
and prone to rapid technological change. We expect the intensity of competition
to increase in the future. Competitors vary in size and in the scope and
breadth of the products and services offered. To date, we have faced
competition and sales
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resistance from the internal information technology departments of current and
potential customers that have developed or may develop in-house systems that
may substitute for those we offer. We expect that internally developed
infrastructure systems will continue to be a principal source of competition
for the foreseeable future. In the business-to-business integration market, we
encounter competition from webMethods and Vitria Technology, Inc. If we are
successful, we expect to encounter many additional competitors in the future.
In addition, because there are relatively low barriers to entry in the software
market, we expect additional competition from other established and emerging
companies as the Internet software market continues to develop and expand. In
particular, we believe we may face competition from established software and
technology companies with substantial resources that may perceive entry into
our market segment as strategic. We also may face competition from established
companies in the enterprise application integration and e-Business platform
markets, any of which could build and market products that would reduce or
eliminate the need for our technology.
We believe that the principal competitive factors affecting our market
include core technology, product features, product quality and performance and
customer service. Although we believe that our products and services currently
compete favorably with respect to these factors, our market is relatively new
and is rapidly evolving. We may not be able to maintain our competitive
position against current and potential competitors, especially those with
significantly greater financial, marketing, service, support, technical and
other resources.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we have.
In addition, many of our competitors have well-established relationships with
current and potential customers of ours, have extensive knowledge of our
industry and are capable of offering a comparable solution. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products and services than we can. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the products and services to address customer needs. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that competition will
increase as a result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business, operating results and financial condition. We may not be able to
compete successfully against current and future competitors.
Intellectual Property and Proprietary Rights
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of copyright, trade secret and trademark law. We also
enter into confidentiality or license agreements with our employees and
consultants, and other companies with whom we have concluded marketing
agreements and generally seek to control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently. We pursue the registration of our trade and service marks in the
United States and internationally, and we have registered the trademarks
OnDisplay and CenterStage in the United States. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are distributed or made available through the
Internet, and policing unauthorized use of our proprietary information is
difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving. We cannot give any assurance as to the future
viability or value of any of our proprietary rights. In addition, we cannot
give any assurance that the steps taken by us will prevent misappropriation or
infringement of our proprietary information. Any intellectual property
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infringement or misappropriation, should it occur, could have a material
adverse effect on our business, operating results and financial condition.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Any intellectual
property litigation would result in substantial costs and diversion of
resources and management attention and could have a material adverse effect on
our business, operating results and financial condition. Our business
activities may infringe upon the proprietary rights of others, and other
parties may assert infringement claims against us. Any claim and resultant
litigation, should it occur, might subject us to significant liability for
damages and might result in invalidation of our proprietary rights and even if
not meritorious, would be time consuming and expensive to defend and would
result in the diversion of management time and attention, any of which might
have a material adverse effect on our business, operating results and financial
condition.
Employees
As of April 30, 2000, we employed 325 persons. Our success will depend in
large part upon our ability to attract and retain employees. We face
competition in this regard from other companies, but we believe that we
maintain good relations with our employees.
Properties
We sublease approximately 44,700 square feet of office space in two office
locations in San Ramon, California, lease 17,900 square feet in Cambridge,
Massachusetts and sublease smaller sales offices located in 14 metropolitan
areas domestically, as well as sales offices in France, Holland, the United
Kingdom and Singapore. We believe that our San Ramon facilities will meet our
space requirements for the next year. The subleases for the San Ramon
facilities expire in July 2000 and July 2002 with no options to extend. The
Cambridge lease expires in 2001 with an option to extend to 2006.
Legal Proceedings
We are not a party to any material legal proceeding.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Substantially all of our revenues since inception are derived from the
license of applications based on our CenterStage product suite and related
services. Our product pricing is principally based on the number of servers
running the software and the number of different information sources accessed
by each customer. Service revenues consist of fees received for consulting,
maintenance, customer support and training.
We sell our CenterStage products and related services primarily through a
direct sales force based in the United States, Europe and Singapore. In
addition, we have entered into co-marketing arrangements to enhance our
indirect sales channels. In the future, we expect that the majority of our
revenues will continue to be derived from our direct sales force.
Revenues from software license agreements are recognized upon shipment or
upon notification to the customer of the downloadable software location,
provided that a signed contract exists, the fee is fixed or determinable, and
collection of the resulting receivable is probable and, if applicable,
acceptance criteria are met. Service revenues are recognized as services are
performed or, with respect to maintenance, ratably over the contract term,
typically over one year.
Our cost of revenues includes costs associated with the electronic
transmission of software and royalties for third party embedded software, which
are not material, salaries and related expenses for our consulting and
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training services and customer support organizations, cost of third parties
contracted to provide consulting services to customers and an allocation of our
facilities and depreciation expenses.
We allocate the total costs for facilities to each functional area that uses
the overhead and facilities services based on their headcount. These allocated
charges include facility rent for the corporate office, communication charges,
and depreciation expense for office furniture and equipment.
We completed our acquisition of Oberon on March 31, 2000, the last day of
the quarter. The transaction was a stock-for-stock merger, accounted for using
the purchase method of accounting. In connection with the acquisition, we
allocated $189.2 million to acquired intangible assets and goodwill and
recorded a one-time charge of $15.3 million for purchased in-process research
and development. The acquired intangible assets and goodwill will be amortized
over three to four years. Included in our future expenses will be amortization
of acquired intangible assets and goodwill of $35.8 million in 2000, $47.7
million in 2001 and 2002, $46.5 million in 2003 and $11.5 million in 2004.
Since inception, we have incurred substantial research and development costs
and invested heavily in the expansion of our sales, marketing and professional
services organizations to support our long-term growth strategy. The number of
our full-time employees increased from 65 as of December 31, 1998, to 175 as of
December 31, 1999, and to 297, including 90 as a result of our acquisition of
Oberon, as of March 31, 2000. As a result of these expenses, we have incurred
net losses in each fiscal quarter since inception and, as of March 31, 2000,
had an accumulated deficit of $56.4 million, including a one time charge of
$15.3 million for purchased in-process research and development. We intend to
continue expanding our sales and marketing groups and to implement significant
marketing programs to solidify our market position, gain name recognition,
establish an international presence and introduce new products and services. We
also intend to increase our research and development and professional services
groups so that we can continue investing in new products and adding additional
services to benefit our customers. As a result of these anticipated
expenditures we expect to incur net losses in the foreseeable future.
Through March 31, 2000, we have recorded aggregate deferred stock-based
compensation of $33.5 million in connection with stock option grants. This
compensation will be amortized over the four-year vesting period of the
options. Included in future expenses will be stock-based compensation as a
result of stock options granted through December 31, 1999 of $11.1 million in
the remaining nine months of 2000, $8.0 million in 2001, $4.2 million in 2002
and $1.6 million in 2003.
We believe that period-to-period comparisons of our operating results should
not be relied upon as indicative of future performance. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. There can be no
assurance we will be successful in addressing these risks and difficulties.
Although we have experienced revenue growth recently, this growth may not
continue. In addition, we may not achieve or maintain profitability in the
future.
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Results of operations
The following tables set forth statement of operations data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year ended ended March
December 31, 31,
--------------- ---------------
1998 1999 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
License revenues........................... 66.7% 61.6% 40.5% 66.3%
Service revenues........................... 33.3 38.4 59.5 33.7
------ ------ ------ ------
Total revenues......................... 100.0 100.0 100.0 100.0
Cost of license revenues................... -- -- -- --
Cost of service revenues................... 48.5 38.4 56.6 34.0
------ ------ ------ ------
Total cost of revenues................. 48.5 38.4 56.6 34.0
------ ------ ------ ------
Gross profit............................... 51.5 61.6 43.4 66.0
Operating expenses:
Sales and marketing...................... 171.9 107.4 103.2 104.4
Research and development................. 78.9 42.5 47.6 33.1
General and Administrative............... 35.9 30.8 36.4 27.0
Amortization of deferred stock-based
compensation............................ 18.5 33.3 20.8 60.5
Purchased in-process research and
development............................. -- -- -- 217.3
------ ------ ------ ------
Total operating expenses............... 305.2 214.0 208.0 442.3
------ ------ ------ ------
Loss from operations....................... (253.6) (152.3) (164.6) (376.3)
Interest income and other.................. 5.2 4.8 5.5 21.4
Interest expense........................... (1.3) (3.6) (0.8) (2.1)
------ ------ ------ ------
Net loss................................... (249.7)% (151.1)% (159.9)% (357.0)%
====== ====== ====== ======
</TABLE>
Three months ended March 31, 2000 and 1999
Revenues
Our revenues are derived from software licenses and related services. Our
revenues were $7.0 million for the three months ended March 31, 2000, $1.6
million for the year earlier quarter and $4.5 million in the fourth quarter of
1999.
License Revenues. Our license revenues were $4.7 million for the three
months ended March 31, 2000, $628,000 for the year earlier quarter and $2.8
million for the fourth quarter of 1999, and represented 66.3%, 40.5% and 62.3%,
respectively, of total revenues. These dollar increases reflected continued
market acceptance of our CenterStage products in the e-commerce markets, and an
increase in the size and productivity of the sales force.
Service Revenues. Our service revenues were $2.4 million for the three
months ended March 31, 2000, $922,000 for the year earlier quarter and $1.7
million for the fourth quarter of 1999, and represented 33.7%, 59.5% and 37.7%,
respectively, of total revenues. These dollar increases were primarily due to
increases in our customer base and service contracts performed during these
periods. We expect that the proportion of our service revenues to total
revenues will fluctuate in the future, depending in part on our customers'
breadth and scope of implementation and the mix of products implemented.
Cost of Revenues
Our cost of revenues was $2.4 million for the three months ended March 31,
2000, $878,000 for the year earlier quarter and $1.6 million for the fourth
quarter of 1999, representing 34.0%, 56.6% and 36.0%,
42
<PAGE>
respectively, of total revenues. These dollar increases were primarily due to
increases in professional service support personnel to manage and support our
growing customer base. Cost of service revenues, which constitutes
substantially all of cost of revenues, exceeded service revenues in the three
months ended March 31, 2000 primarily due to our investment in our consulting
and training services and customer support organizations. Cost of revenues as a
percentage of revenues may vary between periods due to the mix of services we
provide and the extent to which we utilize outside subcontractors to perform
our service work.
Operating Expenses
Sales and Marketing. Our sales and marketing expenses increased to $7.3
million for the three months ended March 31, 2000 from $1.6 million for the
year earlier quarter and $5.0 million for the fourth quarter of 1999,
representing 104.4%, 103.2% and 110.1%, respectively, of total revenues. The
increase in sales and marketing was primarily due to increased headcount,
increased commissions on higher sales, increased travel and expanded marketing
programs. Compared to the year earlier and preceding quarter, compensation and
related expenditures increased $3.4 million and $1.1 million, respectively,
expenditures for travel increased $716,000 and $547,000, respectively, and
expenditures on marketing programs increased $1.1 million and $384,000,
respectively. We believe sales and marketing will continue to increase in
future periods as we increase our sales force and expand our marketing
programs.
Research and Development. Our research and development expenses increased to
$2.3 million for the three months ended March 31, 2000 from $738,000 for the
year earlier quarter and $1.9 million for the fourth quarter in 1999,
representing 33.1%, 47.6% and 41.7%, respectively, of total revenues. These
increases were substantially all the result of increased personnel costs. We
believe that research and development expenditures will increase substantially
in future periods due to the addition of the Oberon engineering group and our
continued development of additional products and enhancement of existing
products. Technological feasibility of our software is generally not
established until substantially all product development is complete.
Historically, software development costs eligible for capitalization have been
insignificant, and all costs related to research and development have been
expensed as incurred.
General and Administrative. Our general and administrative expenses
increased to $1.9 million for the three months ended March 31, 2000 from
$564,000 for the year earlier quarter and $1.5 million for the fourth quarter
of 1999, representing 27.0%, 36.4% and 33.7%, respectively, of total revenues.
The increase over the year earlier quarter was due to increased personnel costs
of $518,000, professional and outside services of $269,000 and an increase in
our allowance for doubtful accounts of $335,000. The increase over the
preceding quarter was due to increased professional and outside services costs
of $137,000, an increase in our allowance for doubtful accounts of $290,000
offset by a decrease in personnel costs of $84,000 resulting from increased
headcount offset by certain non-recurring expenses incurred in the fourth
quarter of 1999. We believe that general and administrative costs will increase
in future periods as we incur additional costs related to the overall growth of
our company.
Amortization of Deferred Stock-Based Compensation. We have recorded deferred
compensation for the difference between the exercise price of certain stock
option grants and the deemed fair value of our common stock at the time of
these grants. We are amortizing this amount over the vesting periods of the
applicable options, resulting in amortization expense of $4.3 million for the
three months ended March 31, 2000, $322,000 for the year earlier quarter and
$2.1 million for the fourth quarter of 1999.
Purchased In-Process Research and Development. In connection with our March
31, 2000 acquisition of Oberon, $15.3 million of the purchase price was
allocated to in-process research and development, for which technological
feasibility had not been achieved and which had no alternative future use. This
in-process research and development was written off to operating expense.
Loss From Operations. For the three months ended March 31, 2000 we had an
operating loss of $25.1 million compared to an operating loss of $2.5 million
for the year earlier quarter and $7.5 million for the
43
<PAGE>
fourth quarter of 1999. The increase in our operating loss from the prior year
periods was the result of operating expenses increasing $27.9 million over the
year earlier quarter and $20.6 million over the preceding quarter. The largest
components of the increase were the one time charge in the three months ended
March 31, 2000 of $15.3 million for purchased in-process research and
development, the increase in sales and marketing expenses of $5.7 million over
the year earlier quarter and $2.4 million over the preceding quarter and the
increase in amortization of stock-based compensation of $3.9 million over the
year earlier quarter and $2.1 million over the preceding quarter. The increase
was offset in part by higher gross profits which increased $4.0 million over
the year earlier quarter and $1.7 million over the preceding quarter.
Interest Income and Other. Our interest income and other was $1.5 million
for the three months ended March 31, 2000, $85,000 for the year earlier quarter
and $297,000 for the fourth quarter in 1999. The increases in interest income
were primarily the result of higher average cash balances available for
investment.
Interest Expense. Our interest expense was $146,000 for the three months
ended March 31, 2000, $12,000 for the year earlier quarter and $149,000 for the
fourth quarter of 1999. The increase in interest expense resulted from
additional borrowings and higher capital lease obligations; including the
expense related to the valuation of warrants granted to a lender as part of
these borrowings.
Years ended December 31, 1998 and 1999
Revenues
Our revenues are derived from software licenses and related services. Our
revenues were $3.3 million and $11.1 million for the years ended December 31,
1998 and 1999. In 1998 two customers accounted for more than 10.0% of our total
revenues. In 1999 no customer accounted for more than 10.0% of our total
revenues.
License Revenues. Our license revenues were $2.2 million and $6.8 million
for 1998 and 1999, and represented 66.7% and 61.6% of total revenues. This
dollar increase reflected initial market acceptance of our CenterStage products
in the e-commerce markets in 1999, and an increase in the size and productivity
of the sales force. During 1998, license revenues were derived primarily from
enterprise resource planning markets.
Service Revenues. Our service revenues were $1.1 million and $4.3 million
for 1998 and 1999, and represented 33.3% and 38.4% of total revenues. The
increase in 1999 service revenues, compared to the 1998 service revenues, was
primarily due to the increase in our customer base and service contracts
performed during this period. We expect that the proportion of our service
revenues to total revenues will fluctuate in the future, depending in part on
our customers' breadth and scope of implementation and the mix of products
implemented.
Cost of Revenues
Our cost of revenues was $1.6 million, representing 48.5% of revenues, and
$4.3 million, representing 38.4% of revenues, for 1998 and 1999. This dollar
increase was primarily due to an increase in professional service support
personnel to manage and support our growing customer base. Cost of service
revenues, which constitutes substantially all of cost of revenues, has exceeded
service revenues primarily due to our investment in our consulting and training
services and customer support organizations. Cost of revenues as a percentage
of revenues may vary between periods due to the mix of services we provide and
the extent to which we utilize outside subcontractors to perform our service
work.
Operating Expenses
Sales and Marketing. Our sales and marketing expenses increased 107.4% from
$5.7 million, representing 171.9% of revenues, in 1998 to $11.9 million,
representing 107.4% of revenues, in 1999. This dollar increase was primarily
due to an increase of approximately $3.7 million in compensation and recruiting
44
<PAGE>
expenses, resulting principally from increased staffing and higher sales
commissions related to the period to period increase in revenues, and increased
spending of $1.5 million on marketing programs. We believe sales and marketing
will increase substantially in future periods as we continue to expand our
sales force, establish our international presence and expand our marketing
programs.
Research and Development. Our research and development expenses increased
78.8% from $2.6 million, representing 78.9% of revenues, in 1998 to $4.7
million, representing 42.5% of revenues, in 1999. This dollar increase was
primarily due to an increased personnel costs of approximately $900,000 as well
as increased costs related to contract development personnel of approximately
$823,000. We believe that research and development expenditures will increase
substantially in future periods as we continue to develop additional products
and enhance existing products. Technological feasibility of our software is
generally not established until substantially all product development is
complete. Historically, software development costs eligible for capitalization
have been insignificant, and all costs related to research and development have
been expensed as incurred.
General and Administrative. Our general and administrative expenses
increased 184.6% from $1.2 million, representing 35.9% of revenues in 1998, to
$3.4 million, representing 30.8% of revenues, in 1999. This dollar increase was
primarily due to increased personnel costs of approximately $777,000,
facilities expansion costs of approximately $446,000, professional and outside
service fees of approximately $586,000, and other costs related to supporting
the expansion of our business. We believe that general and administrative costs
will increase in future periods as we incur additional costs related to the
overall growth of our company.
Amortization of Deferred Stock-Based Compensation. During 1998 and 1999, we
recorded deferred compensation of $2.2 million and $31.3 million in connection
with stock option grants. We are amortizing this amount over the vesting
periods of the applicable options, resulting in amortization expense of
$618,000 and $3.7 million for 1998 and 1999.
Loss From Operations. For 1999 we had an operating loss of $16.9 million
compared to an operating loss of $8.5 million for 1998. The increase in our
operating loss from the prior year period was the result of our operating
expenses increasing $13.5 million, the largest components of which were the
$6.2 million increase in sales and marketing expenses and the $3.1 million
increase in amortization of stock-based compensation, while gross profit
increased $5.1 million.
Interest Income and Other. Our interest income and other was $174,000 and
$532,000 for 1998 and 1999. The increase in interest income was primarily the
result of higher average cash balances available for investment.
Interest Expense. Our interest expense was $43,000 and $394,000 for 1998 and
1999. Increased interest expense resulted from additional borrowings and higher
capital lease obligations during 1999; including the expense related to the
valuation of warrants granted to a lender as part of these borrowings.
Years ended December 31, 1997 and 1998
Revenues
Our revenues were $265,000 and $3.3 million for 1997 and 1998. In 1997,
three customers accounted for more than 10.0% of total revenues, and in 1998
two customers accounted for more than 10.0% of our total revenues.
License Revenues. Our license revenues were $265,000 and $2.2 million in
1997 and 1998. This increase in license revenues was attributable to an
increase in sales to new customers resulting from increased headcount in our
sales force.
Service Revenues. Our service revenues were $1.1 million in 1998, which was
the first year we offered consulting, implementation, maintenance, training and
customer support services. We began recognition of revenues from maintenance
contracts in 1998. Service revenues represented 33.3% of our total revenues in
1998.
45
<PAGE>
Cost of Revenues
Our cost of revenues was $1.6 million in 1998, which was the first year we
offered consulting, implementation, maintenance, training and customer support
services. In 1998 we established our consulting and customer support
organization, which required hiring and training of personnel prior to selling
and recognizing revenues for these services.
Operating Expenses
Sales and Marketing. Our sales and marketing expenses were $2.8 million and
$5.7 million, in 1997 and 1998. This increase was primarily due to our
investment in our sales and marketing infrastructure, which included
significant personnel-related expenses such as salaries, benefits and
commissions, recruiting fees, and related costs of hiring sales management,
sales representatives, sales engineers and marketing personnel. Personnel-
related expenses increased approximately $2.0 million in 1998.
Research and Development. Our research and development expenses were $2.0
million and $2.6 million, in 1997 and 1998. These increases were primarily due
to the increase in the number of software developers, quality assurance
personnel and outside contractors to support our product development and
testing activities related to the development and release of our CenterStage
suite of products. Personnel-related expenses increased approximately $644,000
in 1998.
General and Administrative. Our general and administrative expenses were
$1.2 million in both 1997 and 1998. These expenses remained flat from 1997 to
1998, as we directed our resources toward growing our sales and marketing and
our research and development organizations, rather than expanding our general
and administrative organization.
Amortization of Deferred Stock-Based Compensation. During 1998 we recorded
deferred compensation of $2.2 million in connection with stock option grants.
We are amortizing this amount over the vesting periods of the applicable
options, resulting in amortization expenses of $618,000 in 1998.
Loss From Operations. Our operating losses were $5.7 million and $8.5
million for 1997 and 1998. The year to year increase in our operating loss from
the prior year period was the result of our operating expenses increasing at a
rate higher than our revenues and gross profit.
Interest Income and Other. Our interest income and other were $173,000 and
$174,000 in 1997 and 1998. Interest income and other was earned from the
investment of cash generated from the proceeds of preferred stock sales.
Interest Expense. Our interest expense was $18,000 and $43,000 in 1997 and
1998. Interest expense resulted from a financing agreement established in June
1997 to purchase equipment.
46
<PAGE>
Quarterly results of operations
The following table sets forth unaudited statement of operations data for
the eight quarters in the two year period ended March 31, 2000 and data
expressed as a percentage of our total revenues for the periods indicated. This
data has been derived from our unaudited Financial Statements that have been
prepared on the same basis as the audited Financial Statements and, in the
opinion of our management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the information
when read in conjunction with the Financial Statements and Notes. Our quarterly
results have been in the past and may in the future be susceptible to
significant fluctuations. As a result, we believe that results of operations
for interim periods should not be relied upon as any indication of the results
to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------
June 30, Sept. 30 Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data
License revenues........ $ 431 $ 692 $ 661 $ 628 $ 1,309 $ 2,081 $ 2,821 $ 4,665
Service revenues........ 189 376 462 922 796 832 1,709 2,376
------- ------- ------- ------- ------- ------- ------- --------
Total revenues........ 620 1,068 1,123 1,550 2,105 2,913 4,530 7,041
Cost of license revenue -- 1 1 1 2 2 2 2
Cost of service
revenue................ 356 484 664 877 1,101 644 1,629 2,393
------- ------- ------- ------- ------- ------- ------- --------
Total cost of
revenue.............. 356 485 665 878 1,103 646 1,631 2,395
------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ 264 583 458 672 1,002 2,267 2,899 4,646
------- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Sales and marketing.... 1,296 1,737 1,622 1,600 2,493 2,838 4,986 7,349
Research and
development........... 682 648 633 738 900 1,187 1,889 2,327
General and
administrative........ 167 324 516 564 686 641 1,527 1,904
Amortization of
deferred stock-based
compensation.......... 117 182 242 322 447 782 2,146 4,262
Purchased in process
research and
development........... -- -- -- -- -- -- -- 15,300
------- ------- ------- ------- ------- ------- ------- --------
Total Operating
expenses............. 2,262 2,891 3,013 3,224 4,526 5,448 10,548 31,142
------- ------- ------- ------- ------- ------- ------- --------
Loss from operations.... (1,998) (2,308) (2,555) (2,552) (3,524) (3,181) (7,649) (26,496)
Interest income and
other.................. 17 59 59 85 -- 150 297 1,507
Interest expense........ (11) (11) (11) (12) (71) (162) (149) (146)
------- ------- ------- ------- ------- ------- ------- --------
Net loss................ $(1,992) $(2,260) $(2,507) $(2,479) $(3,595) $(3,193) $(7,501) $(25,135)
======= ======= ======= ======= ======= ======= ======= ========
As a Percentage of Total
Revenues
License revenues........ 69.5% 64.8% 58.9% 40.5% 62.2% 71.4% 62.3% 66.3 %
Service revenues........ 30.5 35.2 41.1 59.5 37.8 28.6 37.7 33.7
------- ------- ------- ------- ------- ------- ------- --------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of license revenue -- -- -- -- -- -- -- --
Cost of service
revenue................ 57.4 45.4 59.2 56.6 52.4 22.2 36.0 34.0
------- ------- ------- ------- ------- ------- ------- --------
Total cost of
revenue.............. 57.4 45.4 59.2 56.6 52.4 22.2 36.0 34.0
------- ------- ------- ------- ------- ------- ------- --------
Gross profit............ 42.6 54.6 40.8 43.4 47.6 77.8 64.0 66.0
------- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Sales and marketing.... 209.0 162.6 144.4 103.2 118.4 97.4 110.1 104.4
Research and
development........... 110.0 60.7 56.4 47.6 42.8 40.7 41.7 33.1
General and
administrative........ 26.9 30.3 45.9 36.4 32.6 22.0 33.7 27.0
Amortization of
deferred stock-based
compensation.......... 18.9 17.0 21.5 20.8 21.2 26.9 47.4 60.5
Purchased in process
research and
development........... -- -- -- -- -- -- -- 217.3
------- ------- ------- ------- ------- ------- ------- --------
Total Operating
expenses............. 364.8 270.7 268.3 208.0 215.0 187.0 232.9 442.3
------- ------- ------- ------- ------- ------- ------- --------
Loss from operations.... (322.3) (216.1) (227.5) (164.6) (167.4) (109.2) (168.9) (376.3)
Interest income and
other.................. 2.8 5.5 5.2 5.4 -- 5.2 6.6 21.4
Interest expense........ (1.8) (1.0) (0.9) (0.7) (3.4) (5.6) (3.3) (2.1)
------- ------- ------- ------- ------- ------- ------- --------
Net loss................ (321.3)% (211.6)% (223.2)% (159.9)% (170.8)% (109.6)% (165.6)% (357.0)%
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
47
<PAGE>
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. These factors include:
. Demand for and timing of the sales of our CenterStage products and
related services;
. Actions taken by our competitors, including new product introductions and
enhancements;
. Changes in the rapidly evolving market for e-Business infrastructure
applications;
. Our ability to develop, introduce and market e-Business infrastructure
applications and enhancements to our existing CenterStage products on a
timely basis;
. Changes in our pricing policies and those of our competitors; and
. Our inability to complete large sales on schedule.
We have experienced delays in the planned release dates of our new software
products or upgrades in the past, and have discovered software defects in our
new products after their introduction. Our new products or upgrades may not be
released according to schedule, or when released may contain defects. Either of
these situations could result in adverse publicity, loss of revenues, delay in
market acceptance and claims by customers brought against us, any of which
could harm our business. In addition, the timing of individual sales has been
difficult for us to predict, and large individual sales have, in some cases,
occurred in quarters subsequent to those anticipated by us. The loss or
deferral of one or more significant sales may harm our quarterly operating
results.
We expect that, based on seasonal factors that typically affect companies in
the software industry, our license revenues in the first quarter may in the
future tend to be lower than those in the fourth quarter.
Liquidity and capital resources
At March 31, 2000 we had cash and cash equivalents and short-term
investments of $125.3 million, compared to $109.6 million at December 31, 1999,
an increase of $15.7 million.
In December 1999, we completed our initial public offering of common stock.
In January 2000, the underwriters exercised their overallotment option for
525,000 shares resulting in additional proceeds of $13.6 million.
Net cash used in operating activities was $14,000 for the three months ended
March 31, 2000. Net cash used in operating activities in 2000 reflects an
increase in deferred revenue of $5.2 million which includes prepaid maintenance
and services as well as funds received for license transactions which have not
yet been recognized as revenue. This is offset by the net loss for the quarter,
excluding the non-cash charges related to in-process research and development
and amortization of deferred stock-based compensation.
For the three months ended March 31, 2000 capital expenditures, including
those under capital leases, totaled $1.8 million. Cash of approximately $3.5
million was received as a result of the purchase of Oberon.
We believe that we have working capital sufficient to meet our operational
and capital expenditure requirements for at least the next twelve months.
Quantitative and qualitative disclosures about market risk
Our exposure to market risk for changes in interest rates relate primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio. By policy, we place our investments with high credit
quality issuers, invest only in U.S. Government securities and marketable
securities with active secondary or resale markets to ensure portfolio
liquidity and, with the exception of the U.S. Government and its agencies,
limit the amount of credit exposure to any one issuer. The portfolio's average
weighted maturity may
48
<PAGE>
not exceed 6 months and the maximum maturity of any single obligation may not
exceed 13 months. Investment maturities are staggered within the portfolio in
order to minimize the need to sell securities to meet liquidity requirements
and the portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity. We have no investments
denominated in foreign country currencies and therefore are not subject to
foreign currency risk on these kinds of investments.
The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"). All cash equivalent,
short term and long term investments are treated as "available for sale" under
SFAS 115.
The table below presents principal amounts and related weighted average
interest rates for our investment portfolio. All securities at March 31, 2000
mature in one year or less and are classified as short-term.
<TABLE>
<CAPTION>
Average
Fair Value Interest Rate
-------------- -------------
(in thousands)
<S> <C> <C>
Commercial Paper................................ $ 69,776 5.82%
United States Government Agencies............... 30,107 6.13%
Corporate notes and bonds....................... 8,074 6.41%
--------
$107,957
========
</TABLE>
Currently, the majority of our sales and expenses are denominated in U.S.
dollars and, as a result, we have not experienced significant foreign exchange
gains and losses to date.
Recent Development
OnDisplay completed its acquisition of Oberon on March 31, 2000. Oberon
offers software solutions designed to help its customers automate the
integration of multiple application software offerings. Oberon's solutions
enable the connection of customers and suppliers, the automation of internal
business processes required to work effectively with customers and suppliers,
and the ability to rapidly respond to changes in these relationships. This is
accomplished through Oberon's e-Enterprise suite of integration products, a
visual integration development environment and suite of intelligent
applications and technology adapters. Together, these simplify the integration
of business applications, and a growing network of third-party application and
service partners. Oberon's products and services are designed to support each
state of e-Business integration; including intra-enterprise, business-to-
business, business-to-consumer and e-marketplace.
49
<PAGE>
THE OFFER
The Offer
We are offering to exchange 1.58 shares of Vignette common stock for each
outstanding share of OnDisplay common stock validly tendered and not properly
withdrawn, subject to the terms and conditions described in this prospectus and
the related letter of transmittal.
You will not receive any fractional shares of Vignette common stock.
Instead, you will receive cash in an amount equal to the market value of any
fractional shares you would otherwise have been entitled to receive as
described below.
The expiration date shall refer to 12:00 midnight, New York City time, on
June 29, 2000, unless we extend the period of time for which the offer is open,
in which case the term expiration date means the latest time and date on which
the offer, as so extended, expires.
If you are the record owner of your shares and you tender your shares
directly to the Exchange Agent, you will not incur any brokerage commissions.
If you own your shares through a broker or other nominee, and your broker
tenders the shares on your behalf, your broker may charge you a fee for doing
so. You should consult your broker or nominee to determine whether any charges
will apply. Any transfer taxes on the exchange of OnDisplay common stock
pursuant to the offer that are imposed on the acquiror of the OnDisplay stock
will be paid by us or on our behalf. Any transfer taxes on the exchange of
OnDisplay common shares pursuant to the offer that are imposed on the
transferor of the OnDisplay shares will be paid by you.
We are making this offer in order to acquire all of the outstanding shares
of OnDisplay common stock. We intend, as soon as possible after completion of
the offer, to have Wheels Acquisition Corp., the purchaser in the offer, merge
with OnDisplay. The purpose of the merger is to acquire all OnDisplay shares
not tendered and exchanged pursuant to the offer. In the merger, each then
outstanding share of OnDisplay common stock, except for treasury shares of
OnDisplay and shares that we hold for our own account, would be converted into
the same number of Vignette shares per OnDisplay share as is paid in the offer.
Our obligation to exchange shares of Vignette common stock for OnDisplay
shares pursuant to the offer is subject to several conditions referred to below
under "Conditions of the Offer," including the minimum tender condition, the
regulatory clearance condition and other conditions that are discussed below.
Timing of Our Offer
Our offer is scheduled to expire at 12:00 midnight, New York City time, on
June 29, 2000, but we are obligated, with some exceptions, to extend our offer
from time to time as necessary until all the conditions to the offer have been
satisfied or, where permissible, waived. For more information, you should read
the discussion under the caption "Extension, Termination and Amendment."
Extension, Termination and Amendment
We expressly reserve the right, in our sole discretion (subject to the
provisions of the merger agreement), at any time or from time to time, to
extend the period of time during which our offer remains open, and we can do so
by giving oral or written notice of the extension to the exchange agent. If we
decide to so extend our offer, we will make an announcement to that effect no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. Subject to the provisions of the merger
agreement, we are not making any assurance that we will exercise our right to
extend our offer, although the merger agreement, subject to exceptions,
currently obligates us to do so until all conditions to the offer have been
satisfied or waived. During an extension, all OnDisplay shares previously
tendered and not properly withdrawn will remain subject to the offer, subject
to your right to withdraw your OnDisplay shares. You should read the discussion
under the caption "Withdrawal Rights" for more details.
50
<PAGE>
Subject to the SEC's applicable rules and regulations, we also reserve the
right, in our sole discretion, but subject to the provisions of the merger
agreement, at any time or from time to time, (a) to delay acceptance for
exchange of or, regardless of whether we previously accepted OnDisplay shares
for exchange, exchange of any OnDisplay shares pursuant to our offer or to
terminate our offer and not accept or exchange any OnDisplay shares not
previously accepted, or exchanged, upon the failure of any of the conditions of
the offer to be satisfied and (b) to waive any condition, other than the
regulatory clearance condition and the conditions relating to the absence of an
injunction and the effectiveness of the registration statement for the Vignette
shares to be issued in our offer or otherwise amend the offer in any respect,
by giving oral or written notice of the waiver or amendment to the exchange
agent and by making a public announcement.
We intend to request effectiveness of the registration statement filed with
the SEC at least five business days before the initial expiration date of the
offer, which would mean on or before Thursday, June 22, 2000. If the
registration statement has not been declared effective at the initial
expiration of the offer, we intend to extend the offer and announce the
extension via the Dow Jones News Service no later than 9:00 a.m., New York City
time, on Friday, June 30, 2000.
We will follow any extension, termination, amendment or delay, as promptly
as practicable, with a public announcement. In the case of an extension, any
announcement will be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. Subject to
applicable law, including Rules 14d-4(d) and 14d-6(c) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders in connection with the offer be promptly sent to
stockholders in a manner reasonably designed to inform stockholders of the
change, and without limiting the manner in which we may choose to make any
public announcement, we assume no obligation to publish, advertise or otherwise
communicate any public announcement other than by making a release to the Dow
Jones News Service.
We confirm to you that if we make a material change in the terms of our
offer or the information concerning the offer, or if we waive a material
condition of the offer, we will extend the offer to the extent required under
the Exchange Act. If, prior to the expiration date, we change the percentage of
OnDisplay shares being sought or the consideration offered to you, that change
will apply to all holders whose OnDisplay shares are accepted for exchange
pursuant to our offer. If at the time notice of that change is first published,
sent or given to you, the offer is scheduled to expire at any time earlier than
the tenth business day from and including the date that the notice is first so
published, sent or given, we will extend the offer until the expiration of that
ten business day period. For purposes of our offer, a "business day" means any
day other than a Saturday, Sunday or federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time.
We may, although we do not currently intend to, elect to provide a
subsequent offering period of three to 20 business days after the acceptance of
OnDisplay shares in the offer if the requirements under Exchange Act Rule 14d-
11 have been met. You will not have the right to withdraw OnDisplay shares that
you tender in the subsequent offering period, if any.
Exchange of OnDisplay Shares; Delivery of Vignette Common Stock
Upon the terms and subject to the conditions of our offer including, if the
offer is extended or amended, the terms and conditions of the extension or
amendment, we will accept for exchange, and will exchange, OnDisplay shares
validly tendered and not properly withdrawn as promptly as practicable after
the expiration date and promptly after they are tendered during any subsequent
offering period. In addition, subject to applicable rules of the SEC, we
expressly reserve the right to delay acceptance for exchange or the exchange of
OnDisplay shares in order to comply with any applicable law. In all cases,
exchange of OnDisplay shares tendered and accepted for exchange pursuant to the
offer will be made only after timely receipt by the exchange agent of
certificates for those OnDisplay shares (or a confirmation of a book-entry
transfer of those OnDisplay shares in the exchange agent's account at The
Depository Trust Company, which we refer to as the "DTC"), a properly completed
and duly executed letter of transmittal or a manually signed facsimile of that
document and any other required documents.
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For purposes of the offer, we will be deemed to have accepted for exchange
OnDisplay shares validly tendered and not properly withdrawn as, if and when we
notify the exchange agent of our acceptance of the tenders of those OnDisplay
shares pursuant to the offer. The exchange agent will deliver Vignette common
stock (and cash instead of any fractional shares of Vignette common stock) in
exchange for OnDisplay shares pursuant to the offer as soon as practicable
after receipt of our notice. The exchange agent will act as agent for Vignette
for the purpose of receiving Vignette common stock and any cash to be paid
instead of any fractional shares of Vignette common stock and transmitting the
stock and cash, if any, to you. You will not receive any interest on any cash
that we pay you, even if there is a delay in making the exchange.
If we do not accept any tendered OnDisplay shares for exchange pursuant to
the terms and conditions of the offer for any reason, or if certificates are
submitted for more OnDisplay shares than are tendered, we will return
certificates for the unexchanged OnDisplay shares to the tendering stockholder
or, in the case of OnDisplay shares tendered by book-entry transfer of
unexchanged OnDisplay shares into the exchange agent's account at DTC pursuant
to the procedures set forth below under the discussion entitled "Procedure for
Tendering," those OnDisplay shares will be credited to an account maintained
within DTC, as soon as practicable following expiration or termination of the
offer.
Cash Instead of Fractional Shares of Vignette Common Stock
We will not issue certificates representing fractional shares of our common
stock pursuant to the offer. Instead, each tendering stockholder who would
otherwise be entitled to a fractional share of our common stock will receive
cash in an amount equal to that fraction multiplied by the closing price of
Vignette common stock, as reported on the Nasdaq National Market, on the first
date on which we accept shares for exchange in the offer.
Withdrawal Rights
Your tender of OnDisplay shares pursuant to the offer is irrevocable, except
that, other than during a subsequent offering period, OnDisplay shares tendered
pursuant to the offer may be withdrawn at any time prior to the expiration
date, and, unless we previously accepted them for exchange pursuant to the
offer, may also be withdrawn at any time after July 31, 2000. If we elect to
provide a subsequent offering period under Exchange Act Rule 14d-11, you will
not have the right to withdraw OnDisplay shares that you tender in the
subsequent offering period.
For your withdrawal to be effective, the exchange agent must receive from
you a written, telex or facsimile transmission notice of withdrawal at one of
its addresses set forth on the back cover of this prospectus, and your notice
must include your name, address, social security number, the certificate
number(s) and the number of OnDisplay shares to be withdrawn as well as the
name of the registered holder, if it is different from that of the person who
tendered those OnDisplay shares.
A financial institution must guarantee all signatures on the notice of
withdrawal unless those OnDisplay shares have been tendered for the account of
any eligible institution. Most banks, savings and loan associations and
brokerage houses are able to provide these signature guarantees for you. The
financial institution must be a participant in the Securities Transfer Agents
Medallion Program, an "eligible institution." If OnDisplay shares have been
tendered pursuant to the procedures for book-entry tender discussed under the
caption entitled "Procedure for Tendering," any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn OnDisplay shares and must otherwise comply with DTC's procedures. If
certificates have been delivered or otherwise identified to the exchange agent,
the name of the registered holder and the serial numbers of the particular
certificates evidencing the OnDisplay shares withdrawn must also be furnished
to the exchange agent, as stated above, prior to the physical release of the
certificates. We will decide all questions as to the form and validity
(including time of receipt) of any notice of withdrawal, in our sole
discretion, and our decision shall be final and binding.
Neither we, the exchange agent, the information agent nor any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or will incur any liability for failure to give any
notification. Any OnDisplay shares properly withdrawn will be deemed not to
have been validly tendered for purposes of our offer. However, you may retender
withdrawn OnDisplay shares by following one
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of the procedures discussed under the captions entitled "Procedure for
Tendering" or "Guaranteed Delivery" at any time prior to the expiration date.
Procedure for Tendering
For you to validly tender OnDisplay shares pursuant to the offer, (a) the
enclosed letter of transmittal, properly completed and duly executed (or
manually executed facsimile of that document), along with any required
signature guarantees, or an agent's message in connection with a book-entry
transfer, and any other required documents, must be transmitted to and received
by the exchange agent at one of its addresses set forth on the back cover of
this prospectus, and certificates for tendered OnDisplay shares must be
received by the exchange agent at one of these addresses or those OnDisplay
shares must be tendered pursuant to the procedures for book-entry tender set
forth below (and a confirmation of receipt of the tender received, which
confirmation we refer to below as a "book-entry confirmation"), in each case
before the expiration date, or (b) you must comply with the guaranteed delivery
procedures set forth below.
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the participant in DTC tendering the OnDisplay shares which are the subject of
the book-entry confirmation, that the participant has received and agrees to be
bound by the terms of the letter of transmittal and that we may enforce that
agreement against the participant.
The exchange agent will establish accounts with respect to the OnDisplay
shares at DTC for purposes of the offer within two business days after the date
of this prospectus, and any financial institution that is a participant in DTC
may make book-entry delivery of the OnDisplay shares by causing DTC to transfer
tendered OnDisplay shares into the exchange agent's account in accordance with
DTC's procedure for the transfer. However, although delivery of OnDisplay
shares may be effected through book-entry at DTC, the letter of transmittal (or
a manually signed facsimile thereof), with any required signature guarantees,
or an agent's message in connection with a book-entry transfer, and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent at one or more of its addresses set forth on the back cover of
this prospectus prior to the expiration date, or the guaranteed delivery
procedures described below must be followed.
Signatures on all letters of transmittal must be guaranteed by an eligible
institution, except in cases in which OnDisplay shares are tendered either by a
registered holder of OnDisplay shares who has not completed the box entitled
"Special Issuance Instructions" on the letter of transmittal or for the account
of an eligible institution.
If the certificates for OnDisplay shares are registered in the name of a
person other than the person who signs the letter of transmittal, or if
certificates for unexchanged OnDisplay shares are to be issued to a person
other than the registered holder(s), the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates,
with the signature(s) on the certificates or stock powers guaranteed in the
manner we have described above.
The method of delivery of OnDisplay share certificates and all other
required documents, including delivery through DTC, is at your option and risk,
and the delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, we recommend registered mail with
return receipt requested, properly insured. In all cases, you should allow
sufficient time to ensure timely delivery.
Guaranteed Delivery
If you wish to tender OnDisplay shares pursuant to our offer and your
certificates are not immediately available or you cannot deliver the
certificates and all other required documents to the exchange agent prior to
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the expiration date or cannot complete the procedure for book-entry transfer on
a timely basis, your OnDisplay shares may nevertheless be tendered, so long as
all of the following conditions are satisfied:
. You make your tender by or through an eligible institution;
. The enclosed notice of guaranteed delivery, properly completed and duly
executed, substantially in the form enclosed with this prospectus, is
received by the exchange agent as provided below on or prior to the
expiration date; and
. The certificates for all tendered OnDisplay shares (or a confirmation of
a book-entry transfer of tendered securities into the exchange agent's
account at DTC as described above), in proper form for transfer, together
with a properly completed and duly executed letter of transmittal (or a
manually signed facsimile thereof), with any required signature
guarantees (or, in the case of a book-entry transfer, an agent's message)
and all other documents required by the letter of transmittal are
received by the exchange agent within three Nasdaq trading days after the
date of execution of the notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand or transmit it by
facsimile transmission or mail to the exchange agent and you must include a
signature guarantee by an eligible institution in the form set forth in that
notice.
In all cases, we will exchange OnDisplay shares tendered and accepted for
exchange pursuant to our offer only after timely receipt by the exchange agent
of certificates for OnDisplay shares (or timely confirmation of a book-entry
transfer of tendered securities into the exchange agent's account at DTC as
described above), properly completed and duly executed letter(s) of transmittal
(or a manually signed facsimile(s) thereof), or an agent's message in
connection with a book-entry transfer, and any other required documents.
By executing a letter of transmittal as set forth above, you irrevocably
appoint our designees as your attorneys-in-fact and proxies, each with full
power of substitution, to the full extent of your rights with respect to your
OnDisplay shares tendered and accepted for exchange by us and with respect to
any and all other OnDisplay shares and other securities (other than the shares
of Vignette common stock) issued or issuable in respect of the OnDisplay shares
on or after June 29, 2000. That appointment is effective, and voting rights
will be affected, when and only to the extent that we deposit the shares of our
common stock for OnDisplay shares that you have tendered with the exchange
agent. All of these proxies shall be considered coupled with an interest in the
tendered OnDisplay shares and therefore shall not be revocable. Upon the
effectiveness of the appointment, all prior proxies that you have given will be
revoked, and you may not give any subsequent proxies (and, if given, they will
not be deemed effective). Our designees will, with respect to the OnDisplay
shares for which the appointment is effective, be empowered, among other
things, to exercise all of your voting and other rights as they, in their sole
discretion, deem proper at any annual, special or adjourned meeting of
OnDisplay's stockholders or otherwise. We reserve the right to require that, in
order for OnDisplay shares to be deemed validly tendered, immediately upon our
exchange of those OnDisplay shares, we must be able to exercise full voting
rights with respect to the tendered OnDisplay shares.
We will determine questions as to the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of OnDisplay shares,
in our sole discretion, and our determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of OnDisplay shares
that we determine are not in proper form or the acceptance of or exchange for
which may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any of the conditions of our offer (other than the
regulatory clearance condition and the conditions relating to the absence of an
injunction and the effectiveness of the registration statement for Vignette
shares to be issued in our offer), or any defect or irregularity in the tender
of any OnDisplay shares. No tender of those OnDisplay shares will be deemed to
have been validly made until all defects and irregularities in tenders of those
OnDisplay shares have been cured or waived. Neither we, the exchange agent, the
information agent nor any other person will be under any duty to give
notification of any defects or irregularities in the tender of any OnDisplay
shares or will incur any liability for failure to give
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notification. Our interpretation of the terms and conditions of our offer
(including the letter of transmittal and instructions thereto) will be final
and binding.
The tender of OnDisplay shares pursuant to any of the procedures described
above will constitute a binding agreement between us and you upon the terms and
subject to the conditions of the offer.
Background of the Offer
Vignette and OnDisplay regularly review private and public companies with
which they may form strategic partnerships to further their objectives in the
Internet commerce market.
On April 15, 1999, OnDisplay and Vignette entered into an agreement pursuant
to which the parties agreed to participate in certain future cooperative
marketing activities. During the term of this agreement, OnDisplay and Vignette
have pursued joint sales opportunities, participated in joint marketing events,
and have characterized the other as a partner on their respective websites.
On November 2, 1999, OnDisplay and Vignette entered into an agreement,
pursuant to which OnDisplay licensed CenterStage Agent Engine and CenterStage
Builder to Vignette to sublicense, market and distribute such software and to
allow Vignette's distributors, resellers and agents to use, sublicense, market
and distribute such software.
On February 24, 2000, Gregory A. Peters, Chairman, President and Chief
Executive Officer of Vignette and Mark Pine, Chairman and Chief Executive
Officer of OnDisplay met at Vignette headquarters in Austin, Texas to discuss
the existing relationship between the two companies.
On March 15, 2000, representatives of Vignette's and OnDisplay's engineering
and product strategy teams met at OnDisplay headquarters in San Ramon,
California, to further understand the other's products and technologies.
On March 16, 2000, Santi Pierini, Vice President of Product Marketing for
OnDisplay met with Erik Josowitz, Vice President of Product Strategy for
Vignette, at Vignette headquarters in Austin, Texas to continue the discussions
from the previous day. Mr. Pierini updated Mr. Josowitz on various business and
strategic initiatives at OnDisplay and discussed the status of several
products.
On March 23, 2000, Mr. Peters called Mr. Pine to request a meeting at
OnDisplay headquarters in San Ramon, California to discuss means of further
developing the relationship between the companies.
On March 26, 2000, Mr. Pine and Mr. Peters met with Venkat Mohan,
OnDisplay's President and Chief Operating Officer, David Petroni, OnDisplay's
Vice President of Corporate Development, William Daniel, Vignette's Senior Vice
President of Products and Charles Sansbury, Vignette's Senior Vice President of
Corporate Development. Both companies presented each other with a strategic
overview and discussed opportunities to deepen the relationship, including a
potential business combination.
On April 24, 2000, Mr. Sansbury telephoned Mr. Petroni informing him that
Vignette would like to continue discussions of a possible business combination.
On May 2, 2000, Mr. Petroni and Olivier Sermet, Senior Vice President,
Worldwide Field Operations of OnDisplay, met with Mr. Sansbury, Joel Katz,
Chief Financial Officer of Vignette, David Brodsky, Vice President of Finance
of Vignette and Catherine Turco, Manager of Corporate Development of Vignette
in Austin, Texas to discuss a potential business combination. At that meeting,
the companies signed a mutual confidentiality agreement and reviewed public and
non-public financial and operational information about each other.
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On May 3, 2000, management of the two companies and their respective
financial and legal advisors initiated their due diligence review, which
continued through the execution of the merger agreement.
On May 9, 2000, management of the two companies began to discuss the general
parameters of a possible business combination, but no agreements were reached.
On May 10, 2000, OnDisplay engaged FleetBoston Robertson Stephens Inc.
("Robertson Stephens") to provide financial advisory services to OnDisplay in
connection with the potential business combination with Vignette.
On May 13, 2000, Mr. Sansbury and Mr. Petroni discussed the legal and
structural parameters of a potential business combination.
On May 14, 2000, Mr. Sansbury, Mr. Petroni and their respective legal
advisors discussed in detail a potential business combination including the
legal structure of the combination, the form of consideration, the parties' due
diligence requirements, the timing of the process and the provisions for
terminating the potential business combination.
On May 14, 2000, Mr. Peters and Mr. Pine commenced detailed negotiations of
the calculation of the exchange ratio. They discussed, among other factors,
each individual company's contribution to the combined entity based on
historical revenue, employees, and expectation of revenue for 2000 based on
publicly available research. No final agreement was reached at this time.
On May 16, 2000, the OnDisplay board of directors held a telephonic meeting
to discuss the potential business combination. At the outset of the meeting,
John Mandile, a managing director of Sigma Partners and a member of the board
of directors of OnDisplay was excused from any discussions on the matter, due
to the fact that another managing director of Sigma Partners is a member of the
board of directors of Vignette. The management of OnDisplay explained the
background of the relationship, and the status of the negotiations. At this
meeting, representatives of Wilson Sonsini Goodrich & Rosati reviewed the
responsibilities of the board of directors in considering the proposed
transaction. The board of directors discussed the strategic rationale for a
proposed business combination. The board of directors authorized management to
continue the negotiations with Vignette.
On May 16, 2000, the management of the two companies and their respective
financial and legal advisors commenced negotiations of the definitive merger
agreement and its material terms, including structuring the transaction as an
exchange offer followed by a merger, the exchange ratio, conditions to the
offer, obligations of OnDisplay and its officers and directors to not solicit
or support competing proposals, termination fees and changes in OnDisplay
employee benefit arrangements in connection with the transaction. They also
continued their due diligence review.
On May 17, 2000, representatives of Vignette and OnDisplay and their
respective financial advisors met to discuss the businesses, financial
conditions and organizations of the two companies. Negotiation over the merger
agreement continued over the next few days, including with respect to the
exchange ratio and other material terms.
On May 20, 2000, the OnDisplay board of directors held a telephonic board
meeting to discuss with their advisors and management the possible exchange
offer and merger with Vignette. The OnDisplay management team briefed the board
on the strategic rationale for a business combination, diligence items, and the
current
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status of the negotiations and reviewed the terms of the proposed transaction.
At this meeting, representatives of Wilson Sonsini Goodrich & Rosati again
reviewed the responsibilities of the board of directors in considering the
proposed transaction. Representatives of Robertson Stephens reviewed the
financial aspects of the proposed transaction.
On May 21, 2000, the OnDisplay board of directors held a telephonic board
meeting with their advisors and management, and discussed the terms and
conditions of the exchange offer and merger, including the exchange ratio, as
set forth in the merger agreement and other transaction documents. At this
meeting, Robertson Stephens delivered its oral opinion, which was subsequently
confirmed in writing, that the terms of the proposed transaction are fair from
a financial point of view to the stockholders of OnDisplay. The OnDisplay board
of directors, excluding Mr. Mandile, unanimously approved the merger agreement
and the transactions contemplated thereby, including the offer and the merger.
On the same day, the Vignette board of directors held a telephonic board
meeting with their advisors and management, and discussed the terms and
conditions of the exchange offer and merger, including the exchange ratio, as
set forth in the merger agreement and other transaction documents. The Vignette
board of directors unanimously approved the merger agreement and the
transactions contemplated thereby, including the offer and the merger.
The merger agreement and related documents were executed late that evening.
On May 22, 2000, prior to the opening of the Nasdaq National Market,
Vignette and OnDisplay jointly announced the execution of the merger agreement.
On June 2, 2000, Wheels Acquisition Corp. commenced the offer.
Reasons for the Offer and Merger
Customer Demand for Broad Product Platform.
. Vignette and OnDisplay customers and, we believe, e-Business in general
have begun to demand an application platform that provides customer-
facing interaction as well as automation and integration between
businesses, and the ability to use data resident in multiple back-
office or legacy systems. Vignettes V/5 E-Business Platform enables our
clients to build e-Business applications which are focused on
personalized and mass-customized interaction across multiple touch
points and communications channels. OnDisplay's technology automates
and manages the flow of information and transactions between suppliers,
distributors and customers. The offer and merger deepen the
capabilities of the Vignette e-Business platform in response to
customer demand by offering our clients customer-facing e-Business
applications which can interact with and leverage information from
multiple back-end systems, business partners and online marketplaces.
Increase Market Presence and Penetration.
. The combined company's product offering will meet the needs of
customers interested in maximizing business-to-consumer or business-to-
business interactions as well as those customers interested in
maximizing and integrating all business interactions, from the
consumer, to suppliers and the back-office.
. In addition, the consummation of offer and merger will enable the
combined company to pursue the market for trading networks and next
generation online markets by creating an end-to-end platform capable of
powering these businesses. We believe that these networks and
marketplaces represent a significant market opportunity because they
will become critical to the e-Business strategies of large companies.
Increased Selling Opportunities.
. We believe businesses are beginning to demand a solution capable of
both managing relationships with customers through multiple channels
and managing and automating business processes with
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back-end systems and business partners. Our combined solution will
deliver both of these requirements and, we believe, will allow us to
offer our customers additional products and capabilities as well as
reach new customers who are seeking a broad e-Business solution.
Recommendation of the OnDisplay Board; Factors Considered
At its meeting on May 21, 2000, the members of OnDisplay's board of
directors participating in the meeting unanimously voted to recommend that
OnDisplay stockholders tender their shares in the offer and approve the merger
and the merger agreement.
In approving the offer, the merger, the merger agreement and the
transactions contemplated by the merger agreement and recommending that all
holders of OnDisplay shares accept the offer and tender their shares pursuant
to the offer, the members of the OnDisplay board participating in the meeting
considered a number of factors, including:
. the complementary strategies and direction of OnDisplay, a leading
provider of e-Business infrastructure software applications for powering
e-portals and e-marketplaces, and Vignette, a leading e-Business
application software products and services company;
. the combination of Vignette's V/5 platform and OnDisplay's XML-based
business-to-business infrastructure products which together create one of
the most comprehensive offerings for companies building on-line
businesses;
. the exchange ratio for the offer and the merger representing a premium of
over 30.0% over the last sale price of the shares on the Nasdaq National
Market on May 19, 2000, the last trading day prior to the signing of the
merger agreement, as well as 35.6% and 59.0% premiums over the average of
the ratios of the last sale prices for the ten and thirty trading days
ending on May 19, 2000;
. the presentations of Robertson Stephens, and their opinion to the effect
that, subject to the matters set out in such opinion, the consideration
to be paid in the offer and the merger is fair from a financial point of
view to OnDisplay's stockholders (see "Opinion of OnDisplay Financial
Advisor");
. the financial and other terms of the offer, the merger and the merger
agreement, including the benefits of the transaction being structured as
a first-step exchange offer and second-step merger, which may provide
OnDisplay's stockholders with an opportunity to receive shares of
Vignette common stock on an accelerated basis;
. the opportunity for the holders of shares of OnDisplay common stock to
participate in a significantly larger and more diversified company and,
as stockholders of the combined company, to have greater liquidity in
their shares and to benefit from any future growth of the combined
company;
. the opportunity of the combined company to further enhance research and
development efforts, including potentially more rapid development of
products as a result of shared knowledge between software development
teams;
. the strengths and weaknesses of Vignette's and OnDisplay's businesses and
the key attributes of the combined company in terms of, among other
things, products, sales, customers, management and competitive position;
. the nature of the e-Business software industry and the fact that greater
size and resources are increasingly required for companies to
successfully compete in this industry;
. the increasing competition in OnDisplay's markets from both existing and
potential competitors, some of which have greater assets and resources
than OnDisplay, which has occurred as a result of, among other reasons,
the consolidation taking place in the software industry in general;
. historical information concerning Vignette's and OnDisplay's respective
businesses, financial performance and condition, operations, technology,
management and competitive position, including public reports concerning
results of operations filed with the SEC;
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. the consideration to be received by OnDisplay stockholders in the merger
and an analysis of the market value of the Vignette common stock to be
issued in exchange for each share of OnDisplay common stock in light of
comparable merger transactions;
. current financial market conditions and historical market prices,
volatility and trading information with respect to Vignette common stock
and OnDisplay common stock;
. the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to the
parties' respective obligations, are reasonable;
. OnDisplay management's view as to the prospects of OnDisplay as an
independent company;
. the impact of the merger on OnDisplay's customers and employees; and
. reports from management, legal advisors and financial advisors as to the
results of their due diligence investigation of Vignette.
OnDisplay's board of directors also considered the terms of the merger
agreement regarding OnDisplay's rights to consider and negotiate other
strategic transaction proposals, as well as the possible effects of the
provisions regarding termination fees. In addition, OnDisplay's board of
directors noted that the offer and merger are expected to be a tax-free
transaction. OnDisplay's board of directors also considered various
alternatives to the merger, including remaining as an independent company.
OnDisplay's board of directors believed that these factors, including the
OnDisplay board's review of the terms of the merger agreement, supported the
board's recommendation of the merger when viewed together with the risks and
potential benefits of the merger. OnDisplay's board of directors also
identified and considered a variety of potentially negative factors in its
deliberations concerning the merger, including, but not limited to:
. the risk that the potential benefits sought in the merger might not be
fully realized;
. the possibility that the merger might not be completed and the effect of
public announcement of the merger on OnDisplay's sales and operating
results, and its ability to attract and retain key technical, marketing
and management personnel;
. the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger;
. the risk that despite the efforts of the combined company, key technical,
marketing and management personnel might not remain employed by the
combined company; and
. the difficulty of managing separate operations at different geographic
locations.
OnDisplay's board of directors believed that these risks were outweighed by
the potential benefits of the merger.
The OnDisplay board did not assign relative weights to the foregoing factors
or determine that any factor was of particular importance. Rather, the
OnDisplay board viewed its position and recommendations as being based on the
totality of the information presented to and considered by the OnDisplay board.
The foregoing discussion of the information and factors considered by the
OnDisplay board is not intended to be exhaustive but is believed to include the
material factors considered by the OnDisplay board. In view of the wide variety
of factors, both positive and negative, considered by the OnDisplay board, the
OnDisplay board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered.
Material Federal Income Tax Consequences
In the opinion of Davis Polk & Wardwell, the following discussion summarizes
the material United States federal income tax consequences of the offer and the
merger to holders of OnDisplay common shares. This
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discussion is based on the Internal Revenue Code of 1986, as amended (which we
refer to as the Code), applicable Treasury regulations, administrative
interpretations and court decisions as in effect as of the date of this
prospectus, all of which may change, possibly with retroactive effect.
This discussion of material federal income tax consequences of the offer and
the merger is intended to provide only a general summary, and is not a complete
analysis or description of all potential federal income tax consequences of the
offer and/or the merger. It does not address all aspects of federal income
taxation that may be important to a holder of OnDisplay common shares in light
of that holder's particular circumstances or to a holder subject to special
rules, such as:
. a stockholder who is not a citizen or resident of the United States;
. a financial institution or insurance company;
. a tax-exempt organization;
. a dealer or broker in securities;
. a stockholder who holds his OnDisplay common shares as part of a hedge,
appreciated financial position, straddle, constructive sale or conversion
transaction; or
. a stockholder who acquired his OnDisplay common shares pursuant to the
exercise of options or otherwise as compensation.
In addition, this discussion does not address any state, local or foreign
income tax or non-income tax consequences of the offer and/or the merger. We
urge each holder of OnDisplay common shares to consult his own tax advisor to
determine the particular federal income tax or other tax consequences to him of
participation in the offer or the merger.
Qualification of the Offer and Merger As a Reorganization. It is the opinion
of Davis Polk & Wardwell that the offer and the merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code (and Vignette and OnDisplay will be included as parties to
that reorganization within the meaning of Section 368(b) of the Code) if the
following factual assumptions (which we refer to as the supporting conditions)
are met:
. the offer and the merger are completed under the current terms of the
merger agreement;
. the minimum tender condition for the offer is satisfied; and
. the merger is completed on or before December 31, 2000.
In addition to the supporting conditions, the opinion of Davis Polk &
Wardwell that the offer and the merger will be treated as a reorganization has
relied on representations and covenants made by Vignette and OnDisplay,
including those contained in certificates of officers of Vignette and
OnDisplay, and has assumed the absence of changes in facts or in law between
the date of this prospectus and the effective time of the merger. If any of
those representations, covenants or assumptions is inaccurate, the tax
consequences of the offer and the merger could differ materially from those
summarized under this caption "Qualification of the Offer and Merger As a
Reorganization." In addition, the ability to satisfy the supporting conditions,
and therefore the federal income tax consequences of the offer and the merger,
depend in part on facts that will not be available before the completion of the
merger. There can be no assurance that the merger will be completed, or that
the supporting conditions will be satisfied. If the supporting conditions are
not satisfied, the opinion of Davis Polk & Wardwell that the offer and the
merger will be treated as a reorganization cannot be relied upon and the tax
consequences of the offer and/or the merger could differ materially from those
summarized under this caption "Qualification of the Offer and Merger As a
Reorganization." See "Federal Income Tax Consequences If the Offer and Merger
Do Not Qualify As a Reorganization." Davis Polk & Wardwell's opinion neither
binds the IRS nor precludes the IRS or the courts from adopting a contrary
position.
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Assuming that the offer and the merger qualify as a tax-free reorganization,
for federal income tax purposes:
. A holder of OnDisplay common shares will not recognize any gain or loss
upon its exchange in the offer or the merger of its OnDisplay common
shares for Vignette common shares.
. If a holder of OnDisplay common shares receives cash instead of a
fraction of a Vignette common share, the holder will be required to
recognize gain or loss, measured by the difference between the amount of
cash received instead of that fraction of a share and the portion of the
tax basis of that holder's OnDisplay common shares allocable to that
fraction of a share. This gain or loss will be capital gain or loss
provided such OnDisplay common shares were held as a capital asset, and
will be long-term capital gain or loss if the holder has held the
OnDisplay common shares exchanged for that fraction of a Vignette common
share for more than one year at the time such OnDisplay common shares are
accepted in the offer or at the effective time of the merger, as the case
may be.
. A holder of OnDisplay common shares will have a tax basis in the Vignette
common shares received in the offer or the merger equal to (1) the tax
basis in the OnDisplay common shares surrendered by that holder in the
offer or merger, reduced by (2) any tax basis in such OnDisplay common
shares that is allocable to a fraction of a Vignette common share for
which cash is received.
. The holding period for Vignette common shares received in exchange for
OnDisplay common shares in the offer or the merger will include the
holding period for OnDisplay common shares surrendered in the offer or
the merger, provided such OnDisplay common shares were held as a capital
asset.
. Under specified circumstances, holders of OnDisplay common shares may be
entitled to appraisal rights in connection with the merger. See "Purpose
of the Offer; The Merger; Appraisal Rights" below. If appraisal rights
are available and a holder of OnDisplay common shares receives cash
pursuant to the exercise of appraisal rights, such holder will recognize
gain or loss, measured by the difference between the amount realized and
such holder's tax basis in such OnDisplay common shares. A holder of
OnDisplay common shares who exercises appraisal rights is urged to
consult his own tax advisor.
. OnDisplay will not recognize gain or loss as a result of the offer and
the merger.
Federal Income Tax Consequences If the Offer and Merger Do Not Qualify As a
Reorganization. The tax consequences summarized above under the caption
"Qualification of the Offer and Merger As a Reorganization" are based on
factual assumptions, including the satisfaction of the supporting conditions.
If those factual assumptions are not satisfied, the federal income tax
consequences of the offer and the merger to holders of OnDisplay common shares
could differ materially from those summarized above under the caption
"Qualification of the Offer and Merger As a Reorganization." In that event,
exchanges by OnDisplay stockholders pursuant to the offer and/or the merger
could be taxable transactions for federal income tax purposes depending on the
particular facts surrounding the offer and/or the merger, some of which may not
be available before the completion of the merger or later points in time. If
the offer and/or the merger is taxable, each OnDisplay stockholder
participating in the offer and/or the merger, as applicable, will recognize
gain or loss, measured by the difference between the fair market value of the
Vignette common shares (together with any cash instead of a fraction of a
Vignette common share) received by such stockholder and such stockholder's tax
basis in the OnDisplay common shares surrendered. This gain or loss will be
capital gain or loss provided such OnDisplay common shares were held as a
capital asset, and will be long-term capital gain or loss if such stockholder
had held such OnDisplay common shares for more than one year at the time such
OnDisplay common shares are accepted in the offer or at the effective time of
the merger, as applicable.
It is the opinion of Davis Polk & Wardwell that even if the merger is not
consummated, the offer will still be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code (and Wheels
Acquisition Corp. and OnDisplay will be included as parties to that
reorganization within the meaning of Section 368(b) of the Code) so long as the
following factual assumptions are met:
. in general, Wheels Acquisition Corp. must own at least 80% of the
OnDisplay common shares immediately after the offer;
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. any subsequent acquisitions of additional OnDisplay stock from other
stockholders that Vignette or Wheels Acquisition Corp. may decide to
effect, if they are unable to consummate the merger, will not be for
consideration other than Vignette voting stock; and
. the representations and covenants made by Vignette and OnDisplay to Davis
Polk & Wardwell must remain effective.
Except as just described, if the merger is not consummated, exchanges pursuant
to the offer generally will be taxable transactions for federal income tax
purposes.
We urge each holder of OnDisplay common shares to consult his own tax
advisor to determine the particular United States federal, state or local or
foreign income or other tax consequences to him of participation in the offer
or the merger.
Purpose of the Offer; The Merger; Appraisal Rights
Purpose. We are making the offer in order to acquire all of the outstanding
shares of OnDisplay common stock. We intend, as soon as practicable after
completion of the offer, to have Wheels Acquisition Corp. merge with OnDisplay.
The purpose of the merger is to acquire all OnDisplay shares not tendered and
exchanged pursuant to the offer. In the merger, each then outstanding OnDisplay
share (except for OnDisplay shares held in OnDisplay's treasury and OnDisplay
shares owned by Vignette or Wheels Acquisition Corp.) would be converted into
the right to receive the same number of Vignette shares as is paid in the
offer.
Approval of the Merger. Under Section 251 of the DGCL, the approval of the
board of directors of a company and the affirmative vote of the holders of a
majority of its outstanding shares are required to approve and adopt a merger
and a merger agreement. The OnDisplay board of directors has previously
approved the merger. Accordingly, if we complete the offer (and the minimum
tender condition is satisfied), we would have a sufficient number of OnDisplay
shares to approve the merger without the affirmative vote of any other holder
of OnDisplay shares. Therefore, unless the merger is consummated in accordance
with the short-form merger provisions under the DGCL described below (in which
case no action by the stockholders of OnDisplay, other than Vignette, will be
required to consummate the merger), the only remaining corporate action of
OnDisplay will be the approval and adoption of the merger agreement by the
affirmative vote of a majority of the outstanding OnDisplay shares.
Possible Short-Form Merger. Section 253 of the DGCL would permit the merger
to occur without a vote of OnDisplay's stockholders (a "short-form merger") if
Vignette were to acquire at least 90% of the outstanding OnDisplay shares in
the offer or otherwise (including as a result of purchases by Vignette during
any subsequent offering period). If, however, Vignette does not acquire at
least 90% of the then outstanding OnDisplay shares pursuant to the offer or
otherwise, and a vote of OnDisplay's stockholders is required under the DGCL, a
longer period of time will be required to effect the merger.
Appraisal Rights. OnDisplay stockholders do not have appraisal rights in
connection with the offer.
If more than a majority but less than 90% of the outstanding OnDisplay
shares are validly tendered and not properly withdrawn in the offer, we will
effect a long form merger (as described above) as permitted under Section 251
of the DGCL. OnDisplay stockholders who have not exchanged their OnDisplay
shares in the offer will not have appraisal rights in connection with a long
form merger.
However, if at least 90% of the outstanding OnDisplay shares are validly
tendered and not properly withdrawn in the offer, we will effect a short form
merger (as described above) as permitted under Section 253 of the DGCL,
OnDisplay stockholders at the time of a short-form merger will have the right
under Section 262 of the DGCL to dissent and demand appraisal of their
OnDisplay shares. Under Section 262, dissenting stockholders who comply with
the applicable statutory procedures will be entitled to receive a judicial
determination of the fair value of their OnDisplay shares (exclusive of any
element of value arising from the
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accomplishment or expectation of the merger) and to receive payment of this
fair value in cash, together with a fair rate of interest, if any. In Cede &
Co. and Cinerama, Inc. v. Technicolor, Inc., the Supreme Court of the State of
Delaware construed Section 262 of the DGCL and held that the "accomplishment
or expectation" exclusion from the calculation of fair value set forth in the
preceding sentence is narrow and is designed to eliminate use of pro forma
data and projections of a speculative variety relating to the completion of a
merger. The court held that it is appropriate to include in the calculation of
fair value any known elements of value. We cannot assure you as to the
methodology a court would use to determine fair value or how a court would
select which of the elements of value are to be included in such a
determination.
Conditions of the Offer
The offer is subject to a number of conditions, which are described below:
Minimum Tender Condition
There must be validly tendered and not properly withdrawn prior to the
expiration of the offer a number of OnDisplay shares which will constitute at
least a majority of the total number of outstanding OnDisplay shares on a
fully diluted basis (as though all options or other securities convertible
into or exercisable or exchangeable for OnDisplay shares had been so
converted, exercised or exchanged) as of the date that we accept the OnDisplay
shares pursuant to our offer. Based on information supplied by OnDisplay, the
number of OnDisplay shares needed to satisfy the minimum tender condition
would have been approximately 12,636,500 as of May 31, 2000.
Regulatory Clearance Condition
This condition would be satisfied if the waiting period under the HSR Act
has expired or has been terminated.
Registration Statement Effectiveness Condition
The registration statement on Form S-4 of which this prospectus is a part
must have become effective under the Securities Act and not be the subject of
any stop order or proceedings seeking a stop order.
Nasdaq Listing Condition
The shares of Vignette common stock issuable to OnDisplay stockholders in
the offer and the merger must have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
Other Conditions of the Offer
The offer is also subject to the conditions that, at the time of acceptance
for exchange of OnDisplay shares pursuant to the offer:
(1) There shall not have been entered, enacted, promulgated, enforced or
issued by any court, government or governmental authority or agency,
domestic, foreign or supranational a judgment, order, decree, statute, law,
ordinance, rule or regulation, or any other legal restraint or prohibition
preventing the consummation of the offer or making the offer illegal;
(2) There shall not have been instituted or pending any action or
proceeding by any government or governmental authority or agency, domestic,
foreign or supranational, before any court or governmental authority or
agency, domestic, foreign or supranational challenging or seeking to make
illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the making of the offer, the acceptance for payment of
or payment for some or all of the OnDisplay shares by Vignette or Wheels
Acquisition Corp. or the consummation of the merger;
(3) OnDisplay shall not have failed to perform in any material respect
any of its covenants, obligations or agreements under the merger agreement
so that, overall, the failures would reasonably be expected to have a
material adverse effect on OnDisplay;
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(4) the representations and warranties of OnDisplay contained in the
merger agreement, disregarding all qualifications and exceptions contained
in the merger agreement relating to materiality or material adverse effect
or any similar standard or qualification, shall be true at and as of the
expiration of the offer as if made at and as of that time, other than
representations or warranties that address matters only as of a certain
date, which shall be true and correct as of that date, except as would not
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on OnDisplay;
(5) the merger agreement shall not have been terminated;
(6) Vignette shall have received an opinion of Davis Polk & Wardwell, in
form and substance reasonably satisfactory to Vignette and to OnDisplay, on
the basis of reasonable customary facts, representations and assumptions
set forth in the opinion, that the offer and the merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that Vignette and OnDisplay will be included
as parties to the reorganization; and
(7) OnDisplay shall have received an opinion of Wilson Sonsini Goodrich
& Rosati, Professional Corporation, in form and substance reasonably
satisfactory to Vignette and to OnDisplay, on the basis of reasonable
customary facts, representations and assumptions set forth in the opinion,
that the offer and the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that Vignette and OnDisplay will be included as parties to the
reorganization; provided, however, that if Wilson Sonsini Goodrich & Rosati
does not render that opinion, Davis Polk & Wardwell is permitted to render
the opinion;
The conditions of the offer described above are solely for our benefit and
we may assert them regardless of the circumstances giving rise to any of the
conditions, including any action or inaction by us. We may, in our sole
discretion, waive these conditions in whole or in part, other than the minimum
tender condition, which may only be waived with OnDisplay's consent. The
determination as to whether any condition has been satisfied shall be in our
good faith judgment and will be final and binding on all parties. The failure
by us at any time to exercise any of the foregoing rights shall not be deemed a
waiver of that right and each right shall be deemed a continuing right which
may be asserted at any time and from time to time. Notwithstanding anything to
the contrary in this prospectus, we cannot and will not assert any of the
conditions to the offer, other than certain regulatory conditions as, and to
the extent, permitted by applicable rules and regulations of the SEC, at any
time after the expiration date of the offer. Notwithstanding the fact that we
reserve the right to assert the failure of a regulatory condition following
acceptance for exchange but prior to exchange in order to delay exchange or
cancel our obligation to exchange properly tendered OnDisplay shares, we will
either promptly exchange the OnDisplay shares or promptly return the OnDisplay
shares.
Regulatory Clearances
Vignette and OnDisplay have agreed pursuant to the merger agreement to use
all reasonable efforts to take whatever actions are required to obtain
necessary regulatory approvals with respect to the offer and the merger. Other
than clearance under the antitrust laws applicable to the offer and the merger
which are described below, the SEC declaring the effectiveness of the
registration statement of which this prospectus is a part and the filing of a
certificate of merger under the Delaware General Corporation Law with respect
to the merger, we do not believe that any additional material governmental
filings are required with respect to the offer and the merger.
U.S. Antitrust. Under the Hart-Scott-Rodino Act and the related rules, the
merger may not be completed until Vignette and OnDisplay notify and furnish
information to the FTC and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements have been
satisfied. In connection with the merger, on May 26, 2000, Vignette filed and
on or before June 4, 2000, OnDisplay will file with the FTC and the Antitrust
Division the required notification and report forms under the HSR Act. The
applicable waiting period under the HSR Act relating to the merger is scheduled
to expire at midnight on June 25, 2000 unless it is earlier terminated or
extended by a request for additional information.
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At any time before or after the completion of the merger, either the
Antitrust Division or the FTC could take any action under U.S. antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the completion of the merger or seeking the divestiture of substantial
assets of Vignette or OnDisplay. Private parties and state attorneys general
may also bring actions under U.S. antitrust laws depending on the
circumstances. Although we believe that the merger does not raise serious
concerns under U.S. antitrust laws, we can give no assurance that a challenge
to the merger on antitrust grounds will not be made or, if this challenge is
made, that it would not be successful.
Possible Effects of Our Offer
Reduced Liquidity; Possibly no Longer Included for Quotation. The tender of
OnDisplay shares pursuant to the offer will reduce the number of holders of
OnDisplay shares and the number of OnDisplay shares that might otherwise trade
publicly and could adversely affect the liquidity and market value of the
remaining OnDisplay shares held by the public. OnDisplay shares are included
for quotation and principally traded on the Nasdaq National Market. Depending
on the number of OnDisplay shares acquired pursuant to the offer, following
consummation of the offer, OnDisplay shares may no longer meet the requirements
of the Nasdaq National Market for continued quotation. The NASD's requirements
for continued inclusion in the Nasdaq National Market, among other things,
require that an issuer have either:
. At least 750,000 publicly held shares, held by at least 400 stockholders
of round lots, with a market value of at least $5 million and net
tangible assets of at least $4 million and at least two registered and
active market makers for the shares or
. At least 1,100,000 publicly held shares, held by at least 400
stockholders of round lots, with a market value of at least $15 million
and at least four registered and active market markers, and either
. A market capitalization of at least $50 million or
. Total assets and total revenue of at least $50 million each for the
most recently completed fiscal year or two of the last three most
recently completed fiscal years.
The shares might nevertheless continue to be included in the Nasdaq National
Market with quotations published in the Nasdaq "additional list" or in one of
the "local lists," but if the number of holders of the shares were to fall
below 300, the number of publicly held shares were to fall below 500,000 or
there were not at least two registered and active market makers for the shares,
the NASD's rules provide that the shares would no longer be "qualified" for
Nasdaq reporting and the Nasdaq would cease to provide any quotations. Shares
held directly or indirectly by directors, officers or beneficial owners of more
than 10% of the shares are not considered as being publicly held for this
purpose. If, following the closing of offer, the shares of OnDisplay no longer
meet the requirements of the NASD for continued inclusion in the Nasdaq
National Market or in any other tier of the Nasdaq and the shares were no
longer included in the Nasdaq National Market or in any other tier of the
Nasdaq, the market for shares could be adversely affected.
If the shares no longer meet the requirements of the NASD for continued
inclusion in any tier of the Nasdaq, it is possible that the shares would
continue to trade in the over-the-counter market and that price quotations
would be reported by other sources. The extent of the public market for the
OnDisplay shares and the availability of quotations for OnDisplay shares would,
however, depend upon the number of holders of shares remaining at that time,
the interest in maintaining a market in OnDisplay shares on the part of
securities firms, the possible termination of registration of the shares under
the Exchange Act, as described below, and other factors. We cannot predict
whether the reduction in the number of OnDisplay shares that might otherwise
trade publicly would have an adverse or beneficial effect on the market price
for, or marketability of, the OnDisplay shares.
According to OnDisplay, there were, as of May 31, 2000, approximately
22,616,000 OnDisplay common shares outstanding, held by 343 holders of record.
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Status as "Margin Securities." The OnDisplay shares are presently "margin
securities" under the regulations of the Federal Reserve Board, which has the
effect, among other things, of allowing brokers to extend credit on the
collateral of OnDisplay shares. Depending on the factors similar to those
described above with respect to market quotations, following consummation of
the offer, the OnDisplay shares may no longer constitute "margin securities"
for the purposes of the Federal Reserve Board's margin regulations, in which
event the OnDisplay shares would not be eligible as collateral for margin loans
made by brokers.
Registration Under the Exchange Act. OnDisplay shares are currently
registered under the Exchange Act, OnDisplay can terminate that registration
upon application to the SEC if the outstanding shares are not listed on a
national securities exchange, quoted on an automated inter-dealer quotation
system or if there are fewer than 300 holders of record of OnDisplay shares.
Termination of registration of the OnDisplay shares under the Exchange Act
would reduce the information that OnDisplay must furnish to its stockholders
and to the SEC and would make certain provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b) and the requirement
of furnishing a proxy statement in connection with stockholders meetings
pursuant to Section 14(a) and the related requirement of furnishing an annual
report to stockholders, no longer applicable with respect to OnDisplay shares.
In addition, if OnDisplay shares are no longer registered under the Exchange
Act, the requirements of Rule 13e-3 under the Exchange Act with respect to
"going-private" transactions would no longer be applicable to OnDisplay.
Furthermore, the ability of "affiliates" of OnDisplay and persons holding
"restricted securities" of OnDisplay to dispose of these securities pursuant to
Rule 144 under the Securities Act may be impaired or eliminated. If
registration of the shares under the Exchange Act were terminated, they would
no longer be eligible for Nasdaq reporting or for continued inclusion on the
Federal Reserve Board's list of "margin securities."
Relationships with OnDisplay
Except as set forth herein, neither we nor, to the best of our knowledge,
any of our directors, executive officers or other affiliates has any contract,
arrangement, understanding or relationship with any other person with respect
to any securities of OnDisplay, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the
voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as described herein, there have been no
contacts, negotiations or transactions since January 1, 1996, between us or, to
the best of our knowledge, any of our directors, executive officers or other
affiliates on the one hand, and OnDisplay or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets. Neither we nor, to the best of our
knowledge, any of our directors, executive officers or other affiliates has
since January 1, 1996 had any transaction with OnDisplay or any of its
officers, directors or affiliates that would require disclosure under the rules
and regulations of the SEC applicable to the offer.
Except as provided below, neither we nor, to the best of our knowledge, any
of our directors, executive officers or other affiliates beneficially owns or
has any right to acquire, directly or indirectly, any OnDisplay shares and
neither we nor, to the best of our knowledge, any of our directors, executive
officers or other affiliates has effected any transaction in the OnDisplay
shares during the past 60 days. Sigma Partners beneficially owns shares of
common stock of both Vignette and OnDisplay. In addition, Bob Davoli, a partner
of Sigma Partners, is a director of Vignette and John Mandile, a partner of
Sigma Partners, is a director of OnDisplay.
Accounting Treatment
The merger of Vignette and OnDisplay will be accounted for as a "purchase,"
as that term is used under generally accepted accounting principles, commonly
referred to as "GAAP", for accounting and financial reporting purposes.
OnDisplay will be treated as the acquired corporation for these purposes.
OnDisplay's assets, liabilities and other items will be adjusted to their
estimated fair value on the closing date of the merger and combined with the
historical book values of the assets and liabilities of Vignette. Applicable
income tax
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effects of these adjustments will be included as a component of the combined
company's deferred tax asset or liability. The difference between the estimated
fair value of the assets, liabilities and other items (adjusted as discussed
above) and the purchase price will be recorded as an intangible asset and
amortized against the combined company's earnings over a 4-year period
following completion of the merger. For further information concerning the
amount of goodwill to be recorded in connection with the merger and the
amortization of that goodwill, see Note 3(a) of Notes to Unaudited Pro Forma
Combined Condensed Financial Statements on page 17.
Vignette has prepared the unaudited pro forma financial information
contained in this prospectus using the purchase accounting method to account
for the offer and the merger. See "Unaudited Pro Forma Combined Condensed
Financial Statements" on page 13.
Fees and Expenses
Vignette has retained Morgan Stanley & Co. Incorporated to provide certain
financial advisory services to Vignette in connection with the offer and the
merger. Morgan Stanley will receive customary compensation for these services.
We have agreed to indemnify Morgan Stanley and related persons against certain
liabilities and expenses in connection with its services as financial advisor,
including certain liabilities and expenses under the federal securities laws.
From time to time, Morgan Stanley and its affiliates may actively trade the
debt and equity securities of OnDisplay for their own account or for the
accounts of customers and, accordingly, may hold a long or short position in
these securities.
We have retained MacKenzie Partners, Inc. as information agent in connection
with the offer. The information agent may contact holders of OnDisplay shares
by mail, telephone, telex, telegraph and personal interview and may request
brokers, dealers and other nominee stockholders to forward material relating to
the offer to beneficial owners of OnDisplay shares. We will pay the information
agent reasonable and customary compensation for these services in addition to
reimbursing the information agent for its reasonable out-of-pocket expenses. We
have agreed to indemnify the information agent against certain liabilities and
expenses in connection with the offer, including certain liabilities under the
U.S. federal securities laws.
In addition, we have retained ChaseMellon Shareholder Services, L.L.C. as
the exchange agent. We will pay the exchange agent reasonable and customary
compensation for its services in connection with the offer, will reimburse the
exchange agent for its reasonable out-of-pocket expenses and will indemnify the
exchange agent against certain liabilities and expenses, including certain
liabilities under the U.S. federal securities laws.
Except as set forth above, we will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of OnDisplay shares
pursuant to the offer. We will reimburse brokers, dealers, commercial banks and
trust companies and other nominees, upon request, for customary clerical and
mailing expenses incurred by them in forwarding offering materials to their
customers.
Nasdaq National Market and Vignette and OnDisplay Common Stock
It is a condition to the merger that the Vignette common shares issuable in
the offer and the merger be included for quotation on the Nasdaq National
Market on or prior to the effective time of the merger, subject to official
notice of issuance. If the merger is completed, OnDisplay common shares will
cease to be quoted on the Nasdaq National Market.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Vignette common shares and OnDisplay common shares are each listed on the
Nasdaq National Market. Vignette's ticker symbol is "VIGN" and OnDisplay's
ticker symbol is "ONDS." The following table shows, for the periods indicated,
the last sale prices for Vignette common shares and OnDisplay common shares on
the Nasdaq National Market. Neither Vignette nor OnDisplay have paid any cash
dividends during the periods presented. Vignette share price data reflect a 3-
for-1 stock split effective April 14, 2000.
<TABLE>
<CAPTION>
Vignette OnDisplay Common
Common Shares Shares
--------------- ----------------
Market Price Market Price
--------------- ----------------
High Low High Low
------- ------- -------- -------
<S> <C> <C> <C> <C>
1999
First Quarter................................. $ 14.67 $ 6.64 -- --
Second Quarter................................ 17.52 7.11 -- --
Third Quarter................................. 15.08 8.73 -- --
Fourth Quarter................................ 54.58 14.88 $ 104.56 $ 77.00
2000
First Quarter................................. $ 99.00 $ 51.67 $ 125.94 $ 80.63
Second Quarter (through May 31, 2000)......... 66.98 25.50 76.00 23.25
</TABLE>
On May 19, 2000, the last full trading day prior to the public announcement
of the offer and the merger, the last sale price per Vignette common share on
the Nasdaq National Market was $43.81 and the last sale price per OnDisplay
common share was $53.25. On May 31, 2000, the most recent practicable date
prior to the printing of this document, the last sale price per Vignette common
share was $27.56 and the last sale price per OnDisplay common share was $46.00.
We urge you to obtain current market quotations for Vignette and OnDisplay
common shares before making any decision on the merger.
Neither Vignette nor OnDisplay has ever declared or paid any cash dividends
on our common stock nor other securities and neither anticipates paying cash
dividends in the foreseeable future. Vignette's lines of credit currently
prohibit the payment of cash dividends.
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OPINION OF ONDISPLAY FINANCIAL ADVISOR
OnDisplay retained FleetBoston Robertson Stephens Inc. as its financial
advisor to assist it and its board in its consideration of valuation, financial
and other matters relating to the merger.
Opinion of OnDisplay's Financial Advisor
On May 21, 2000, Robertson Stephens delivered its oral opinion to
OnDisplay's board of directors that, as of the date of its opinion and on the
basis of and subject to the assumptions, limitations and qualifications set
forth in the opinion, the exchange ratio for the merger was fair from a
financial point of view to OnDisplay stockholders, other than Vignette or any
of its subsidiaries. Robertson Stephens subsequently confirmed its opinion in
writing.
We have attached as Annex C to this document and incorporate herein by
reference the full text of the written opinion of FleetBoston Robertson
Stephens Inc. dated May 21, 2000. This opinion sets forth the assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion. We urge OnDisplay stockholders to read the opinion in its
entirety.
INTERESTS OF ONDISPLAY OFFICERS AND DIRECTORS IN THE MERGER
When considering the offer and the recommendation of the OnDisplay board of
directors that OnDisplay stockholders tender their shares in the offer, you
should be aware that some OnDisplay directors and officers have interests in
the offer and the merger that are different from, or are in addition, to yours.
For example, according to the terms of the OnDisplay 1996 Stock Plan,
generally 18 months of unvested options held by employees, officers and
directors shall accelerate upon consummation of the merger. According to the
terms of the Oberon Software Incorporated 1998 Stock Incentive Plan, generally
12 or 18 months of unvested options held by former Oberon employees (depending
on the terms of a person's individual option agreement) shall accelerate upon
consummation of the merger.
Mark Pine, Chairman and Chief Executive Officer of OnDisplay, Venkat Mohan,
President and Chief Operating Officer, and David Larson, Chief Financial
Officer (collectively, the "Executives"), are each party to a stock option
agreement with acceleration provisions upon a change of control of OnDisplay
and the termination of the executive without cause. In each case, if the party
does not hold the same position and responsibilities in the combined company
after the merger, they will be deemed terminated without cause under the terms
of their agreements.
In addition, Mr. Mohan is a party to a Letter Agreement dated October 20,
1999 with OnDisplay, pursuant to which he shall receive a continuation of his
base salary, health benefits and a pro rata portion of his annual bonus for a
period of twelve months, if he is terminated without cause by OnDisplay.
Mr. Larson is a party to a Letter Agreement, dated September 17, 1999, with
OnDisplay, which provides that he shall receive a severance payment equal to
six months of his base compensation as well as a pro-rata portion of his annual
bonus upon his termination without cause by OnDisplay.
Olivier Sermet is a party to a Letter Agreement, dated April 15, 1997, with
OnDisplay, which provides that he shall receive a guaranteed salary package of
nine months following the change in ownership of OnDisplay.
Additionally, as of June 19, 2000, we have extended offer letters to
substantially all of the employees of OnDisplay, including certain officers.
Generally, such offer letters provide for the award of Vignette options
following the consummation of the transaction in addition to cash compensation.
Additionally, Vignette will indemnify present and former directors and
officers of OnDisplay against all claims arising out of actions and omissions
occurring on or prior to the effective time of the merger pursuant to the
provisions of the OnDisplay Certificate of Incorporation prior to the effective
time, or indemnification provisions at least as favorable to those provisions.
Furthermore, Vignette has also agreed to maintain for six
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years, subject to certain cost limitations, a policy of directors' and
officers' liability insurance with respect to matters occurring on or before
the effective time of the merger for the benefit of the present and former
directors and officers of OnDisplay.
The following table sets forth, with respect to each of the executive
officers and the non-employee directors (as a group) of OnDisplay:
. the number of shares of OnDisplay common stock subject to options held by
such persons that will be exercisable immediately upon the consummation
of the offer (including options that are currently exercisable as well as
options which became exercisable in connection with the transactions
contemplated by the merger agreement);
. the weighted average exercise price of the options held by such persons
and of unvested options; and
. the aggregate cash value of such options based upon an assumed per share
amount of consideration to be received by OnDisplay stockholders in the
offer and the merger of $43.55 in Vignette Common Stock (i.e., the total
stock value less the exercise price) and based upon the last sale price
of the Vignette common stock on May 31, 2000.
<TABLE>
<CAPTION>
Options Weighted Average
Which Will Be Exercise Price Aggregate Value
Name(1) Exercisable* Per Share Of Options
------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Mark Pine........................ 250,000** $2.50 $10,262,188
Venkat Mohan..................... 350,000** 6.50 12,967,063
David Larson..................... 200,000** 5.00 7,709,750
Trung Dung....................... 16,667 6.50 617,492
Olivier Sermet................... 213,750 .64 9,171,745
Carol Richwood................... 18,750 1.38 790,664
Santi Pierini.................... 92,583 2.39 3,810,601
Peter Buzzard.................... 45,417 2.69 1,855,682
Janet Azevedo.................... 39,063 8.00 1,388,641
Timothy Barrows.................. 15,625 8.00 555,449
Promod Haque..................... 15,625 8.00 555,449
John Mandile..................... 42,500 .10 1,846,572
Christopher Spray................ 16,625 8.00 590,998
Margaret Taylor.................. 20,625 .40 889,943
Carmine Villani.................. 35,417 .23 1,534,220
</TABLE>
--------
* Assumes a closing date of June 30, 2000.
** Includes options exercisable if these individuals are deemed terminated
without cause.
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THE MERGER AGREEMENT AND THE STOCKHOLDER AGREEMENT
The following description of the merger agreement describes the material
terms of the agreement but does not purport to describe all the terms of the
agreement. The complete text of the merger agreement is attached as Annex A to
this prospectus. All stockholders are urged to read the merger agreement in its
entirety because it is the legal document that governs the offer and the
merger.
The Offer
Terms of the Offer. The merger agreement provides for the commencement by
Wheels Acquisition Corp. of this offer to exchange all outstanding shares of
OnDisplay common stock for shares of Vignette common stock. The merger
agreement provides for the consideration that we will pay in the offer,
including the exchange ratio of 1.58 shares of Vignette common stock for each
share of OnDisplay common stock. For a description of those matters, refer to
the discussion under "The Offer."
The merger agreement prohibits Wheels Acquisition Corp., without the consent
of OnDisplay, from amending or waiving the minimum tender condition or amending
the offer to change the form or amount of consideration to be paid, decreasing
the number of shares of OnDisplay common stock sought in the offer, imposing
additional conditions to the offer, extending the expiration date of the offer
except as described below or making any other change which is adverse to the
holders of the shares of OnDisplay common stock.
Mandatory Extensions of the Offer. If any of the conditions to the offer is
not satisfied or waived on any scheduled expiration date of the offer, Wheels
Acquisition Corp. will extend the offer for successive extension periods of not
more than 10 business days until all conditions to the offer are satisfied or
waived; provided that Wheels Acquisition Corp. is not required to extend the
offer beyond September 30, 2000.
Optional Extensions of the Offer. Wheels Acquisition Corp. will have the
right to extend the offer (i) after acceptance of shares in the initial
offering period, as it may be extended, for a further period of time by means
of a subsequent offering period not to exceed 20 business days for the purpose
of having Vignette and Wheels Acquisition Corp. collectively own at least 90%
of the outstanding shares of OnDisplay common stock and (ii) for any period
required by any rule, regulation, interpretation or position of the SEC or its
staff applicable to the offer or any period required by applicable law.
Prompt Payment for OnDisplay Shares after the Closing of the Offer. Subject
to the conditions of the offer, Wheels Acquisition Corp. will accept for
payment and pay for, as promptly as practicable after the expiration of the
offer, all shares of OnDisplay common stock validly tendered and not properly
withdrawn pursuant to the offer.
The Merger
The Merger. The merger agreement provides that Wheels Acquisition Corp. will
be merged with and into OnDisplay no later than the second business day
following the satisfaction or waiver of the conditions set forth in the merger
agreement unless the parties agree to another date. Under the terms of the
merger agreement, at the effective time of the merger, each share of OnDisplay
common stock will be converted into the right to receive from Wheels
Acquisition Corp. the same per share consideration paid to holders of OnDisplay
common stock who exchanged their OnDisplay shares in the offer. Notwithstanding
the foregoing, the merger consideration will not be payable in respect of
OnDisplay shares held by OnDisplay, Vignette or Wheels Acquisition Corp.
Effective Time of the Merger. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of Delaware or
such later time as is agreed by OnDisplay and Vignette and on or specified in
the certificate of merger. The filing of the certificate of merger will take
place as soon as practicable on or after the closing date of the merger.
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OnDisplay Board of Directors
Upon the acceptance for exchange of shares of OnDisplay common stock
pursuant to the offer, Vignette will be entitled to designate a number of
directors of OnDisplay (rounded up to the next whole number) that equals the
product of (i) the total number of directors on OnDisplay's board of directors
and (ii) the percentage that the number of shares beneficially owned by
Vignette and Wheels Acquisition Corp. bears to the total number of shares of
OnDisplay common stock outstanding. Until the merger has become effective,
OnDisplay's board of directors shall include at least two members who were
directors of OnDisplay prior to the consummation of the offer. The merger
agreement provides that, prior to the effective time of the merger, the
affirmative vote of a majority of the continuing OnDisplay directors will be
required to
. amend or terminate the agreement on behalf of OnDisplay;
. waive any rights, benefits or remedies of OnDisplay or holders of
OnDisplay common stock under the merger agreement;
. extend the time for performance of Vignette's or Wheels Acquisition
Corp.'s obligations under the merger agreement; or
. approve any other action of OnDisplay which adversely affects the holders
of OnDisplay common stock.
Treatment of OnDisplay Stock Options and Restricted Stock
At the effective time of the merger, each outstanding OnDisplay option,
regardless of the extent vested and exercisable, shall be deemed to constitute
an option to acquire, on the same terms and conditions as were applicable under
the OnDisplay stock option, the same number of shares of Vignette common stock
as the holder of the OnDisplay option would have been entitled to receive
pursuant to the merger agreement had the holder exercised the OnDisplay option
in full immediately prior to the effective time of the merger, rounded down to
the nearest whole number. The price per share shall equal
. the per share exercise price at which the OnDisplay option was
exercisable immediately prior to the effective time, divided by
. the exchange ratio.
Vignette has agreed to take all action necessary to implement the above,
including the reservation, issuance and listing of a sufficient number of
shares of Vignette common stock for delivery upon exercise of these substitute
options. Vignette shall prepare and file a registration statement on an
appropriate form, or a post-effective amendment to a previously filed
registration statement, with respect to the shares of Vignette common stock
subject to the above options and, where applicable, shall use its reasonable
efforts to have the registration statement declared effective as soon as is
reasonably practicable after the effective time of the merger, to maintain its
effectiveness and to maintain the current status of the prospectus contained in
it for so long as the options remain outstanding.
In general, all OnDisplay options will accelerate 18 months upon the
effective time of the merger.
Shares of Vignette common stock that are issued upon conversion of shares of
OnDisplay common stock that immediately prior to the effective time of the
merger are unvested or are subject to a repurchase option, risks of forfeiture
or other condition that those shares may be forfeited or repurchased by
OnDisplay will continue to be unvested and subject to the same options, risks
or other conditions after the effective time of the merger unless the relevant
agreement provides that the option, risk or condition will terminate on
consummation of the merger.
Covenants and Representations and Warranties
Reasonable Efforts. The merger agreement provides that each of Vignette and
OnDisplay will use its reasonable efforts to take all actions necessary to
close the offer and the merger.
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Conduct of Business Pending the Appointment of Directors. The merger
agreement obligates OnDisplay, until the first acceptance for exchange of
shares of OnDisplay common stock pursuant to the offer, to conduct its
operations in the ordinary course of business. The merger agreement expressly
restricts the ability of OnDisplay to engage in certain material transactions,
such as purchases and sales of assets or the sale or redemption of outstanding
securities of OnDisplay, without the prior written consent of Vignette.
No Solicitation of Alternative Transactions. The merger agreement provides
that, except in the circumstances described below, OnDisplay will not:
. directly or indirectly solicit, initiate or knowingly take any action to
facilitate or encourage the submission or announcement of, any
Acquisition Proposal (as defined below),
. enter into or participate in any discussions or negotiations with,
furnish any information relating to it or afford access to the business,
properties, assets, books or records of OnDisplay to, otherwise cooperate
in any way with, or knowingly assist, participate in, facilitate or
encourage any effort by any third party that has made an Acquisition
Proposal,
. approve, endorse or recommend any Acquisition Proposal, or
. enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Proposal.
However, the merger agreement does provide that in response to an
unsolicited Acquisition Proposal that did not result from a breach by OnDisplay
of its obligations not to solicit alternative transactions and following
delivery to Vignette of notice of the Acquisition Proposal, OnDisplay may:
. participate in discussions or negotiations with or furnish information
(pursuant to a confidentiality agreement) to any third party which makes
a bona fide Acquisition Proposal,
. approve or recommend to its stockholders that Acquisition Proposal
pursuant to the Exchange Act, or
. withdraw, modify in a manner adverse to Vignette or fail to make a
recommendation to its stockholders of the offer and the merger, if, in
each case, the OnDisplay board of directors reasonably determines (after
consultation with OnDisplay's financial advisor) that the Acquisition
Proposal constitutes a Superior Proposal (as defined below) and
determines in good faith (after consultation with its outside legal
counsel) that it is necessary to take such action(s) in order to satisfy
its fiduciary duties under applicable law.
"Acquisition Proposal" means any offer or proposal by a third party relating
to:
. any acquisition or purchase from OnDisplay by any person or group of more
than a 25% of the outstanding voting securities of OnDisplay or any of
its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or group beneficially owning 25%
or more of the outstanding voting securities of OnDisplay or any of its
subsidiaries or any merger, consolidation, business combination or
similar transaction involving OnDisplay pursuant to which the
stockholders of OnDisplay immediately preceding that transaction would
hold less than 75% of the equity interests in the surviving or resulting
entity of that transaction,
. any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition, or disposition of more than 25% of the
consolidated assets of OnDisplay, or
. any liquidation or dissolution of OnDisplay.
"Superior Proposal" means a bona fide, unsolicited, written Acquisition
Proposal for at least a majority of the outstanding OnDisplay shares on terms
that the OnDisplay board of directors determines in good faith by a majority
vote, after consultation with its financial advisor of nationally recognized
reputation and taking into
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account all the terms and conditions of the Acquisition Proposal, are more
favorable to the OnDisplay stockholders than the offer or the merger.
Antitrust Laws. Each of the parties to the merger agreement will take those
lawful actions that are necessary to make the filings required under any
applicable antitrust laws in connection with the merger agreement and the
transactions contemplated by the merger agreement. The merger agreement
provides that each of Vignette and OnDisplay will otherwise act to eliminate or
minimize the effects of these statutes on the offer and the merger.
Employee Benefits. See "Interests of OnDisplay Officers and Directors in the
Merger".
Representations and Warranties. The merger agreement contains a number of
customary representations and warranties relating to each of the parties and
their ability to consummate the offer and the merger. All representations and
warranties of each party expire at the closing of the merger.
Conditions of the Offer
See "The Offer--Conditions of the Offer".
Conditions of the Merger
The obligations of Vignette, Wheels Acquisition Corp. and OnDisplay to
consummate the merger are subject to the satisfaction of the following
conditions:
. to the extent required by applicable law, the merger agreement shall have
been approved and adopted by the OnDisplay stockholders;
. no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the
merger;
. the shares of Vignette common stock to be issued in the merger shall have
been authorized for inclusion on the Nasdaq National Market, subject to
official notice of issuance;
. the registration statement on Form S-4 relating to the merger shall have
become effective under the Securities Act and not be the subject of any
stop order or proceedings seeking a stop order; and
. Wheels Acquisition Corp. shall have purchased shares of OnDisplay common
stock in the offer.
Termination of the Merger Agreement
Termination by Mutual Agreement. The merger agreement may be terminated at
any time prior to the first acceptance for exchange of shares of OnDisplay
common stock pursuant to the offer by mutual written consent of Vignette and
OnDisplay.
Termination by either Vignette or OnDisplay. The merger agreement may be
terminated by either Vignette or OnDisplay at any time prior to the first
acceptance for exchange of shares of OnDisplay common stock pursuant to the
offer if:
(1) the offer has not been consummated on or before September 30, 2000
(the "Termination Date"), unless the failure to consummate the offer is the
result of a material breach or failure to fulfill a material obligation of
the merger agreement by the party seeking termination;
(2) the offer expires or terminates in accordance with the terms of the
merger agreement without Wheels Acquisition Corp. having accepted for
exchange any OnDisplay shares, except that Vignette will not be permitted
to terminate the merger agreement for this reason if the expiration or
termination is a result of a breach of the merger agreement by Vignette or
Wheels Acquisition Corp.;
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(3) there shall be any applicable law or regulation that makes
consummation of the merger illegal or otherwise prohibited or any judgment,
injunction, or order which is final and nonappealable prohibiting the
closing of the merger; or
(4) any representation or warranty of the non-terminating party
contained in the merger agreement is or becomes inaccurate so that,
overall, the inaccuracies would reasonably be expected to have material
adverse effect on the non-terminating party, or the non-terminating party
fails to perform any material covenant contained in the merger agreement,
if that inaccuracy or failure to perform has not been or is incapable of
being cured by the non-terminating party within 30 days following receipt
by the non-terminating party of notice from the terminating party of the
inaccuracy or failure to perform.
Termination by Vignette. The merger agreement may be terminated at any time
prior to the first acceptance of shares in the offer by Vignette if:
(1) the OnDisplay board of directors, or any of its committees, approves
or recommends to the OnDisplay stockholders any Acquisition Proposal;
(2) the OnDisplay board of directors, or any of its committees,
withdraws or amends or modifies in any way adverse to Vignette its
recommendation to the OnDisplay stockholders that they accept the offer and
approve and adopt the merger agreement and the merger;
(3) OnDisplay fails to include in various documents relating to the
offer the recommendation of the OnDisplay board of directors that the
OnDisplay stockholders accept the offer and approve and adopt the merger
agreement and the merger; or
(4) a tender or exchange offer relating to 40% or more of the OnDisplay
shares is commenced by a third party and OnDisplay does not send to its
stockholders pursuant to rules under the Exchange Act, within 10 business
days of the day that the offer is published, sent or given, a statement
that OnDisplay recommends rejection of that tender or exchange offer.
Termination Fees
Termination Fees Payable by OnDisplay to Vignette. If the merger agreement
is terminated by Vignette as described under "--Termination of the Merger
Agreement--Termination by Vignette" prior to the first acceptance of shares in
the offer then OnDisplay shall pay to Vignette a termination fee in an amount
equal to $50 million in immediately available funds.
If the merger agreement is terminated by Vignette or OnDisplay as described
in paragraphs (1) and (2) under "--Termination of the Merger Agreement--
Termination by either Vignette or OnDisplay" prior to the first acceptance of
shares in the offer and no event described under "Termination of the Merger
Agreement--Termination by Vignette" has occurred, and (x) after the date of
the merger agreement and prior to the date of termination of the merger
agreement any Acquisition Proposal has been publicly announced or publicly
known and not withdrawn at least 5 business days prior to the scheduled
expiration date of the offer and (y) within 12 months of termination of the
merger agreement either a Company Acquisition occurs or OnDisplay enters into
an agreement providing for a Company Acquisition and the Company Acquisition
is later consummated, then OnDisplay shall pay to Vignette, no later than two
days after the consummation of the Company Acquisition, $50 million in
immediately available funds.
"Company Acquisition" means any of the following transactions (other than
the offer and the merger):
. a sale or other disposition by OnDisplay of a business or assets
representing 40% or more of the consolidated net revenues, net income or
assets of OnDisplay immediately prior to that sale,
. the acquisition by any person or group (including by way of a tender
offer or an exchange offer or issuance by OnDisplay), directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing 40% or more of any class of equity
securities of OnDisplay, or
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. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving OnDisplay
(other than a transaction in which OnDisplay is the acquiror and in which
the current OnDisplay stockholders retain more than 60%, directly or
indirectly, of the surviving or successor corporation,
except that a widely distributed offering of OnDisplay common stock will not
constitute a Company Acquisition.
Amendments
The merger agreement may be amended by action taken by Vignette, Wheels
Acquisition Corp. and OnDisplay at any time prior to the closing of the merger.
The merger agreement provides that if Vignette designates directors of
OnDisplay prior to the effective time of the merger, any amendment of the
merger agreement, any termination of the merger agreement by OnDisplay, any
extension by OnDisplay of the time for the performance of any of the
obligations or other acts of Vignette or Wheels Acquisition Corp., waiver by
OnDisplay of any rights of OnDisplay or OnDisplay stockholders under the merger
agreement or any other action by OnDisplay which is reasonably likely to
adversely affect the interests of the OnDisplay stockholders with respect to
the transactions provided for under the merger agreement, will require the
concurrence of a majority of the OnDisplay directors then in office who were
not designated by Vignette.
The Stockholder Agreement
Parties
As an inducement for Vignette and Wheels Acquisition Corp. to enter into the
merger agreement, immediately prior to the signing of the merger agreement,
various stockholders of OnDisplay entered into the stockholder agreement with
Vignette.
The obligations of those stockholders under the stockholder agreement
covers, in the aggregate, 8,828,391 OnDisplay shares, which represented
approximately 39% of the outstanding OnDisplay shares as of May 16, 2000.
Agreement to Tender
Each stockholder who signed the stockholder agreement agreed to tender in
the offer and not withdraw that portion of his or her shares of OnDisplay
covered by the stockholder agreement.
Proxy
Each stockholder who signed the stockholder agreement granted Vignette or
any nominee of Vignette a proxy to vote or grant a consent with respect to that
portion of that stockholder's OnDisplay shares covered by the stockholder
agreement
. in favor of the adoption and approval of the merger agreement and the
merger and the other transactions contemplated by the merger agreement.
. against the approval of any
. Acquisition Proposal,
. reorganization, recapitalization, liquidation or winding up of
OnDisplay or any other extraordinary transaction involving OnDisplay,
. corporate action that would prevent or delay consummation of the offer,
the merger or any other transaction contemplated by the merger
agreement, or
. other matters relating to the foregoing.
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DESCRIPTION OF VIGNETTE CAPITAL STOCK
Our authorized capital stock consists of 500,000,000 shares of common stock,
$0.01 par value, and 10,000,000 shares of preferred stock, $0.01 par value.
Common Stock
As of May 31, 2000, there were 193,480,039 shares of common stock
outstanding that were held of record by approximately 469 stockholders. As of
May 31, 2000, there were 59,865,715 shares of common stock subject to
outstanding options, 39,443,931 of which were currently exercisable. There
would be approximately 229,212,144 shares of common stock outstanding after
giving effect to the offer and the merger. The holders of common stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of the
liquidation, dissolution, or winding up of Vignette, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued in
connection with the offer and the merger will be fully paid and nonassessable.
Preferred Stock
Our certificate of incorporation authorizes the issuance of 10,000,000
shares of preferred stock and no shares are currently outstanding. The Board of
Directors has the authority to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Vignette without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. At present, we have no plans to issue any of the preferred
stock.
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COMPARISON OF VIGNETTE AND ONDISPLAY STOCKHOLDER RIGHTS
Set forth on the following pages is a summary comparison of material
differences between the rights of a Vignette stockholder under the current
Vignette certificate of incorporation and bylaws (left column) and the rights
of an OnDisplay stockholder under the current OnDisplay certificate of
incorporation and bylaws (right column). Copies of these documents will be sent
to holders of shares of OnDisplay common stock upon request. A summary by its
nature is not complete. We encourage you to refer to the relevant portions of
the Vignette certificate of incorporation and bylaws incorporated in this
document by reference, the OnDisplay certificate of incorporation and bylaws,
and the relevant provisions of Delaware law.
Vignette OnDisplay
--------------------------------------------------------------------------------
GENERAL
--------------------------------------------------------------------------------
. The rights of Vignette . The rights of OnDisplay
stockholders are governed by stockholders are governed by
Vignette's certificate of OnDisplay's certificate of
incorporation and bylaws, in incorporation and bylaws, in
addition to Delaware law. addition to Delaware law.
. Upon completion of the merger, the . Upon completion of the merger,
Vignette certificate of OnDisplay stockholders will become
incorporation and bylaws will be Vignette stockholders.
the same in all respects as the
present documents.
--------------------------------------------------------------------------------
AUTHORIZED CAPITAL
--------------------------------------------------------------------------------
. The authorized capital stock of . The authorized capital stock of
Vignette consists of: OnDisplay consists of:
. 500,000,000 Vignette common . 100,000,000 OnDisplay common
shares, with a par value of $0.01 shares, with a par value of
per share; there were 193,480,039 $0.001 per share; there were
shares of common stock 22,615,256 shares of common stock
outstanding as of May 31, 2000 outstanding as of May 31, 2000
. 10,000,000 shares of preferred . 10,000,000 shares of preferred
stock, with a par value of $0.01 stock, with a par value of $0.001
per share, none outstanding. per share, none outstanding.
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Vignette OnDisplay
AMENDMENT OF GOVERNING DOCUMENTS
--------------------------------------------------------------------------------
Charter
--------------------------------------------------------------------------------
. Except for the matters specified . Except for the matters specified
in the following section, an in the following section, an
authorization of the Vignette authorization of the OnDisplay
board, followed by the vote of a board, followed by the vote of a
majority of the outstanding majority of the outstanding
Vignette common shares is OnDisplay common shares is
required for an amendment to the required for an amendment to the
Vignette certificate of OnDisplay certificate of
incorporation. incorporation.
. An amendment to the Vignette . An amendment to the OnDisplay
certificate of incorporation certificate of incorporation
providing for the following providing for the following
requires an authorization by the requires an authorization by the
Vignette board followed by the OnDisplay board followed by the
approval of at least seventy approval of at least sixty-six
five percent (75%) of the then and two-thirds percent (66 2/3%)
outstanding voting securities of of the then outstanding voting
Vignette: securities of OnDisplay:
. limiting the authority of the . cumulative voting in the
board of directors to fix the election of directors or any
number of directors, altering other matter submitted to a vote
the classified board of the stockholders, altering
structure, limiting the the classified board structure,
authority of the board limiting the authority of the
of directors to amend or board of directors to amend or
repeal the bylaws, requiring repeal the bylaws of the
that all actions by corporation, stipulating whether
stockholders take place at an meetings of stockholders may be
annual or special meeting and held within or without Delaware,
not by written consent, or or whether the books of the
changing the liability corporation maybe kept in places
limitation for Vignette's outside Delaware as designated
directors. by the board of directors,
. The Vignette bylaws may be . The OnDisplay bylaws may be
adopted, amended or repealed by: adopted, amended or repealed by:
. a majority vote of the board of . a majority vote of the board of
directors; or directors.
. holders of at least 75% of . a majority of the votes cast by
Vigentte's oustanding capital stockholders entitled to vote
stock. except that the vote of two-
thirds of the outstanding voting
securities of OnDisplay is
required to amend the OnDisplay
bylaws relating to the following
matters:
. special meetings, notice of
stockholder meetings, advance
notice of stockholder nominees
and stockholder business,
voting, stockholder action by
written consent without
a meeting, and number of
directors.
--------------------------------------------------------------------------------
79
<PAGE>
Vignette OnDisplay
DIRECTORS
--------------------------------------------------------------------------------
Number
--------------------------------------------------------------------------------
. Vignette's bylaws provide that the . The OnDisplay bylaws provide that
board of directors shall consist the board of directors shall
of no less than 1 and no more than consist of 8 members. This number
7 directors, with the actual may be changed by an amendment to
number to be fixed from time to the certificate of incorporation
time by resolution of the board of or by an amendment to the bylaws
directors or by the stockholders adopted by holders of a majority
at an annual meeting. of the outstanding stock or by a
majority of the board of
directors.
. The current number of directors is
5.
. The current number of directors is
8.
--------------------------------------------------------------------------------
Classification
--------------------------------------------------------------------------------
. The board of directors is divided . The board of directors is divided
into three classes, each as nearly into three classes, each as nearly
equal in number as possible, with equal in number as possible, with
one class being elected annually one class being elected annually
to a three-year term. There is one to a three-year term. There are
Class II director, whose term will two Class I directors, whose terms
expire at the annual meeting to be will expire at the annual meeting
held in 2001; two Class III to be held in 2000; three Class II
directors, whose terms will expire directors, whose term will expire
at the annual meeting to be held at the annual meeting to be held
in 2002; and two Class I in 2001; and three Class III
directors, whose terms will expire directors, whose terms will expire
at the annual meeting to be held at the annual meeting to be held
in 2003. in 2002.
--------------------------------------------------------------------------------
Nominations
--------------------------------------------------------------------------------
. A stockholder must make any . A stockholder must make any
nomination for a director in nomination for a director in
writing to the secretary of writing to the secretary of
Vignette at least 60 days but not OnDisplay not less than 120 days
more than 90 days before the first in advance of the first
anniversary of the preceeding anniversary of the mailing of the
year's annual meeting. previous year's proxy statement
with respect to OnDisplay's annual
meeting of stockholders.
--------------------------------------------------------------------------------
Removal
--------------------------------------------------------------------------------
. Vignette directors may be removed . Any director or the entire board
only for cause. or directors may be removed, with
or without cause, by the holders
of a majority of the shares then
entitled to vote at an election of
directors.
--------------------------------------------------------------------------------
80
<PAGE>
Vignette OnDisplay
STOCKHOLDERS
--------------------------------------------------------------------------------
Annual Meetings of Stockholders
--------------------------------------------------------------------------------
. The annual meeting of stockholders . The annual meeting of stockholders
must be held on a date and at a shall be held on a date and at a
place within or without Delaware place fixed by the OnDisplay board
as fixed by the Vignette board of of directors. In the absence of
directors. such designation, the annual
meeting of stockholders shall be
held on the second Tuesday of May
of each year but if such day is a
legal holiday, then the meeting
shall be held on the next business
day.
--------------------------------------------------------------------------------
Special Meetings of Stockholders
--------------------------------------------------------------------------------
. Special meetings of the . OnDisplay's bylaws authorize the
stockholders, for any purposes, board of directors, the chairman
may be called at any time by a of the board or the president to
majority of the board of call a special meeting of
directors. Therefore, stockholders stockholders. Therefore,
of Vignette are not authorized to stockholders of OnDisplay are not
call special meetings of authorized to call special
stockholders. meetings of stockholders.
--------------------------------------------------------------------------------
Stockholder Proposals
--------------------------------------------------------------------------------
. A Vignette stockholder wishing to . An OnDisplay stockholder wishing
bring business before the annual to bring business before the
stockholders' meeting must provide annual stockholders' meeting must
written notice to the provide written notice not less
corporation's secretary. The than 120 days in advance of the
notice must be received between 30 first anniversary of the mailing
and 60 days prior to the annual of the previous year's proxy
meeting. statement for OnDisplay's annual
meeting of stockholders.
--------------------------------------------------------------------------------
State Anti-Takeover Laws
Under Delaware law, a Delaware corporation generally may not engage in a
"business combination" with an "interested stockholder" for a period of three
years following the date that the stockholder became an interested stockholder.
"Business combination" includes a merger, consolidation, asset sale or other
transaction resulting in a financial benefit to the interested stockholder.
"Interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years, did own 15% or more of the
corporation's voting stock. This prohibition does not apply if
. the corporation has elected not to be governed by these restrictions.
. prior to the time that the stockholder became an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction resulting in the stockholder's becoming an
interested stockholder,
. upon consummation of the transaction resulting in the stockholder's
becoming an interested stockholder, the stockholder owns at least 85% of
the outstanding voting stock of the corporation, excluding voting stock
owned by directors who are also officers and certain employee stock
plans, or
. at or subsequent to the time that the stockholder became an interested
stockholder, the business combination is approved by the board and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that the interested stockholder does not own.
81
<PAGE>
Neither Vignette nor OnDisplay has elected not to be governed by these
restrictions. The OnDisplay board has taken the necessary action to make the
above restrictions on business combinations inapplicable to the offer and the
merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of OnDisplay as of May 31, 2000 as to (i) each person
who is known by OnDisplay to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee for director of the
OnDisplay, (iii) each of the four most highly compensated executive officers
and the chief executive officer of OnDisplay and (iv) all directors and
executive officers of OnDisplay as a group.
Unless otherwise indicated, the address for each stockholder in the table is
c/o OnDisplay, Inc., 12667 Alcosta Boulevard, Suite 300, San Ramon, CA 94583.
Except as otherwise noted, and dependent on applicable community property laws,
to our knowledge, the persons named in this table have sole voting and
investing power with respect to all of the shares of common stock held by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned*
-----------------------------
Beneficial Owner Number Percent
---------------- --------------- -------------
<S> <C> <C>
Matrix Partners IV, L.P.(1)........................... 3,360,525 14.86
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
Norwest Venture Partners VI, L.P. .................... 2,594,181 11.47
245 Lytton Avenue, Suite 250
Palo Alto, CA 94111
Atlas Venture Fund II, L.P............................ 2,390,784 10.57
222 Berkeley Street
Boston, MA 02116
Amerindo Investment Advisors, Inc. And affiliates(2).. 1,664,963 7.36
One Embarcadero, Suite 2300
San Francisco, CA 94111
Mark Pine(3).......................................... 1,585,275 6.97
Trung Dung............................................ 987,175 4.37
Venkat Mohan(4)....................................... 350,000 1.53
Mark Deppe (5)........................................ 278,385 1.23
Olivier Sermet(6)..................................... 235,000 1.04
Santi Pierini(7)...................................... 125,000 **
Timothy Barrows(8).................................... 3,390,525 14.99
Promod Haque(9)....................................... 2,624,181 11.60
John Mandile(10)...................................... 563,764 2.49
Christopher Spray(11)................................. 2,420,784 10.69
Margaret Taylor....................................... 55,000 **
Carmine Villani....................................... 40,000 **
All directors and executive officers
as a group (16 persons).............................. 13,030,089 55.49
</TABLE>
--------
* Stock options held by the persons in the table are fully exercisable and
are therefore included in the table because the underlying shares are
deemed to be beneficially owned under the rules of the Securities and
Exchange Commission. However, some of the shares underlying options, as
well as some shares that are
82
<PAGE>
held by such persons as a result of option exercises, are not fully
vested. Shares underlying options are deemed to be outstanding for the
purpose of computing the percentage beneficially owned by the holder of
the option, but are not deemed to be outstanding for the purpose of
computing any other person's beneficial ownership percentage.
** Less than 1% of the outstanding shares of common stock.
(1) Includes 168,026 shares held by the Matrix IV Entrepreneurs Fund, L.P.
(2) Amerindo Investment Advisors, Inc. and its affiliates, which manages the
accounts holding these shares, disclaims beneficial ownership of the
shares.
(3) Includes 246,000 shares beneficially held by trusts for the benefit of M.
Pine's minor children and other family members. Also includes 125,000
shares of common stock issuable upon the exercise of stock options.
(4) Includes 250,000 shares of common stock issuable upon the exercise of
stock options.
(5) Mr. Deppe is no longer an executive officer of OnDisplay.
(6) Includes 50,000 shares of common stock issuable upon the exercise of
stock options.
(7) Includes 49,000 shares of common stock issuable upon the exercise of
stock options.
(8) Includes shares held by Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P. T. Barrows, a general partner of Matrix IV
Management Co., L.P. which is the general partner of Matrix Partners IV,
L.P. and Matrix IV Entrepreneurs Fund, L.P., disclaims beneficial
ownership of the shares held by Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P., except to the extent of his proportionate
pecuniary interest therein. Also includes 30,000 shares of common stock
issuable upon the exercise of stock options.
(9) Includes shares held by Norwest Venture Partners VI, L.P. P. Haque, a
general partner of Norwest Venture Partners VI, L.P., disclaims
beneficial ownership of the shares held by Norwest Venture Partners VI,
L.P., except to the extent of his proportionate pecuniary interest
therein. Also includes 30,000 shares of common stock issuable upon the
exercise of stock options.
(10) Includes shares held by Sigma Partners IV, L.P., Sigma Investors IV, L.P.
and Sigma Associates IV, L.P. J. Mandile, a Managing Director of Sigma
Management IV, L.L.C., the general partner of Sigma Partners IV, L.P.,
Sigma Investors IV, L.P. and Sigma Associates IV, L.P. disclaims
beneficial ownership of the shares held by Sigma Partners IV, L.P., Sigma
Investors IV, L.P. and Sigma Associates IV, L.P., except to the extent of
his proportionate pecuniary interest therein. Also includes 42,500 shares
of common stock issuable upon the exercise of stock options.
(11) Includes shares held by Atlas Venture Fund II, L.P. C. Spray, a general
partner of Atlas Venture Fund II, L.P., disclaims beneficial ownership of
the shares held by Atlas Venture Fund II, L.P., except to the extent of
his proportionate pecuniary interest therein. Also includes 30,000 shares
of common stock issuable upon the exercise of stock options.
83
<PAGE>
LEGAL MATTERS
Davis Polk & Wardwell, counsel to Vignette, will pass on the validity of the
Vignette common shares to be issued to OnDisplay stockholders in the offer and
merger.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Vignette Corporation included in its Annual Report on
Form 10-K for the year ended December 31, 1999, as set forth in their report,
which is incorporated by reference in this prospectus and elsewhere in the
registration statement. The financial statements of Vignette Corporation are
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of DataSage, Inc. at December 31, 1998 and 1999 and for each of the
two years in the period ended December 31, 1999, included in the Current Report
(Form 8-K/A) filed with the Securities and Exchange Commission on March 30,
2000, as set forth in their report, which is incorporated by reference in this
prospectus and elsewhere in the registration statement. The financial
statements of DataSage, Inc. are incorporated by reference in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Oberon Software Incorporated at September 30, 1998 and 1999 and
for each of the three years in the period ended September 30, 1999, as set
forth in their report included in this prospectus. The financial statements of
Oberon Software Incorporated are included in the prospectus and elsewhere in
the registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The financial statements of OnDisplay, Inc. at December 31, 1998 and 1999,
and for each of the three years in the period ended December 31, 1999 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, which report is given
upon the authority of said firm as experts in auditing and accounting.
84
<PAGE>
ONDISPLAY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
OnDisplay, Inc.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited).................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999 and the three-month periods ended March 31, 1999 and
2000 (unaudited)........................................................ F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997, 1998 and 1999 and the three-month
period ended March 31, 2000 (unaudited)................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 and the three-month periods ended March 31, 1999 and
2000 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
Oberon Software Incorporated (an acquired business of OnDisplay, Inc.)
Report of Independent Auditors........................................... F-21
Balance Sheets as of September 30, 1998 and 1999 and December 31, 1999
(unaudited)............................................................. F-22
Statements of Operations for the years ended September 30, 1997, 1998 and
1999 and the three-month periods ended December 31, 1998 and 1999
(unaudited)............................................................. F-23
Statements of Stockholders' Equity (Deficit) for the years ended
September 30, 1997, 1998
and 1999 and the three-month period ended December 31, 1999
(unaudited)............................................................. F-24
Statements of Cash Flows for the years ended September 30, 1997, 1998 and
1999 and the three-month periods ended December 31, 1998 and 1999
(unaudited)............................................................. F-26
Notes to Financial Statements............................................ F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders Of OnDisplay, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows present
fairly, in all material respects, the financial position of OnDisplay, Inc. at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
February 16, 2000
F-2
<PAGE>
ONDISPLAY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
------------------ March 31,
1998 1999 2000
-------- -------- -----------
(unaudited)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 4,648 $109,617 $114,371
Short-term investments......................... -- -- 10,977
Accounts receivable, net of allowance for
doubtful accounts of $250 in 1998, $728 in
1999 and $733 in 2000......................... 2,600 4,419 5,112
Prepaid and other current assets............... 96 1,171 1,046
-------- -------- --------
Total current assets.......................... 7,344 115,207 131,506
Property and equipment, net..................... 720 1,581 4,014
Goodwill and other intangible assets............ -- -- 189,247
Deposits and other assets....................... 189 314 523
-------- -------- --------
Total assets.................................. $ 8,253 $117,102 $325,290
======== ======== ========
<CAPTION>
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................... $ 386 $ 1,262 $ 3,375
Accrued liabilities............................ 823 2,989 4,752
Deferred revenue............................... 1,402 2,617 7,768
Current portion of long term debts ............ 149 1,199 2,382
-------- -------- --------
Total current liabilities..................... 2,760 8,067 18,277
Long term debts, net of current portion......... 240 2,338 4,513
-------- -------- --------
Total liabilities............................. 3,000 10,405 22,790
-------- -------- --------
Commitments (Note 4)
Mandatorily redeemable convertible preferred
stock,
Series A, B, C and D $0.001 par value:
Authorized: 11,600,000 shares at December 31,
1998 and 10,000,000 shares at December 31,
1999 and March 31, 2000; issued and
outstanding:
8,891,554 shares at December 31, 1998 and none
at
December 31, 1999 and March 31, 2000.......... 18,982 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value:
Authorized: 100,000,000 shares; issued and
outstanding:
4,133,751 at December 31, 1998, 19,647,303
shares at
December 31, 1999 and 22,197,999 shares at
March 31, 2000............................... 1 16 19
Additional paid-in capital..................... 2,328 168,866 385,539
Deferred stock-based compensation.............. (1,604) (29,175) (24,913)
Notes receivable from shareholders............. -- (1,788) (1,788)
Accumulated deficit............................ (14,454) (31,222) (56,357)
-------- -------- --------
Total stockholders' equity (deficit).......... (13,729) 106,697 302,500
-------- -------- --------
Total liabilities, preferred stock and
stockholders' equity (deficit).............. $ 8,253 $117,102 $325,290
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ONDISPLAY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
-------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
License revenues............... $ 265 $ 2,229 $ 6,839 $ 628 $ 4,665
Service revenues............... -- 1,114 4,259 922 2,376
------- ------- -------- ------- --------
Total revenues............. 265 3,343 11,098 1,550 7,041
------- ------- -------- ------- --------
Cost of license revenues....... -- 2 7 1 2
Cost of service revenues....... -- 1,618 4,251 877 2,393
------- ------- -------- ------- --------
Total cost of revenues..... -- 1,620 4,258 878 2,395
------- ------- -------- ------- --------
Gross profit................... 265 1,723 6,840 672 4,646
Operating expenses:
Sales and marketing.......... 2,810 5,747 11,917 1,600 7,349
Research and development..... 1,986 2,636 4,714 738 2,327
General and administrative... 1,158 1,201 3,418 564 1,904
Amortization of deferred
stock-based compensation.... -- 618 3,697 322 4,262
Purchased in-process research
and development............. -- -- -- -- 15,300
------- ------- -------- ------- --------
Total operating expenses... 5,954 10,202 23,746 3,224 31,142
------- ------- -------- ------- --------
Loss from operations........... (5,689) (8,479) (16,906) (2,552) (26,496)
Interest income and other...... 173 174 532 85 1,507
Interest expense............... (18) (43) (394) (12) (146)
------- ------- -------- ------- --------
Net loss....................... $(5,534) $(8,348) $(16,768) $(2,479) $(25,135)
------- ------- -------- ------- --------
Net loss per share--basic and
diluted....................... $ (1.62) $ (2.34) $ (3.70) $ (0.59) $ (1.30)
------- ------- -------- ------- --------
Shares used in per share
calculation--basic and
diluted....................... 3,410 3,572 4,533 4,203 19,343
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ONDISPLAY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Deferred Receivable Stockholders
------------------ Paid-in Stock-Based from Accumulated Equity
Shares Amount Capital Compensation Shareholders Deficit (Deficit)
---------- ------ ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1997................... 3,400,000 $-- $ 8 $ -- $ -- $ (572) $ (564)
Issuance of common stock
in exchange
for services rendered.. 20,000 -- -- -- -- -- --
Issuance of common stock
in connection
with option exercises.. 625 -- -- -- -- -- --
Net loss................ -- -- -- -- -- (5,534) (5,534)
---------- --- -------- -------- ------- -------- --------
Balances, December 31,
1997................... 3,420,625 -- 8 -- -- (6,106) (6,098)
Issuance of common stock
in connection
with options
exercised............. 754,520 1 106 -- -- -- 107
Repurchase of unvested
common stock........... (41,394) -- (8) -- -- -- (8)
Deferred compensation
related to stock
options granted........ -- -- 2,222 (2,222) -- -- --
Amortization of deferred
stock-based
compensation........... -- -- -- 618 -- -- 618
Net loss................ -- -- -- -- -- (8,348) (8,348)
---------- --- -------- -------- ------- -------- --------
Balances, December 31,
1998................... 4,133,751 1 2,328 (1,604) -- (14,454) (13,729)
Conversion of
Mandatorily Redeemable
Convertible Preferred
Stock to common stock.. 10,615,293 11 35,381 -- -- -- 35,392
Issuance of common stock
in connection
with initial public
offering, net of
issuance costs......... 3,500,000 4 89,763 -- -- -- 89,767
Issuance of common stock
in connection
with private
placement............. 300,000 -- 7,812 -- -- -- 7,812
Issuance of common stock
in connection
with options
exercised............. 1,163,563 -- 2,170 -- (1,788) -- 382
Repurchase of unvested
common stock........... (71,554) -- (15) -- -- -- (15)
Issuance of common stock
in connection with
services rendered...... 6,250 -- 38 -- -- -- 38
Amortization of discount
related to warrants
issued in connection
with long term loan.... -- -- 121 -- -- -- 121
Deferred compensation
related to
stock options grants... -- -- 31,268 (31,268) -- -- --
Amortization of deferred
stock-based
compensation........... -- -- -- 3,697 -- -- 3,697
Net loss................ -- -- -- -- -- (16,768) (16,768)
---------- --- -------- -------- ------- -------- --------
Balances, December 31,
1999................... 19,647,303 16 168,866 (29,175) (1,788) (31,222) 106,697
Issuance of common stock
in connection
with initial public
offering.............. 525,000 1 13,566 -- -- -- 13,567
Issuance of common stock
in connection
with option exercise... 85,683 -- 23 -- -- -- 23
Issuance of common stock
in connection
with Obreon
acquisition........... 1,960,472 2 203,039 -- -- -- 203,041
Repurchase of unvested
common stock........... (20,459) -- -- -- -- -- --
Amortization of discount
related to warrants
issued in connection
with long-term loan.... -- -- 45 -- -- -- 45
Amortization of deferred
stock-based
compensation........... -- -- -- 4,262 -- -- 4,262
Net loss................ -- -- -- -- -- (25,135) (25,135)
---------- --- -------- -------- ------- -------- --------
Balances, March 31, 2000
(unaudited)............ 22,197,999 $19 $385,539 $(24,913) $(1,788) $(56,357) $302,500
========== === ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ONDISPLAY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
-------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(5,534) $(8,348) $(16,768) $(2,479) $(25,135)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 123 306 518 100 208
Loss from sale of property
and equipment................ -- 9 -- -- --
Provision for doubtful
accounts..................... -- 250 478 -- 5
Amortization of deferred
stock-based compensation..... -- 618 3,697 322 4,262
Amortization of discount
related to warrants issued
in connection with long term
loan......................... -- -- 121 -- 45
Issuance of common stock in
connection with services
rendered..................... -- -- 38 -- --
Purchased in-process research
and development.............. -- -- -- -- 15,300
Change in operating assets
and liabilities, net of
amounts acquired in
acquisition:
Accounts receivable.......... (187) (2,661) (2,297) 1,052 (222)
Prepaid and other current
assets...................... (96) 43 (1,075) (109) 307
Accounts payable............. 125 166 876 3 (32)
Accrued liabilities.......... 163 627 2,166 (258) 295
Deferred revenue............. 11 1,391 1,215 (405) 5,151
Other long term assets....... -- (189) (125) (46) (198)
------- ------- -------- ------- --------
Net cash used in operating
activities................. (5,395) (7,788) (11,156) (1,820) (14)
------- ------- -------- ------- --------
Cash flows from investing
activities:
Acquisition of property and
equipment..................... (428) (219) (650) (235) (974)
Cash acquired in a business
combination................... -- -- -- -- 3,453
Purchase of short-term
investments................... -- -- -- -- (10,977)
Proceeds from sales of property
and equipment................. -- 3 -- -- --
------- ------- -------- ------- --------
Net cash used in investing
activities................ (428) (216) (650) (235) (8,498)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from sales and lease
back of property and
equipment..................... 200 -- -- -- --
Proceeds from issuance of
Series A preferred stock...... 100 -- -- -- --
Proceeds from issuance of
common stock, net............. -- 107 97,961 31 13,590
Proceeds from issuance of
Series B preferred stock...... 6,700 25 -- -- --
Principal payment under capital
lease obligations............. (28) (129) (78) (28) (99)
Proceeds from borrowings under
long term loan received....... -- -- 3,000 -- --
Repayment of long term loan.... -- -- (503) -- (225)
Proceeds from issuance of
Series C preferred stock...... -- 8,757 -- -- --
Proceeds from issuance of
Series D preferred stock...... -- -- 16,410 -- --
Repurchases of unvested common
stock......................... -- (8) (15) -- --
------- ------- -------- ------- --------
Net cash provided by
financing activities...... 6,972 8,752 116,775 3 13,266
------- ------- -------- ------- --------
Net increase in cash and cash
equivalents.................... 1,149 748 104,969 (2,052) 4,754
Cash and cash equivalents at
beginning of year.............. 2,751 3,900 4,648 4,648 109,617
------- ------- -------- ------- --------
Cash and cash equivalents at end
of year........................ $ 3,900 $ 4,648 $109,617 $ 2,596 $114,371
======= ======= ======== ======= ========
Noncash investing and financing
activities:
Property and equipment acquired
under capital lease
obligations................... $ 196 $ 337 $ 729 $ -- $ 828
======= ======= ======== ======= ========
Deferred stock-based
compensation.................. $ -- $ 2,222 $ 31,268 $ 1,129 $ --
======= ======= ======== ======= ========
Issuance of common stock for
notes receivable from
shareholders.................. $ -- $ -- $ 1,788 $ -- $ --
======= ======= ======== ======= ========
Conversion of preferred stock
to common stock............... -- -- 35,392 -- --
Fair value of common stock
issued for acquisition of
Oberon Software............... -- -- -- -- $203,018
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
OnDisplay, Inc. (the "Company") develops and markets applications for
powering e-business portals and e-marketplaces in both business-to-business and
business-to-consumer e-commerce. The Company's product suite provides an open,
scalable, adaptable solution to enable the rapid aggregation, exchange,
integration, personalization and syndication of e-business information and
services from a broad range of partners, suppliers and customers. Through the
use of the Internet, customers are able to use our solutions to align
information systems of business allies without modification to existing
applications or to migrate rapidly from their existing systems to new
enterprise applications. The Company operates in a single business segment and
does not have any separately reportable business segments as of March 31, 2000.
Unaudited interim financial information
The accompanying financial statements as of March 31, 1999 and 2000 and for
the three-month periods then ended, together with the related notes, are
unaudited but include all adjustments, consisting only of normal recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation, in all material respects, of the operating results and cash flows
for the period presented.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. These estimates include levels of reserves for accounts
receivable, valuation of deferred tax assets and value of the Company's capital
stock. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments purchased with an original or
remaining maturity of three months or less to be cash equivalents.
Concentration of credit risk
The Company maintains its cash and cash equivalents in accounts with two
major financial institutions in the United States. The Company has not
experienced any losses on its deposits of cash and cash equivalents.
The Company performs ongoing credit evaluations of its customers, and
collateral is not required. The Company records an allowance for doubtful
accounts for credit losses at the end of each period based on an analysis of
individual aged accounts receivable balances. As a result of this analysis, the
Company believes that its allowance for doubtful accounts is adequate but not
excessive at December 31, 1998 and 1999 and March 31, 2000.
The Company derives most of its license, service and support revenues from
one suite of products.
At December 31, 1999 two customers accounted for 21% and 15% of accounts
receivable and at December 31, 1998 two different customers accounted for 24%
and 12% of accounts receivable.
F-7
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
The following table sets forth customers comprising 10% or more of the
revenue for each of the periods reported:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
---------------- ---------------
Customer 1997 1998 1999 1999 2000
-------- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
A.......................................... 37% -- -- -- --
B.......................................... 30% -- -- -- --
C.......................................... 21% -- -- -- --
D.......................................... -- 13% -- -- --
E.......................................... -- 11% -- -- --
F.......................................... -- -- -- 11% --
G.......................................... -- -- -- 11% --
H.......................................... -- -- -- 10% --
I.......................................... -- -- -- -- 12%
</TABLE>
Fair value of financial instruments
The carrying amounts of certain of the Company's financial instruments,
including cash, cash equivalents, trade accounts receivable, accounts payable
and accrued liabilities approximate fair value due to their short maturities.
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its long-term debt approximates fair
value.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life of the related assets
of three years. Leasehold improvements and leased assets are amortized on a
straight line basis over the lesser of their estimated useful life or the lease
term. Gains and losses from the disposal of property and equipment are taken
into income in the year of disposition. Repairs and maintenance costs are
expensed as incurred.
Revenue recognition
Revenue consists of revenue earned under software license agreements,
service agreements, and maintenance agreements. Revenue from software license
agreements is recognized upon shipment or upon notification to the customer of
the downloadable software location, provided that a signed contract exists, the
fee is fixed or determinable and collection of the resulting receivable is
probable and, if applicable, acceptance criteria are met. In cases where a fee
is due to a referring party under the Company's referral agreements, such fees
are recorded as sales and marketing expenses when the accompanying sales are
recorded.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance, installation and other services), revenue is allocated
to each component of the contract based on objective evidence of its fair
value, which is specific to the Company, or for products not being sold
separately, the price established by management. The Company recognized revenue
allocated to undelivered products when the criteria for product revenue set
forth above are met. The Company recognizes revenue from maintenance fees,
including amounts allocated from product revenues for ongoing customer support
and product updates ratably over the period of the maintenance contract.
Payments for maintenance fees are generally made in advance and are non-
refundable. For revenue allocated to consulting services, such as installation
and training and for such services sold separately, the Company recognizes
revenue as the related services are performed.
Deferred revenue consists of payments received prior to delivery of
licenses, fulfillment of acceptance criteria, or performance of services.
F-8
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Cost of revenues
Cost of license revenues includes costs associated with the electronic
transmission of software and royalties for third party embedded software which
were not material. Cost of service revenue includes salaries and related
expenses for the service organization and cost of third parties contracted to
provide services to customers.
Research and development expenditures
Expenditures for research and development are charged to expense as
incurred. Under Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" certain software development costs are capitalized after
technological feasibility has been established. Development costs incurred in
the period between achievement of technological feasibility, which the Company
defines as the establishment of working model, until the general availability
of such software to customers, has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs to date.
Stock-based compensation
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for employee stock options under Accounting Principles Board
Opinion ("APB") No. 25 and follows the disclosure-only provisions of SFAS 123.
Under APB No. 25, compensation expense is based on the difference, if any, on
the date of grant, between the estimated fair value of the Company's stock and
the exercise price of options to purchase that stock.
Income taxes
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Net loss per share
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving
effect to all dilutive potential common stock, including nonvested common
stock, options, warrants and preferred stock. Options, warrants, non vested
common stock and preferred stock were not included in the computation of
diluted net loss per share in the periods reported because the effect would be
antidilutive.
F-9
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Antidilutive securities not included in net loss per share calculation for
the periods:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common stock subject to
repurchase............. -- 377,732 1,154,521 420,407 861,797
Common stock options.... 1,602,750 1,366,188 2,986,985 645,682 4,060,832
Warrants................ -- -- 85,537 -- 85,537
Preferred Stock......... 6,690,476 8,891,554 -- 8,891,554 --
--------- ---------- --------- --------- ---------
8,293,226 10,635,474 4,227,043 9,957,643 5,008,166
========= ========== ========= ========= =========
</TABLE>
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. The Company has no comprehensive income
components other than its net loss.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities and will be adopted by the
Company in the third quarter of 2001. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. The Company does not currently hold derivative
instruments or engage in hedging activities. The Company is currently
evaluating the impact SFAS 133 will have on its financial position and results
of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, or SAB 101, which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 is effective in the second quarter of 2000. The
Company does not expect SAB 101 to have a material effect on its financial
position, results of operations or cash flow.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation an interpretation of APB Opinion No. 25." This interpretation has
provisions that are effective on staggered dates, some of which began after
December 15, 1998 and other that become effective June 30, 2000. The Company
believes that the adoption of this interpretation will not have a material
impact on the financial statements.
NOTE 2--BUSINESS COMBINATIONS:
On March 31, 2000, the Company acquired 100 percent of the outstanding stock
and assumed all outstanding stock options of privately held Oberon Software
Inc. ("Oberon"), a leading provider of business process automation software, in
exchange for approximately 1,960,500 shares of the Company's common
F-10
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
stock. The total cost of the acquisition, including transaction costs, was
approximately $206,175,000 comprised of the value of common stock issued of
$179,518,000, the fair value of options assumed of approximately $23,500,000
and $3,157,000 of transaction costs.
The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board opinion No. 16. Accordingly, the results of
operations of Oberon will be included with those of the Company for periods
subsequent to the date of acquisition, and the acquired assets and liabilities
assumed were recorded at their estimated fair values at the effective date of
the acquisition. The following table presents the allocation of the purchase
price (in thousands):
<TABLE>
<S> <C>
In-process research and development............................... $ 15,300
Acquired technology............................................... 5,100
Goodwill.......................................................... 184,147
Net fair value of tangible assets acquired and liabilities
assumed.......................................................... 1,628
--------
$206,175
========
</TABLE>
In connection with the transaction, the Company incurred a charge of $15.3
million for the write-off of in-process research and development in the
consolidated statement of operations for the three months ended March 31, 2000.
The amounts allocated to acquired technology are being amortized over a three-
year period. The goodwill is being amortized over a four-year period on a
straight-line basis.
NOTE 3--BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1998 1999 2000
------ ------ ---------
<S> <C> <C> <C>
Property and equipment
(in thousands):
Computer hardware....... $ 869 $1,510 $ 2,682
Computer software....... 177 428 808
Furniture and fixtures.. 93 510 1,393
Leasehold improvements.. 13 83 289
------ ------ -------
1,152 2,531 5,172
Less: Accumulated
depreciation and
amortization........... (432) (950) (1,158)
------ ------ -------
$ 720 $1,581 $ 4,014
====== ====== =======
</TABLE>
F-11
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Included in property and equipment at December 31, 1998 and 1999 and March
31, 2000 is approximately $533,000, $1,262,000 and $2,090,000 of computer
equipment purchased under capital leases. Accumulated amortization of assets
acquired under capital leases is approximately $241,000, $479,000 and $580,000
at December 31, 1998 and 1999 and March 31, 2000, respectively.
<TABLE>
<CAPTION>
December 31,
------------ March 31,
1998 1999 2000
----- ------ ---------
<S> <C> <C> <C>
Accrued liabilities (in thousands):
Accrued commissions.................................. $ 275 $1,413 $ 618
Accrued professional fees............................ 132 565 630
Accrued vacation..................................... 190 372 811
Accrued bonuses...................................... 226 372 657
Other................................................ -- 267 2,036
----- ------ ------
$ 823 $2,989 $4,752
===== ====== ======
</TABLE>
NOTE 4--COMMITMENTS:
Operating lease
The Company leases various facilities under operating leases expiring
through 2004. Under these leases, the Company is responsible for maintenance
and insurance.
The minimum lease payments, net of sublease income, required under these
operating leases are as of December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000.................................................................. $1,012
2001.................................................................. 884
2002.................................................................. 559
2003.................................................................. 114
2004.................................................................. 99
------
$2,668
======
</TABLE>
Rent expense, net of sublease income, for the years ended December 31, 1997,
1998 and 1999 and the three-month periods ended March 31, 1999 and 2000 was
approximately $186,000, $270,000, $740,000, $132,000 and $302,000,
respectively.
Capital lease obligations
In June 1997, the Company entered into a capital lease agreement which was
amended March 16, 1998 under which the Company had $550,000 available to
acquire equipment. As of December 31, 1999, the Company had drawn a total of
approximately $537,000 under this line. Assets acquired under this agreement
are collateralized by the assets purchased under this equipment facility and
are included in the capital lease obligations at December 31, 1999. In February
1999, the Company entered into another financing agreement under which the
Company has $1,350,000 available to purchase equipment. The draw down period
under this agreement expires on August 19, 2000.
As of December 31, 1999, the Company had drawn a total of approximately
$729,000 under this line.
F-12
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Future minimum lease payment under the capital lease agreements as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................. $1,048
2001................................................................. 486
------
Total minimum lease payments......................................... 1,534
Less: Amount representing interest................................... (494)
------
Present value of minimum lease payments.............................. 1,040
Less: Current portion................................................ (784)
------
$ 256
======
</TABLE>
NOTE 5--LONG TERM DEBT:
Long term debt consists of (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1998 1999 2000
----- ------- ---------
<S> <C> <C> <C>
Long term loan..................................... $ -- $ 2,497 $ 2,273
Capital lease obligations (see Note 4)............. 389 1,040 4,622
----- ------- -------
389 3,537 6,895
Less: Current portion.............................. (149) (1,199) (2,382)
----- ------- -------
$ 240 $ 2,338 $ 4,513
===== ======= =======
</TABLE>
In February 1999, the Company entered into a loan agreement which allows for
borrowings of $3,000,000 bearing interest at 12.5% per annum. The Company
borrowed the full amount in May 1999 and is required to make monthly payments
of principal and interest of approximately $100,000 in 36 installments
commencing June 1, 1999 through May 1, 2002. Long-term debt is collateralized
by substantially all of the Company's assets. Dividends declared by the Company
are subject to the approval of the lender under this loan agreement.
Annual maturities under the loan as of December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000.................................................................. $ 943
2001.................................................................. 1,068
2002.................................................................. 486
------
Total............................................................... $2,497
======
</TABLE>
NOTE 6--401(k) SAVINGS PLAN:
In February 1997, the Company established a 401 (k) Savings Plan (the
"Plan") that covers substantially all employees. Under the Plan, employees are
permitted to contribute a portion of gross compensation not to exceed standard
limitations provided by the Internal Revenue Service. The Company maintains the
right to match employee contributions, but for the years ended December 31,
1998 and 1999, no Company matching contributions were made.
F-13
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
NOTE 7--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
As of December 15, 1999 (before the completion of the Company's Initial
Public Offering) the convertible preferred stock comprises:
<TABLE>
<CAPTION>
Number of
Number of Shares Annual Liquidation
Shares Issued and Dividend Value
Series Authorized Outstanding Per Share Per Share
------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Series A........................ 3,500,000 3,500,000 $0.08 $1.00
Series B........................ 3,500,000 3,202,381 $0.17 $2.10
Series C........................ 2,500,000 2,189,173 $0.32 $4.00
Series D........................ 2,100,000 1,723,739 $0.76 $9.52
---------- ----------
11,600,000 10,615,293
========== ==========
</TABLE>
Dividends
The holders of Series A, Series B, Series C and Series D preferred stock
were entitled to receive the above annual dividends, when and if declared by
the Board of Directors. After payment of any required dividends to the Series
A, Series B, Series C and Series D stockholders, were declared dividends were
distributed among all holders of common stock and all holders of Series A.,
Series B, Series C and Series D preferred stock in proportion to the number of
shares of common stock which were held by each such holder if all shares of
Series A, Series B, Series C and Series D preferred stock were converted to
common stock. Dividends declared by the Company were subject to approval by the
lender of the long-term loan.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the holders of Series A, Series B, Series C
and Series D preferred stock were entitled to receive, prior and in preference
to any distribution of any of the assets of the Company to the holders of
common stock by reason of their ownership, an amount equal to the sum of $1.00,
$2.10, $4.00 and $9.52 for each outstanding share of Series A, Series B, Series
C and Series D preferred stock, (as adjusted for any stock dividends,
combinations or splits) plus any declared but unpaid dividends on such shares.
If upon the occurrence of such event, the assets distributed among the holders
of preferred stock were insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets of the Company
legally available for distribution were to be distributed first ratably among
the holders of the preferred stock in proportion to the aggregate liquidation
preference of the shares of preferred stock then held by them.
After payment was made to the holders of preferred stock, any remaining
assets and funds were to be distributed pro rata among the holders of the
preferred stock and the common stock on a per share basis, treating all shares
of preferred stock convertible into shares of common stock as if converted;
provided, however, that after the receipt by each share of preferred stock of
distributions equal to two times the original purchase price for the preferred
stock, then all remaining assets were distributed equally among the holders of
the common stock on a per-share basis.
Conversion
Each share of preferred stock, at the option of the holder thereof, were
convertible into such number of fully paid and nonassessable shares of common
stock which results from dividing the issuance price per share
F-14
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
by the conversion price per share in effect for the shares of preferred stock
at the time of conversion. The issuance price per share and initial conversion
price per share of Series A, B, Series C and Series D preferred stock were
$1.00, $2.10, $4.00 and $9.52. The number of shares of common stock into which
a share of a series of preferred stock is convertible is referred to as the
conversion rate of such series. The initial conversion price of Series A, B, C
and D preferred stock was subject to adjustment from time to time, as described
in the Company's Restated Articles of Incorporation. At December 31, 1998, the
conversion ratio was one to one.
Conversion was automatic at the then effective conversion price of such
series immediately prior to the closing of a qualified initial public offering
at an aggregate offering price to the public of not less than 20 million
provided that the Series A, B and C preferred stock would not be converted
without the majority approval of such series, and the Series D preferred stock
was not to be converted without the approval by more than 2/3 of the holders of
Series D preferred stock.
Voting
The holders of Series A, Series B, Series C and Series D preferred stock
were entitled to voting rights equal to the number of shares of common stock
into which each share of preferred stock would have been converted at the
record date for a vote or consent of stockholders, except as otherwise required
by law, and had voting rights and powers equal to the voting rights and powers
of the shares of common stock.
Redemption
Preferred stock was redeemable at the option of the holders of a majority of
the outstanding shares of preferred stock at any time after September 30, 2001
if the Company had not completed a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of common stock for the account
of the Corporation with an aggregate offering price to the public of not less
than $20,000,000 defined hereafter as a "Qualified IPO." Such redemption right
may have been exercised by giving at least 120 day notice prior to the date of
commencement of the redemption. After receipt of such notice of a redemption,
the Company had to redeem all of the outstanding shares of preferred stock in
three equal annual installments on the last day of each fiscal year (commencing
with the first fiscal year ending after the 120 day notice period). The
redemption price of the preferred stock was the original purchase price per
share (as adjusted for any stock dividends, combinations or splits) plus any
accrued but unpaid dividends. Any redemption of only a part of the outstanding
preferred stock by the Company was pro rata as among all holders of preferred
stock in proportion to the aggregate redemption price to have been paid to such
holders.
NOTE 8--STOCK OPTION AND STOCK PURCHASE PLANS:
Stock option plan
The Company adopted the 1996 Stock Plan (the "Plan") under which 1,700,000
shares of common stock were reserved for issuance to employees, directors and
consultants of the Company. The Plan expires in 2006, or if earlier, upon
approval of the Board of Directors.
Under the Plan, incentive options to purchase the Company's common stock may
be granted to employees at prices not lower than the fair market value per
share on the date of grant, as determined by the Board of Directors.
Nonstatutory options may be granted to key employees, including directors and
consultants, at prices
F-15
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
not lower than 85% of the fair market value (110% for qualified incentive stock
options in certain cases) at the date of grant, as determined by the Board of
Directors. The Board also has the authority to set the term of the options (no
longer than ten years from date of grant and no more than five years in certain
instances). Options granted generally vest over four years. Holders of options
granted under the Plan may exercise their options prior to complete vesting of
shares, subject to the Company's right of repurchase, such that, in the event
of a termination of the optionee's employment or consulting relationship, any
unvested shares may be repurchased at a price per share equal to the original
exercise price per share for the option. Unexercised vested options expire
three months after termination of employment with the Company. Shares
repurchased by the Company were none, 41,394, 71,554 and 20,459 in 1997, 1998,
1999 and the three months ended March 31, 2000.
At December 31, 1997, 1998, 1999 and March 31, 2000, the Company's
repurchase rights applied to none, 377,732, 1,154,521 and 861,797 shares of
common stock outstanding.
At March 31, 2000, the Company's assumed the Oberon 1998 and 1999 stock
option plans as part of the Oberon acquisition.
F-16
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Number of Weighted
Number of Shares Average
Shares Issued and Exercise Aggregate
Authorized Outstanding Price Price
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balances, January 1, 1997...... 933,000 767,000 $ 0.10 $ 76,700
Shares reserved................ 450,000 -- --
Options granted................ (1,080,000) 1,080,000 $ 0.12 131,540
Options exercised.............. -- (625) $ 0.10 (62)
Options cancelled.............. 243,625 (243,625) $ 0.10 (24,363)
---------- ---------- -----------
Balances, December 31, 1997.... 546,625 1,602,750 $ 0.11 183,815
Shares reserved................ 400,000 -- --
Options granted................ (781,750) 781,750 $ 0.27 213,948
Options exercised.............. -- (754,520) $ 0.14 (107,366)
Options repurchased............ 41,394 -- -- --
Options cancelled.............. 263,792 (263,792) $ 0.17 (45,575)
---------- ---------- -----------
Balances, December 31, 1998.... 470,061 1,366,188 $ 0.18 244,822
Shares reserved................ 2,425,000 -- -- --
Options granted................ (3,152,650) 3,152,650 $ 4.88 15,395,700
Options exercised.............. -- (1,163,563) $ 1.86 (2,170,000)
Options repurchased............ 71,554 -- -- --
Options cancelled.............. 368,260 (368,290) $ 0.46 (168,245)
---------- ---------- -----------
Balances, December 31, 1999.... 182,225 2,986,985 $ 4.45 13,302,277
Shares reserved................ 2,000,000 -- -- --
Assumption of Obreon stock
option plans.................. -- 295,518 $10.10 2,984,762
Options granted................ (899,179) 899,179 $75.13 67,553,372
Options exercised.............. -- (85,683) $ 0.28 (23,759)
Options repurchased............ 20,459 -- -- --
Options cancelled.............. 35,167 (35,167) $40.17 (1,412,558)
---------- ---------- -----------
Balances, March 31, 2000....... 1,338,672 4,060,832 $20.29 $82,404,094
========== ========== ===========
</TABLE>
For financial reporting purposes, the Company has determined that the
estimated value of common stock determined in anticipation of the Company's
Initial Public Offering was in excess of the exercise price, which was deemed
to be the fair market value as of the date of grant for 781,750 options issued
in 1998 and 3,152,650 options issued in 1999. In connection with the grants of
such options, the Company has recognized deferred compensation of approximately
$2,220,000 in 1998 and $31,268,000 in 1999. Deferred stock-based compensation
will be amortized over the vesting period which is generally 48 months from the
date of grant; approximately $618,000 was expensed in the year ended December
31, 1998, $3,697,000 in the year ended December 31, 1999 and $4,262,000 in the
three months ended March 31, 2000. Future amortization based on options granted
through December 31, 1999 is expected to be $11,179,000 in the remaining nine
months of 2000 and $7,987,000, $4,166,000 and $1,581,000 in the years 2001,
2002 and 2003, respectively.
F-17
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
The options outstanding and exercisable by exercise price at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Options Currently
Options Outstanding Exercisable
----------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life (in Exercise Number Exercise
Price Outstanding Years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.10 482,500 6.86 $0.10 386,078 $0.10
$ 0.21 49,000 8.18 $0.21 22,659 $0.21
$ 0.40 254,250 9.02 $0.40 36,402 $0.40
$ 0.80 123,835 9.43 $0.80 -- $0.80
$ 1.20 51,000 9.55 $1.20 -- $1.20
$ 2.50 314,500 9.69 $2.50 -- $2.50
$ 5.00 163,000 9.72 $5.00 -- $5.00
$ 6.50 812,400 9.82 $6.50 -- $6.50
$ 8.00 736,500 9.95 $8.00 -- $8.00
--------- -------
2,986,985 445,139
========= =======
</TABLE>
At December 31, 1997 and 1998, 130,844 and 381,707 options at weighted
average exercise prices of $0.10 and $0.10 were vested.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." Had compensation cost for the Plan been determined based on the
fair value at grant date for all awards consistent with the provisions of SFAS
No. 123, the impact on the Company's financial statements would be (in
thousands) as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported................................... $(5,534) $(8,348) $(16,768)
Pro forma..................................... $(5,542) $(8,364) $(17,039)
Basic and diluted net loss per share:
As reported................................... $ (1.62) $ (2.34) $ (3.70)
Pro forma..................................... $ (1.62) $ (2.34) $ (3.76)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.3% 5.0% 5.2%
Expected life..................................... 5 years 5 years 5 years
Expected dividends................................ $ -- $ -- $ --
</TABLE>
The weighted average per share fair value of common stock options granted
during 1997, 1998 and 1999 were $0.10, $0.27 and $12.23.
F-18
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
Employee stock purchase plan
In September 1999, the Company adopted an employee stock purchase plan (the
"Purchase Plan"). 1,500,000 shares of common stock have been reserved for
issuance under the Purchase Plan (subject to an annual increase), none of which
had been issued at December 31, 1999.
NOTE 9--WARRANTS:
As part of a long-term borrowing agreement entered into in February 1999,
the Company issued a warrant to purchase an aggregate of 85,537 shares of
common stock at an exercise price of $6.05 per share. The warrant was
exercisable upon grant and expires in January 2009.
The Company valued the warrant using the Black-Scholes method. The fair
value of $535,000 will be amortized to interest expense over the term of the
long-term loan.
NOTE 10--INCOME TAXES:
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $23,800,000 and $18,600,000 for Federal and California purposes,
respectively, available to reduce future taxable income, if any. These
carryforwards expire through 2019 and 2004 for Federal and California purposes,
respectively, if not utilized beforehand.
At December 31, 1999, the Company had research and development credit
carryforwards of approximately $479,000 and $302,000 for Federal and California
income tax purposes, respectively. The research and development credit
carryforwards expire beginning in the year 2011.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event the Company has had a change in ownership,
utilization of the carryforwards could be restricted.
Temporary differences which gave rise to significant portions of deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Net operating losses...................................... $ 4,761 $ 9,181
Research and development credits.......................... 548 678
Depreciation and amortization............................. (10) 9
Accrued liabilities....................................... 467 875
Other..................................................... -- 1
------- --------
5,766 10,744
Less: Valuation allowance................................. (5,766) (10,744)
------- --------
$ -- $ --
======= ========
</TABLE>
Due to uncertainty of realizing the benefits of the deferred tax assets, the
Company has provided a valuation allowance against the net deferred tax assets.
F-19
<PAGE>
ONDISPLAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information with respect to March 31, 1999 and 2000 and for
the three-month periods then ended is unaudited
The difference between the Company's effective income tax rate and the
federal statutory rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Statutory tax benefit........................... $(1,882) $(2,838) $(5,701)
Permanent differences--non-deductible expenses.. 79 364 33
State taxes, net of federal tax benefit......... (327) (510) (756)
Stock option compensation....................... -- -- 1,257
Research and development experimentation
credit......................................... (273) (276) (266)
Change in valuation allowance................... 2,402 3,138 4,979
Other........................................... 1 122 454
------- ------- -------
Net tax provision............................... $ -- $ -- $ --
======= ======= =======
</TABLE>
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Oberon Software Incorporated
We have audited the accompanying balance sheets of Oberon Software
Incorporated (the Company) as of September 30, 1999 and 1998, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended September 30, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oberon Software
Incorporated at September 30, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended September
30, 1999 in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 12, 1999, except for
Note 12, as to which the date
is January 17, 2000
F-21
<PAGE>
OBERON SOFTWARE INCORPORATED
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December
September 30, 31,
------------------------ -----------
1999 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $10,214,307 $ 5,150,268 $ 8,053,576
Accounts receivable, less allowance of
$20,000 for 1999 and $0 for 1998 for
doubtful accounts.................... 1,670,429 626,622 1,410,807
Prepaid expenses...................... 357,514 135,456 206,499
----------- ----------- -----------
Total current assets................ 12,242,250 5,912,346 9,670,882
Property and equipment, net............. 875,564 629,288 849,791
Other assets............................ 24,711 28,180 24,713
----------- ----------- -----------
Total assets........................ $13,142,525 $ 6,569,814 $10,545,386
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 668,887 $ 364,250 $ 747,809
Accrued expenses...................... 511,227 315,246 235,895
Accrued compensation and benefits..... 327,525 336,565 432,763
Deferred revenue...................... 1,383,607 455,762 1,134,649
Current portion of capital lease
obligations.......................... 73,678 67,192 73,678
Current portion of long-term debt..... 550,436 -- 958,642
----------- ----------- -----------
Total current liabilities........... 3,515,360 1,539,015 3,583,436
Capital lease obligations, net of
current portion........................ 109,416 183,094 91,629
Long term-debt, net of current portion.. 3,733,454 3,325,249
Deferred credit......................... 1,541,519 1,631,688 1,491,729
Stockholders' equity:
Convertible Preferred Stock,
31,000,000 in 1999 and 22,800,000 in
1998, authorized shares designated
as:
Series 1, Participating--$.01 par
value; 11,300,000 shares issued and
outstanding (liquidation preference
of $1.00 per share)................ 11,300,000 11,300,000 11,300,000
Series 2, Non-Participating-- $0.01
par value; 2,919,598 shares issued
and outstanding (liquidation
preference of $2.50 per share)..... 7,298,995 -- 7,298,995
Common stock, $.01 par value,
25,000,000 in 1999 and 20,700,000 in
1998 shares authorized, 6,139,862,
5,887,447 and 6,289,242 shares issued
and outstanding at September 30, 1999
and 1998 and December 31, 1999....... 61,399 58,874 62,892
Treasury stock, at cost, 3,700
shares............................... (37) (37) (37)
Additional paid-in capital............ 20,226,330 20,216,119 20,241,219
Accumulated deficit................... (34,643,911) (28,358,939) (36,849,726)
----------- ----------- -----------
Total stockholders' equity.......... 4,242,776 3,216,017 2,053,343
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $13,142,525 $ 6,569,814 $10,545,386
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
OBERON SOFTWARE INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended September 30, December 31,
------------------------------------- ------------------------
1999 1998 1997 1999 1998
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $ 2,849,784 $ 1,357,917 $ 469,592 $ 486,525 $ 522,638
Services.............. 1,358,859 395,593 169,395 691,169 273,673
Royalties............. 443,592 215,731 87,602 295,423
----------- ----------- ----------- ----------- -----------
Total revenues...... 4,652,235 1,969,241 726,589 1,473,117 796,311
Operating expenses:
Cost of software...... 138,530 100,229 109,723 102,585 20,637
Cost of services...... 1,410,750 402,516 330,773 580,985 272,198
Research and
development.......... 3,681,413 2,376,107 1,504,174 1,233,530 726,205
Marketing and sales... 4,935,750 2,869,627 3,239,253 1,516,943 922,000
General and
administrative....... 1,004,124 1,298,821 1,442,921 229,349 278,616
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 11,170,567 7,047,300 6,626,844 3,663,392 2,219,656
----------- ----------- ----------- ----------- -----------
Loss from operations.... (6,518,332) (5,078,059) (5,900,255) (2,190,275) (1,423,345)
Other income (expense):
Interest income....... 321,207 208,830 111,189 79,424 53,500
Interest expense...... (31,814) (126,186) (144,386) (79,980) (5,674)
Other expense......... (56,033) (7,688) (16,023) (14,984) (1033)
----------- ----------- ----------- ----------- -----------
233,360 74,956 (49,220) (15,540) 46,793
----------- ----------- ----------- ----------- -----------
Net loss................ $(6,284,972) $(5,003,103) $(5,949,475) $(2,205,815) $(1,376,552)
----------- ----------- ----------- ----------- -----------
Basic and diluted loss
per share information:
Net loss.............. $ (1.05) $ (2.55) $ (10.18) $ (0.36) $ (0.23)
----------- ----------- ----------- ----------- -----------
Weighted average
shares outstanding... 6,011,805 1,960,720 584,160 6,211,162 5,893,822
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
OBERON SOFTWARE INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B Series 1 Series 2
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
----------------------- ----------------------- ---------------------- --------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ----------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996................... 6,040,000 $ 6,040,000 5,650,000 $ 5,650,000 -- -- -- --
Issuance of Common Stock
upon exercise of stock
options................ -- -- -- -- -- -- -- --
Repurchase of Common
Stock.................. -- -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ----------- --------- ----------
Balance at September 30,
1997................... 6,040,000 $6,040,000 5,650,000 $5,650,000 -- -- -- --
Issuance of Common Stock
upon exercise of stock
options................ -- -- -- -- -- -- -- --
Issuance of Common Stock
upon exercise of
warrants............... -- -- -- -- -- -- -- --
Recapitalization of
Preferred Stock........ (6,040,000) (6,040,000) (5,650,000) (5,650,000) 3,200,000 $ 3,200,000 -- --
Issuance of Series 1
Preferred Stock, net of
offering costs......... -- -- -- -- 8,100,000 8,100,000 -- --
Net loss................ -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ----------- --------- ----------
Balance at September 30,
1998................... -- -- -- -- 11,300,000 11,300,000 -- --
Issuance of Common Stock
upon exercise of stock
options................ -- -- -- -- -- -- -- --
Issuance of Common Stock
upon exercise of
warrants............... -- -- -- -- -- -- -- --
Issuance of Series 2
Preferred Stock, net of
offering costs......... -- -- -- -- -- 2,919,598 $7,298,995
Net loss................ -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ----------- --------- ----------
Balance at September 30,
1999................... -- -- -- -- 11,300,000 11,300,000 2,919,598 7,298,995
Issuance of Common Stock
upon exercise of stock
options................ -- -- -- -- -- -- -- --
Net loss................ -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ----------- --------- ----------
Balance at December 31,
1999................... -- -- -- -- 11,300,000 $11,300,000 2,919,598 $7,298,995
========== =========== ========== =========== ========== =========== ========= ==========
</TABLE>
See accompanying notes.
F-24
<PAGE>
OBERON SOFTWARE INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
<TABLE>
<CAPTION>
Treasury
Common Stock Stock Additional Stockholders'
----------------- ------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
--------- ------- ------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996................... 474,429 $ 4,744 -- -- $ 8,641,361 $(17,406,361) $ 2,929,744
Issuance of Common Stock
upon exercise of stock
options................ 219,462 2,195 -- -- 29,716 -- 31,911
Repurchase of Common
Stock.................. -- -- 3,700 $(37) (56) -- (93)
Net loss................ -- -- -- -- -- (5,949,475) (5,949,475)
--------- ------- ----- ---- ----------- ------------ ------------
Balance at September 30,
1997................... 693,891 $ 6,939 3,700 $(37) $ 8,671,021 $(23,355,836) $ (2,987,913)
Issuance of Common Stock
upon exercise of stock
options................ 2,174,800 21,748 -- -- 42,394 -- 64,142
Issuance of Common Stock
upon exercise of
warrants............... 3,018,756 30,187 -- -- 21,563 -- 51,750
Recapitalization of
Preferred Stock........ -- -- -- -- 11,527,926 -- 3,037,926
Issuance of Series 1
Preferred Stock, net of
offering costs......... -- -- -- -- (46,785) -- 8,053,215
Net loss................ -- -- -- -- -- (5,003,103) (5,003,103)
--------- ------- ----- ---- ----------- ------------ ------------
Balance at September 30,
1998................... 5,887,447 58,874 3,700 (37) 20,216,119 (28,358,939) 3,216,017
Issuance of Common Stock
upon exercise of stock
options................ 233,670 2,337 -- -- 31,360 -- 33,697
Issuance of Common Stock
upon exercise of
warrants............... 18,750 188 -- -- 8,813 -- 9,001
Issuance of Series 2
Preferred Stock, net of
offering costs......... -- -- -- -- (29,962) -- 7,269,033
Net loss................ -- -- -- -- -- (6,284,972) (6,284,972)
--------- ------- ----- ---- ----------- ------------ ------------
Balance at September 30,
1999................... 6,139,867 61,399 3,700 (37) 20,226,330 (34,643,911) 4,242,776
Issuance of Common Stock
upon exercise of stock
options................ 149,375 1,493 -- -- 14,889 -- 16,382
Net loss................ -- -- -- -- -- (2,205,815) (2,205,815)
--------- ------- ----- ---- ----------- ------------ ------------
Balance at December 31,
1999................... 6,289,242 $62,892 3,700 $(37) $20,241,219 $(36,849,726) $ 2,053,343
========= ======= ===== ==== =========== ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
OBERON SOFTWARE INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year ended September 30, December 31,
------------------------------------- ------------------------
1999 1998 1997 1999 1998
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $(6,284,972) $(5,003,103) $(5,949,475) $(2,205,816) $(1,376,552)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation........... 368,942 311,408 149,764 115,052 70,662
Loss on sales of
equipment............. -- -- 7,112 -- --
Provision for doubtful
accounts.............. 20,000 -- -- -- --
Recapitalization of
note payable
interest.............. -- 137,926 -- -- --
Income recognized on
deferred credit....... (90,169) (168,312) -- (47,891) --
Changes in operating
assets and
liabilities:
Accounts receivable... (1,063,807) (113,903) (471,359) 259,622 (10,284)
Prepaid expenses...... (222,058) (55,775) (5,717) 151,014 35,033
Other assets.......... 3,469 19,604 (13,453) -- (2,301)
Accounts payable and
accrued expenses..... 500,618 172,913 246,443 (198,308) (26,524)
Accrued compensation
and benefits......... (9,040) 27,084 173,223 105,238 (68,223)
Deferred revenue...... 927,845 100,980 354,782 (248,958) 776,174
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. (5,849,172) (4,571,178) (5,508,680) (2,070,047) (602,015)
Investing activities
Purchases of property
and equipment.......... (615,218) (276,486) (253,665) (89,278) (98,138)
Proceeds from sales of
equipment.............. -- -- 1,371 -- --
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activity..... (615,218) (276,486) (252,294) (89,278) (98,138)
Financing activities
Proceeds from notes
payable................ -- 1,200,000 2,000,000 -- --
Payments on notes
payable................ -- -- (1,000,000) -- --
Proceeds from long-term
debt................... 4,283,890 -- -- -- --
Payments on capital
lease obligations...... (67,192) (63,438) (38,357) (17,788) (16,222)
Proceeds from issuance
of Series 1 Preferred
Stock, net............. -- 8,053,215 -- -- --
Proceeds from issuance
of Series 2 Preferred
Stock, net............. 7,269,033 -- -- -- --
Proceeds from issuance
of Common Stock........ 42,698 115,892 31,911 16,382 1,452
Repurchase of common
stock.................. -- -- (93) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. 11,528,429 9,305,669 993,461 (1,406) (14,770)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 5,064,039 4,458,005 (4,767,513) (2,160,731) (714,923)
Cash and cash
equivalents at
beginning of period.... 5,150,268 692,263 5,459,776 10,214,307 5,150,268
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $10,214,307 $ 5,150,268 $ 692,263 $ 8,053,576 $ 4,435,345
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
1. The Company and its Capitalization
Oberon Software Incorporated (the Company) is a leading provider of e-
business integration solutions. The Company's software provides an unparalleled
approach to integration that delivers rapid, flexible and highly maintainable
solutions for dynamic collaboration among employees, partners, suppliers and
their customers. The Company operates and reviews the performance of the
business as one segment and substantially all its sales are with in the United
States
The environment of rapid technological change and intense competition which
is characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's ultimate success
depends largely upon its ability to enhance current products and develop new
products on a timely basis which keep pace with the changes in technology and
competitors' innovations.
In 1999, the Company issued 2,919,598 shares of Series 2 Convertible Non-
Participating Preferred Stock in exchange for net proceeds of $7,269,033 in
cash. The Company also entered into a subordinated loan and security agreement
from which the Company received $4,000,000 in cash. Management believes that
the proceeds from these transactions combined with cash from operations will
allow the Company to operate through 2000.
2. Significant Accounting Policies
Revenue Recognition
The Company recognizes revenues in accordance with Statement of Position 97-
2, (SOP 97-2), Software Revenue Recognition, issued by the American Institute
of Certified Public Accountants. Under the provisions of SOP 97-2, revenue
related to the elements of software arrangements are recognized separately if
no significant modification or customization of the software is required and
vendor specific objective evidence of the pricing of each element of the
arrangement exists. Accordingly, revenue from software product sales is
recognized upon delivery of the software; services revenues are recognized as
provided and maintenance fees are recognized ratably over the term of the
maintenance agreement. The Company accrues the estimated cost of warranty and
product returns in the period in which the product revenue is recognized;
historically, these amounts have not been material.
Royalties are recognized at the time the Company's third-party distributors
license the Company's software to their customers.
Research and Development Costs
Development costs incurred in the research and development of new software
products and enhancements are expensed as incurred to research and development
until technological feasibility has been established. After technological
feasibility is established, any additional development costs are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.
Capitalized software costs are amortized over their estimated economic lives.
As of September 30, 1999, no eligible costs have been capitalized due to the
uncertainty of their recoverability.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
accounts receivable. Cash equivalents consist of temporary investments in money
market funds with maturity dates of three months or less and have limited
credit exposure. The risk with respect to accounts receivable is minimized by
the creditworthiness of the Company's customers and the Company's credit and
collection policies.
F-27
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Use of Estimates
The preparation of the Company's financial statements under generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Property and Equipment
Property and equipment are stated at cost and depreciated by the straight-
line method over estimated useful lives of three years. Capital lease assets
are depreciated over the estimated useful life or the term of the lease,
whichever is shorter.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of the
grant. The Company accounts for stock option grants to employees and directors
in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting
for Stock Issued to Employees, which is based on the intrinsic value method of
measuring stock-based compensation. The Company has adopted the disclosure
provisions only of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), which is based on the fair-
value method of measuring stock-based compensation.
Loss Per Share
Loss per share is presented in accordance with SFAS No. 128, Earnings Per
Share, which requires the disclosure of basic and diluted earnings (loss) per
share. Basic loss per share is based upon the Company's net loss divided by the
number of weighted shares outstanding during the reporting period. Diluted loss
per share for loss periods is the same as basic loss per share since the
effects of including the conversion of preferred stock and common stock
equivalents of warrants and options is anti-dilutive.
Income Taxes
The Company provides for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under
SFAS 109, the liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Reclassifications
Certain amounts in 1998 have been reclassified to permit comparison with
1999.
Interim Reporting
The interim unaudited condensed financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with generally accepted accounting
principles. Accordingly, certain information and footnotes disclosure normally
included in annual financial statements have been omitted or condensed. In the
opinion of management, all necessary adjustments (consisting of only normal
recurring accruals) have been made to provide a fair presentation.
F-28
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Computer equipment and software...................... $1,047,775 $ 830,164
Furniture and fixtures............................... 599,483 452,572
Leasehold improvements............................... 45,520 --
---------- ----------
1,692,778 1,282,736
Less accumulated depreciation........................ (817,214) (653,448)
---------- ----------
Total................................................ $ 875,564 $ 629,288
========== ==========
</TABLE>
4. Leases
The Company leases certain equipment and office space under noncancelable
operating leases. Amortization expense is included in depreciation. The net
book value of all capital leases at September 30, 1999 is $164,305.
Future minimum annual lease payments of the Company under noncancelable
leases as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
-------- ---------
<S> <C> <C>
Year ending September 30:
2000.................................................... $ 87,542 $316,328
2001.................................................... 87,542 305,255
2002.................................................... 29,181 25,700
-------- --------
Total minimum lease payments............................. 204,265 $647,283
========
Less amounts representing interest...................... (21,171)
--------
183,094
Less amounts currently due.............................. (73,678)
--------
$109,416
</TABLE>
Aggregated future minimum rentals of $19,711 at September 30, 1999 will be
received under noncancelable subleases through December 31, 1999.
Rent expense under operating leases amounted to $254,298, $212,597 and
$221,941 during the years ended September 30, 1999, 1998 and 1997,
respectively.
In July 1999, the Company entered into a Lease Agreement with Comdisco
Incorporated which enables the Company to lease equipment and software up to
$1,000,000 during the period of July 6, 1999 to July 6, 2000 with an annual
interest rate of 7.5%. The Company has not leased any equipment or software as
of September 30, 1999 under this agreement.
F-29
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
5. Financing Arrangements
In July 1999, the Company executed a Subordinated Loan and Security
Agreement (the Agreement) with Comdisco Incorporated (Comdisco) which allows
the Company to borrow up to $4,000,000. The terms of the Agreement provide for
an annual interest rate of 10%. The Agreement requires the payment of interest
only during the first nine months, and thereafter, equal payments representing
the amortization of the principal and interest for 27 months.
Under the terms of the Agreement, the Company granted Comdisco a security
interest in substantially all of the Company's assets, subject to the Company's
Loan and Security Agreement with Silicon Valley Bank described below.
As part of the Agreement, Comdisco has the right to purchase 480,000 shares
of the Company's Series 2 Convertible Non-Participating Preferred Stock at a
price of $2.50 per share. The purchase option is exercisable, in whole or part,
at any time, or from time to time, prior to the earlier of (i) an Initial
Public Offering, or (ii) Merger Event, as defined in the Agreement. As of
September 30, 1999, Comdisco has not exercised any of its purchase rights. The
fair market value of these rights is being amortized as interest expense over
the term of the Agreement.
In March 1999, the Company entered into a Loan and Security Agreement with
Silicon Valley Bank which enables the Company to borrow up to $1,500,000 under
a working capital line of credit based on eligible accounts receivables and to
borrow up to $600,000 under an equipment line of credit. The terms of the
agreement have an annual interest rate of prime plus 0.50% for the working
capital line of credit and prime plus 0.75% for the equipment line of credit.
Substantially all of the assets of the Company serve as collateral under the
agreement.
Long-term debt consisted of the following as of September 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Obligation under the subordinated loan and security agreement... $4,000,000
Obligation under the loan and security agreement................ 283,890
----------
4,283,890
Less current portion............................................ (550,436)
----------
Long-term debt.................................................. $3,733,454
==========
Maturities of long-term debt of the Company as of September 30, 1999 are as
follow:
Year ending September 30:
2000............................................................ $ 550,436
2001............................................................ 1,695,610
2002............................................................ 1,873,163
2003............................................................ 164,681
----------
$4,283,890
==========
</TABLE>
6. Recapitalization
On February 13, 1998, the Company's then majority stockholder, Toyo
Information Systems (TIS), relinquished all of its shares of Preferred Stock
Series A and B and notes payable, together with accrued interest thereon of
$4,837,926, for 3,200,000 shares of Preferred Stock Series 1. In connection
with this transaction (Recapitalization), the Company surrendered certain
rights under an existing license agreement with TIS. Prior to the
Recapitalization, the Company and TIS were parties to a license agreement
(License
F-30
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Agreement) whereby TIS was obligated to pay the Company a 30% royalty on
certain sales in Japan of its product containing the Company's proprietary
technology. Contemporaneous with the Recapitalization, the Company waived its
rights to future royalties under this License Agreement for up to ten years.
The Company obtained an independent appraisal of the value of the royalty
waiver to determine the amount attributable to the transfer of the license to
TIS as a return of capital in conjunction with the relinquishment of previously
outstanding Preferred Stock and notes payable. The value of the royalty waiver
of $1,800,000 has been recognized as a deferred credit on the balance sheet,
with a corresponding reduction to stockholders' equity. The deferred credit
will be recognized in income as TIS completes sales of the Company's products
in Japan for which a royalty would otherwise have been payable. In the event
the deferred credit is not fully recognized in income upon the expiration of
the License Agreement, the remaining balance will be credited to additional
paid-in capital.
7. Preferred Stock
The Company's authorized capital includes Convertible Preferred Stock,
Series 1 Participating (Series 1) and Series 2 Non-Participating (Series 2).
Series 1 and 2 have been designated and issued. At September 30, 1999, Series 1
and 2 Preferred Stock represented all of the issued Convertible Preferred
Stock.
Conversion
Each share of Series 1 and 2 Preferred Stock is convertible at the
stockholder's option. Each share of Series 1 and 2 Preferred Stock may be
converted into shares of Common Stock at an initial conversion prices of $1.00
and $2.50 per share, respectively, as adjusted from time to time by a
conversion factor (the Conversion Price).
The shares will automatically convert into Common Stock at the then
effective Conversion Price upon the closing of a public offering of the
Company's Common Stock pursuant to an effective registration statement under
the Securities Act of 1933.
Dividends
The holders of Series 1 and 2 Preferred Stock shall be entitled to receive,
when and if declared by the Board of Directors of the Company, dividends in the
same amount per share as would be payable on the number of shares of Common
Stock into which the Preferred Stock is then convertible, payable in preference
and priority to any payment of any cash dividend on Common Stock or any other
class of stock or series thereof.
Voting
Series 1 and Series 2 Preferred shares are entitled to a number of votes on
any matter submitted to the stockholders of the Company equal to the number of
shares of Common Stock into which they are convertible.
Liquidation
Upon any liquidation of the Company, the holder of each share of Series 1
Preferred Stock shall be first entitled, before any distribution or payment is
made to holders of Series 2 Preferred Stock and Common Stock, to be paid $1.00
per share plus any declared and unpaid dividends thereon. Additionally, after
such payments have been made in full to the holders of Series 1 Preferred
Stock, Series 2 Preferred Stock shall be entitled, before any distribution or
payment is made to holders of Common Stock, to be paid $2.50 per share plus any
declared and unpaid dividends thereon. After payments have been made in full,
such holders of Series 1 Preferred Stock will participate with the holders of
Common Stock in the distribution of any remaining assets not to exceed $4.00
per share, adjusted appropriately for stock splits, stock dividends and the
like.
F-31
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
Warrants
During 1998, in connection with the issuance of Series 1 Convertible
Preferred Stock, the Company issued warrants to purchase 3,075,006 shares of
the Company's Common Stock. The warrants are not detachable, have an exercise
price of $.02 and a term of five years. As of September 30, 1999, warrants to
purchase 3,037,506 shares of common stock had been exercised.
In connection with entering into a Lease Agreement with Comdisco
Incorporated, the Company issued warrants to purchase 20,000 shares of the
Company's Series 2 Convertible Non-Participating Preferred Stock at an exercise
price of $2.50. The exercise period is ten years or five years from the
effective date of the Company's initial public offering, whichever is earlier.
As of September 30, 1999, none of the warrants issued had been exercised. The
fair market value of these warrants is being amortized over the term of the
Lease Agreement.
8. Stock Option Plans
On December 27, 1990 (as amended on August 20, 1998), the Company
established a Stock Option Plan (the Plan) whereby 2,100,766 shares of Common
Stock were reserved for issuance for the benefit of employees, directors and
consultants of the Company as authorized by the Board of Directors. Under the
Plan, incentive stock options may be granted to employees and nonstatutory
options may be granted to employees, directors and consultants of the Company.
The purchase price per share of stock deliverable upon the exercise of an
incentive stock option is required to be at least 100% of the fair market value
of the stock at the date of grant. Each option granted under the Plan is
exercisable either in full or in installments as set forth in each recipient's
option agreement. Options may expire at periods set forth in each recipient's
option agreement, but no longer than ten years from the date of grant. No
options under the Plan may be granted after December 27, 2007. On August 20,
1998, the unissued options for the purchase of 102,300 shares of common stock
were transferred to the 1998 Stock Option Plan described below.
1998 Stock Option Plan
On March 23, 1998, the Company established a Stock Option Plan (1998 Plan)
whereby 3,999,234 shares of Common Stock were reserved for issuance for the
benefit of employees, directors and consultants of the Company as authorized by
the Board of Directors. Under the 1998 Plan, incentive stock options may be
granted to employees and nonstatutory options may be granted to employees,
directors and consultants of the Company.
The purchase price per share of stock deliverable upon the exercise of an
incentive stock option is required to be at least 100% of the fair market value
of the stock at the date of grant. Each option granted under the Plan is
exercisable either in full or in installments as set forth in each recipient's
option agreement. Options may expire at periods set forth in each recipient's
option agreement, but no longer than five and one-half years from the date of
grant.
F-32
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
The following table presents the activity of the Plan for each of the three
years in the period ended September 30, 1999.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding options at
beginning of year...... 1,782,925 $ 0.11 1,359,275 $0.17 846,050 $0.15
Granted................. 1,604,000 .34 2,839,950 .03 1,175,000 .17
Exercised............... (233,670) .14 (2,173,600) .03 (219,462) .15
Terminated.............. (196,105) .15 (242,700) .15 (442,313) .15
--------- ------ ---------- ----- --------- -----
Outstanding options at
end of year............ 2,957,150 .23 1,782,925 .11 1,359,275 .17
Exercisable at end of
year................... 732,125 $ 0.14 742,304 $0.15 617,040 $0.16
========= ====== ========== ===== ========= =====
Available for grant at
end of year............ 44,189 1,452,084 47,600
========= ========== =========
Weighted average fair
value per share of
options granted during
the year............... $ 0.09 $0.01 $0.04
====== ===== =====
</TABLE>
The following table represents weighted average price and life information
about significant option groups outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Option Grant Date Outstanding Life (yrs.) Price Exercisable Price
---------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1990 Plan............. 812,850 1.9 $.17 607,750 $0.17
1998 Plan............. 2,144,300 4.5 .25 124,375 0.02
--------- --- ---- ------- -----
2,957,150 732,125
========= =======
</TABLE>
The pro-forma net loss and net loss per share for 1999, 1998 and 1997, if
compensation cost for the Plan had been recognized based on the fair value at
the grant date in accordance with the provisions of FAS 123, is as follows:
<TABLE>
<CAPTION>
Net Loss
Net Loss Per Share
--------- ---------
<S> <C> <C>
1999................................................... 6,302,696 $1.05
1998................................................... 5,019,458 2.56
1997................................................... 5,958,660 10.20
</TABLE>
The fair value of options at the date of grant were estimated using the
Minimum Value model with an estimated weighted average life of five years from
the date of grant, assuming a risk free interest rate of approximately 6.0%.
The Company does not intend to declare dividends on its common stock.
9. 401(k) Plan
In April 1997, the Company established the Oberon Software Incorporated
401(k) Plan (the Plan) without employer contributions. The Plan is maintained
in accordance with the provisions of section 401(k) of the Internal Revenue
Code (the Code) and allows all employees who have attained the age 21 to make
annual tax-deferred voluntary contributions of up to the maximum percentage
allowable under the Code.
F-33
<PAGE>
OBERON SOFTWARE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1999
10. Income Taxes
As of September 30, 1999, the Company has net operating loss carryforwards
and research tax credit carryforwards of approximately $32,000,000 and
$1,130,000, respectively, available to reduce future federal and state income
taxes payable to the extent permitted under the Internal Revenue Code, expiring
in varying amounts through 2014. The net operating loss carryforwards and
research tax credit carryforwards will be subject to the limitations provided
in IRC sections 382 and 383.
The Company has a net deferred tax asset balance at September 30, 1999 and
1998 which is comprised as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net loss carry forward.......................... $ 12,800,000 $ 10,500,000
Research and development credit carry forward... 1,130,000 818,000
Deferred credit................................. 617,000 653,000
Accrued expenses................................ 77,000 42,000
Depreciation and amortization................... 131,000 4,000
------------ ------------
Total deferred tax assets....................... 14,755,000 12,017,000
Valuation allowance............................. (14,755,000) (12,017,000)
------------ ------------
Net deferred tax assets......................... $ 0 $ 0
============ ============
</TABLE>
11. Related-Party Transaction
The Company has a long-term loan receivable of $15,008 due from related
party of the Company. Revenue recognized by the Company for the years ended
September 30, 1999 and 1998 includes software product sales and royalties to a
preferred stockholder of $90,169 and $215,731, respectively.
12. Subsequent Events
The Company entered into a merger agreement with OnDisplay, Inc. on January
17, 2000. The Company expects the merger to be completed by March 31, 2000.
F-34
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VIGNETTE CORPORATION
WHEELS ACQUISITION CORP.
AND
ONDISPLAY, INC.
MAY 21, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I. The Offer...................................................... A-1
Section 1.1 The Offer................................................... A-1
Section 1.2 Company Action.............................................. A-2
Section 1.3 Directors................................................... A-3
ARTICLE II. The Merger.................................................... A-4
Section 2.1 The Merger.................................................. A-4
Section 2.2 Effective Time; Closing..................................... A-4
Section 2.3 Effect of the Merger........................................ A-4
Section 2.4 Certificate of Incorporation; Bylaws........................ A-4
Section 2.5 Directors and Officers...................................... A-4
Section 2.6 Effect on Capital Stock..................................... A-4
Section 2.7 Exchange of Certificates.................................... A-5
Section 2.8 No Further Ownership Rights in Company Common Stock......... A-7
Section 2.9 Restricted Stock............................................ A-7
Section 2.10 Tax Consequences............................................ A-8
Section 2.11 Taking of Necessary Action; Further Action.................. A-8
Section 2.12 Dissenting Shares........................................... A-8
ARTICLE III. Representations and Warranties of Company.................... A-8
Section 3.1 Organization; Subsidiaries.................................. A-8
Section 3.2 Company Capitalization...................................... A-9
Section 3.3 Obligations With Respect to Capital Stock................... A-10
Section 3.4 Authority; Non-Contravention................................ A-10
Section 3.5 SEC Filings; Company Financial Statements................... A-11
Section 3.6 Absence of Certain Changes or Events........................ A-12
Section 3.7 Taxes....................................................... A-12
Section 3.8 Title to Properties......................................... A-14
Section 3.9 Intellectual Property....................................... A-14
Section 3.10 Compliance with Laws........................................ A-16
Section 3.11 Litigation.................................................. A-16
Section 3.12 Employee Benefit Plans...................................... A-17
Section 3.13 Certain Agreements.......................................... A-19
Section 3.14 Brokers' and Finders' Fees.................................. A-20
Section 3.15 Insurance................................................... A-20
Section 3.16 Disclosure.................................................. A-20
Section 3.17 Fairness Opinion............................................ A-20
Section 3.18 Affiliates.................................................. A-21
ARTICLE IV. Representations and Warranties of Parent and Merger Sub....... A-21
Section 4.1 Organization of Parent and Merger Sub....................... A-21
Section 4.2 Parent and Merger Sub Capitalization........................ A-21
Section 4.3 Obligations With Respect to Capital Stock................... A-22
Section 4.4 Authority; Non-Contravention................................ A-22
Section 4.5 SEC Filings; Parent Financial Statements.................... A-23
Section 4.6 Absence of Certain Changes or Events........................ A-24
Section 4.7 Taxes....................................................... A-24
Section 4.8 Title to Properties......................................... A-25
Section 4.9 Intellectual Property....................................... A-25
Section 4.10 Compliance with Laws........................................ A-26
Section 4.11 Litigation.................................................. A-26
</TABLE>
A-i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.12 Brokers' and Finders' Fees................................ A-26
Section 4.13 Disclosure Documents...................................... A-26
Section 4.14 Affiliates................................................ A-27
ARTICLE V. Conduct Prior To The Effective Time.......................... A-27
Section 5.1 Conduct of Business by Company............................ A-27
Section 5.2 Conduct of Business by Parent............................. A-29
ARTICLE VI. Additional Agreements....................................... A-30
Section 6.1 Stockholder Approval; Preparation of Registration
Statement and Proxy Statement/Prospectus................. A-30
Section 6.2 Antitrust Filings......................................... A-31
Section 6.3 No Solicitation........................................... A-31
Section 6.4 Obligations of Merger Sub................................. A-33
Section 6.5 Voting of Shares.......................................... A-33
Section 6.6 Registration Statement.................................... A-33
Section 6.7 Confidentiality; Access to Information.................... A-33
Section 6.8 Public Disclosure......................................... A-33
Section 6.9 Reasonable Efforts; Notification.......................... A-34
Section 6.10 Stock Options and ESPP.................................... A-34
Section 6.11 Form S-8.................................................. A-35
Section 6.12 Indemnification........................................... A-35
Section 6.13 Nasdaq Listing............................................ A-36
Section 6.14 Letters of Accountants.................................... A-36
Section 6.15 Takeover Statutes......................................... A-36
Section 6.16 Certain Employee Benefits................................. A-36
Section 6.17 Tax Matters............................................... A-36
Section 6.18 Employment Agreement...................................... A-36
ARTICLE VII. Conditions To The Merger................................... A-37
Section 7.1 Conditions to Obligations of Each Party to Effect the A-37
Merger...................................................
ARTICLE VIII. Termination, Amendment and Waiver......................... A-37
Section 8.1 Termination............................................... A-37
Section 8.2 Notice of Termination; Effect of Termination.............. A-38
Section 8.3 Fees and Expenses......................................... A-38
Section 8.4 Amendment................................................. A-39
Section 8.5 Extension; Waiver......................................... A-39
ARTICLE IX. General Provisions.......................................... A-39
Section 9.1 Non-Survival of Representations and Warranties............ A-39
Section 9.2 Notices................................................... A-39
Section 9.3 Interpretation; Certain Defined Terms..................... A-40
Section 9.4 Counterparts.............................................. A-41
Section 9.5 Entire Agreement; Third Party Beneficiaries............... A-41
Section 9.6 Severability.............................................. A-41
Section 9.7 Other Remedies; Specific Performance...................... A-41
Section 9.8 Governing Law............................................. A-41
Section 9.9 Rules of Construction..................................... A-41
Section 9.10 Assignment................................................ A-41
Section 9.11 Waiver of Jury Trial...................................... A-42
Exhibit A Form of Voting Agreement
Exhibit B Form of Affiliate Letter
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of May 21, 2000, among Wheel Corporation, a Delaware corporation
("Parent"), Wheels Acquisition Corp., a Delaware corporation and a wholly owned
first-tier subsidiary of Parent ("Merger Sub"), and Hubcap, Inc., a Delaware
corporation ("Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub and Company have
approved this Agreement, and declared advisable that Merger Sub make an
exchange offer (the "Offer") to exchange shares of common stock, par value
$0.01 per share, of Parent ("Parent Common Stock") for all of the issued and
outstanding shares of common stock, par value $0.001 per share ("Company Common
Stock"), of Company (the "Shares") and the merger of Merger Sub with and into
Company (the "Merger") upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law").
B. It is intended that, for United States federal income tax purposes, the
Offer and the Merger (together, the "Transaction") shall be treated as an
integrated transaction and shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). For accounting purposes, the Merger is intended to be accounted for as
a "purchase" under United States generally accepted accounting principles
("GAAP").
C. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
stockholders of Company are entering into a Voting Agreement with Parent in the
form of Exhibit A (the "Voting Agreement").
In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE I.
THE OFFER
Section 1.1 The Offer. (a) Provided that (i) this Agreement shall not have
been terminated in accordance with Section 8.1 and (ii) none of the events set
forth in Annex I hereto shall have occurred and be continuing, Merger Sub
shall, as promptly as practicable after the date hereof, commence the Offer.
Each Share accepted by Merger Sub pursuant to the Offer shall be exchanged for
the right to receive from Merger Sub that number of fully paid and
nonassessable shares of Parent Common Stock equal to the Exchange Ratio. For
purposes of this Agreement, the "Exchange Ratio" shall mean 1.58. The initial
expiration date of the Offer shall be the twentieth business day following
commencement of the Offer. The Offer shall be subject to the condition that
there shall be validly tendered in accordance with the terms of the Offer prior
to the expiration date of the Offer and not withdrawn a number of Shares which,
together with the Shares then owned by Parent and Merger Sub (if any)
represents at least a majority of the total number of outstanding Shares,
assuming the exercise of all currently exercisable options, rights and
convertible securities (if any) and the issuance of all Shares that Company is
obligated to issue thereunder (such total number of outstanding Shares being
hereinafter referred to as the "Fully Diluted Shares") (the "Minimum
Condition") and to the other conditions set forth in Annex I hereto. Parent and
Merger Sub expressly reserve the right to waive the conditions to the Offer and
to make any change in the terms or conditions of the Offer; provided that,
without the prior written consent of Company, no change may be made which
decreases the number of Shares sought in the Offer, changes the form or amount
of consideration to be paid, imposes conditions to the Offer in addition to
those set forth in Annex I, changes or waives the Minimum Condition or any of
the other conditions set
A-1
<PAGE>
forth in Annex I or imposes any conditions to the Offer in addition to those
set forth in Annex I, extends the Offer (except as set forth in the following
two sentences), or makes any other change to any of the terms and conditions to
the Offer which is adverse to the holders of Shares. Subject to the terms of
the Offer and this Agreement and the satisfaction (or waiver to the extent
permitted by this Agreement) of the conditions to the Offer, Merger Sub shall
accept for payment all Shares validly tendered and not withdrawn pursuant to
the Offer as soon as practicable after the applicable expiration date of the
Offer and shall pay for all such Shares promptly after acceptance; provided
that (x) Merger Sub shall extend the Offer for successive extension periods not
in excess of 10 business days per extension if, at the scheduled expiration
date of the Offer or any extension thereof, any of the conditions to the Offer
shall not have been satisfied, until such time as such conditions are satisfied
or waived, and (y) Merger Sub may extend the Offer if and to the extent
required by the applicable rules and regulations of the Securities Exchange
Commission ("SEC"). In addition, Merger Sub may extend the Offer after the
acceptance of Shares thereunder for a further period of time by means of a
subsequent offering period under Rule 14d-11 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of not more than 20
business days to meet the objective (which is not a condition to the Offer)
that there be validly tendered, in accordance with the terms of the Offer,
prior to the expiration date of the Offer (as so extended) and not withdrawn a
number of Shares which, together with Shares then owned by Parent and Merger
Sub, represents at least 90% of the outstanding Shares. Notwithstanding
anything to the contrary set forth herein, no certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in
connection with the exchange of Parent Common Stock for Shares upon
consummation of the Offer, and in lieu thereof each tendering stockholder who
would otherwise be entitled to a fractional share of Parent Common Stock in the
Offer will be paid an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such holder would
otherwise be entitled by (B) the closing price for a share of Parent Common
Stock as reported on the NASDAQ National Market System on the first date Merger
Sub accepts Shares for exchange in the Offer.
(b) As soon as practicable after the date of this Agreement, Parent shall
prepare and file with the SEC a registration statement on Form S-4 to register
the offer and sale of Parent Common Stock pursuant to the Offer (the
"Registration Statement"). The Registration Statement will include a
preliminary prospectus containing the information required under Rule 14d-4(b)
promulgated under the Exchange Act (the "Preliminary Prospectus"). As soon as
practicable on the date of commencement of the Offer, Parent and Merger Sub
shall (i) file with the SEC a Tender Offer Statement on Schedule TO with
respect to the Offer which will contain or incorporate by reference all or part
of the Preliminary Prospectus and form of the related letter of transmittal
(together with any supplements or amendments thereto, collectively the "Offer
Documents") and (ii) cause the Offer Documents to be disseminated to holders of
Shares. Parent, Merger Sub and Company each agree promptly to correct any
information provided by it for use in the Registration Statement or the Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect, Parent and Merger Sub agree to take all steps necessary
to cause the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. Company and its counsel shall be given a
reasonable opportunity to review and comment on the Schedule TO, the
Registration Statement and the Offer Documents and any material amendments
thereto prior to their being filed with the SEC.
Section 1.2 Company Action. (a) Company hereby consents to the Offer and
represents that its Board of Directors, at a meeting duly called and held, has
by unanimous vote of the directors participating therein (i) determined that
this Agreement and the transactions contemplated hereby, including the Offer
and the Merger, are advisable and are fair to and in the best interest of
Company's stockholders, (ii) approved and adopted this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, which
approval constitutes approval under Section 203 of Delaware Law such that the
Offer, the Merger, this Agreement and the other transactions contemplated
hereby are not and shall not be subject to any restriction pursuant to Section
203 of Delaware Law, and (iii) resolved to recommend acceptance of the Offer
and approval and adoption of this Agreement and the Merger by Company's
stockholders (the recommendations referred to in this clause (iii) are
collectively referred to in this Agreement as the "Recommendations").
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Company further represents that FleetBoston Robertson Stephens Inc. has
rendered to Company's Board of Directors its opinion that the consideration to
be received by Company's stockholders pursuant to this Agreement is fair to
such stockholders from a financial point of view. Company has been advised that
all of its directors and executive officers currently intend to tender their
Shares pursuant to the Offer.
(b) As soon as practicable on the day that the Offer is commenced, Company
will file with the SEC and disseminate to holders of Shares a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
which shall, subject to Section 6.3(b), reflect the Recommendations. Company,
Parent and Merger Sub each agree promptly to correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading in any material respect. Company agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws. Parent and its counsel
shall be given a reasonable opportunity to review and comment on the Schedule
14D-9 and any material amendments thereto prior to its being filed with the
SEC.
(c) Company will promptly furnish Parent and Merger Sub pursuant to the
terms of the Confidentiality Agreement, dated as of May 1, 2000, between
Company and Parent (the "Confidentiality Agreement") with a list of its
stockholders, mailing labels and any available listing or computer file
containing the names and addresses of all record holders of Shares and lists of
securities positions of Shares held in stock depositories, in each case as of
the most recent practicable date, and will provide to Parent and Merger Sub
such additional information (including, without limitation, updated lists of
stockholders, mailing labels and lists of securities positions) and such other
assistance as Parent or Merger Sub may reasonably request in connection with
the Offer.
Section 1.3 Directors. (a) Effective upon the acceptance for payment by
Merger Sub of Shares pursuant to the Offer (the "Appointment Time"), Parent
shall be entitled to designate the number of directors, rounded up to the next
whole number, on Company's Board of Directors that equals the product of (i)
the total number of directors on Company's Board of Directors (giving effect to
the election of any additional directors pursuant to this Section 1.3) and (ii)
the percentage that the number of Shares owned by Parent or Merger Sub
(including Shares accepted for payment) bears to the total number of Shares
outstanding, and Company shall take all action reasonably necessary to cause
Parent's designees to be elected or appointed to Company's Board of Directors,
including, without limitation, increasing the number of directors, or seeking
and accepting resignations of incumbent directors, or both; provided that,
prior to the Effective Time (as defined below), Company's Board of Directors
shall always have at least two members who were directors of Company prior to
consummation of the Offer (each, a "Continuing Director"). If the number of
Continuing Directors is reduced to less than two for any reason prior to the
Effective Time, the remaining and departing Continuing Directors shall be
entitled to designate a person to fill the vacancy. Notwithstanding anything in
this Agreement to the contrary, if Parent's designees are elected to Company's
Board of Directors prior to the Effective Time, the affirmative vote of the
Continuing Directors shall be required for Company to (a) amend or terminate
this Agreement or agree or consent to any amendment or termination of this
Agreement, (b) waive any of Company's or any Company stockholder's rights,
benefits or remedies hereunder, (c) extend the time for performance of Parent's
and Merger Sub's respective obligations hereunder, or (d) approve any other
action by Company which is reasonably likely to adversely affect the interests
of the stockholders of Company (other than Parent, Merger Sub and their
affiliates (other than Company and its subsidiaries)), with respect to the
transactions contemplated by this Agreement.
(b) Company's obligations to appoint designees to its board of directors
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-l
promulgated thereunder. Company shall promptly take all actions required
pursuant to Section 1.3 and Rule 14f-l in order to fulfill its obligations
under this Section 1.3 and shall include in the Schedule 14D-9 such information
with respect to Company and its officers and directors as is required under
Section 14(f) and Rule 14f-l to fulfill its obligations under this Section 1.3.
Parent will supply to Company in writing and be solely responsible for any
information with respect to itself and its nominees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1.
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ARTICLE II.
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and the applicable provisions of Delaware Law, at the Effective Time,
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease, and Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation").
Section 2.2 Effective Time; Closing. Subject to the provisions of this
Agreement, Company and Merger Sub will file a certificate of merger, in such
appropriate form as determined by the parties, with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of Delaware
Law (the "Certificate of Merger") (the time of such filing (or such later time
as may be agreed in writing by Company and Parent and specified in the
Certificate of Merger) being the "Effective Time") as soon as practicable on or
after the Closing Date. The closing of the Merger (the "Closing") shall take
place at the offices of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park,
California, at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VII, or at such other time, date and location
as the parties hereto agree in writing (the "Closing Date").
Section 2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, at the
Effective Time, the Surviving Corporation shall possess all the property,
rights, privileges, powers and franchises of Company and Merger Sub, and shall
be subject to all debts, liabilities and duties of Company and Merger Sub.
Section 2.4 Certificate of Incorporation; Bylaws. (a) At the Effective Time,
the Certificate of Incorporation of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation of the Surviving Corporation; provided, however,
that at the Effective Time Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read: "The name of the corporation is
"OnDisplay, Inc.' "
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
Section 2.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Company immediately prior to the Effective Time, until their
respective successors are duly appointed.
Section 2.6 Effect on Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company Common Stock. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time, other than any
shares of Company Common Stock to be canceled pursuant to Section 2.6(b), will
be canceled and extinguished and automatically converted (subject to Section
2.6(e)) into the right to receive the number of shares of Parent Common Stock
equal to the Exchange Ratio upon surrender of the certificate representing such
share of Company Common Stock in the manner provided in Section 2.7 (together
with the cash in lieu of fractional shares of Parent Common Stock as specified
below, the "Merger Consideration"). No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof, a cash
payment shall be made pursuant to Section 2.7(e).
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(b) Cancellation of Company-Owned and Parent-Owned Stock. Each share of
Company Common Stock held by Company or owned by Parent or Merger Sub
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plan; Warrants. At the Effective
Time, all options or warrants to purchase Company Common Stock then
outstanding, whether under (i) Company's 1996 Stock Plan (the "Company Stock
Option Plan"), (ii) the Oberon Software Incorporated 1990 Stock Option Plan
(the "Oberon 1990 Plan"), (iii) the Oberon Software Incorporated 1998 Stock
Incentive Plan (the "Oberon 1998 Plan," and together with the Company Stock
Option Plan and the Oberon 1990 Plan, the "Company Option Plans"), or (iv)
otherwise, shall be assumed by Parent in accordance with Section 6.10 of this
Agreement. Rights outstanding under Company's 1999 Employee Stock Purchase Plan
(the "Company ESPP") shall be treated as set forth in Section 6.10 of this
Agreement.
(d) Capital Stock of Merger Sub. Each share of common stock, par value $0.01
per share, of Merger Sub (the "Merger Sub Common Stock"), issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock, $0.01 par
value per share, of the Surviving Corporation. Following the Effective Time,
each certificate evidencing ownership of shares of Merger Sub common stock
shall evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. If, during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Parent or Company shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Exchange Ratio, the Merger Consideration and any other amounts
payable pursuant to the Offer, the Merger or otherwise pursuant to this
Agreement shall be appropriately adjusted.
Section 2.7 Exchange of Certificates. (a) Exchange Agent. Parent shall
select an institution reasonably acceptable to Company to act as the exchange
agent (the "Exchange Agent") in the Merger.
(b) Exchange Fund. Promptly after the Effective Time, Parent shall make
available to the Exchange Agent for exchange in accordance with this Article
II, the shares of Parent Common Stock (such shares of Parent Common Stock,
together with cash in lieu of fractional shares and any dividends or
distributions with respect thereto, are hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.6 in exchange for outstanding
shares of Company Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
instruct the Exchange Agent to mail to each holder of record of a certificate
or certificates ("Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 2.6, (i) a letter of transmittal in customary form (that shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent
and shall contain such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of Certificates for cancellation to the Exchange Agent together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holders of such Certificates shall be
entitled to receive in exchange therefor certificates representing the number
of whole shares of Parent Common Stock into which their shares of Company
Common Stock were converted at the Effective Time, payment in lieu of
fractional shares that such holders have the right to receive pursuant to
Section 2.7(e) and any dividends or distributions payable pursuant to Section
2.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the right to
receive the number of full shares of Parent Common Stock into which such shares
of Company Common Stock shall have been so converted and the right to receive
an
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amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 2.7(e) and any dividends or distributions payable pursuant to
Section 2.7(d). No interest will be paid or accrued on any cash in lieu of
fractional shares of Parent Common Stock or on any unpaid dividends or
distributions payable to holders of Certificates. In the event of a transfer of
ownership of shares of Company Common Stock which is not registered in the
transfer records of Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the Certificate
representing such shares of Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered Certificates with respect to the shares of
Parent Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the holders of certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) promptly, the amount of any
cash payable with respect to a fractional share of Parent Common Stock to which
such holder is entitled pursuant to Section 2.7(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of Parent
Common Stock.
(e) Fractional Shares. (i) As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (A) the number
of full shares of Parent Common Stock delivered to the Exchange Agent pursuant
to Section 2.7(b), over (B) the aggregate number of full shares of Parent
Common Stock to be distributed to holders of Company Common Stock pursuant to
Section 2.7(c) (such excess, the "Excess Shares"). Following the Effective
Time, the Exchange Agent, as agent for the holders of Company Common Stock,
shall sell the Excess Shares at then prevailing prices on NASDAQ National
Market System in the manner set forth in paragraph (ii) of this Section 2.7(e).
(ii) The sale of the excess shares by the Exchange Agent shall be
executed on the NASDAQ National Market System and shall be executed in
round lots to the extent practicable. The Exchange Agent shall use all
commercially reasonable efforts to complete the sale of the Excess Shares
as promptly following the Effective Time as, in the Exchange Agent's
reasonable judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions. Until the
net proceeds of such sales have been distributed to the holders of Company
Common Stock, the Exchange Agent will hold such proceeds in trust for the
holders of Company Common Stock. The Exchange Agent will determine the
portion of such net proceeds to which each holder of Company Common Stock
shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds by a fraction the numerator of which is the amount of the
fractional share interest to which such holder of Company Common Stock is
entitled (after taking into account all shares of Parent Common Stock to be
issued to such holder) and the denominator of which is the aggregate amount
of fractional share interests to which all holders of Company Common Stock
are entitled. As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Company Common Stock with respect
to fractional share interests, the Exchange Agent shall promptly pay such
amounts to such holders of Company Common Stock in accordance with the
terms of Section 2.7(c).
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) of this
Section 2.7(e), Parent may decide, at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments contemplated in such paragraphs, that Parent shall
pay to the Exchange Agent an amount sufficient for the Exchange Agent to
pay each holder of Company Common Stock the amount such holder would have
received pursuant to Section 2.7(e)(ii) assuming that the sales of Parent
Common Stock were made at a price equal to the average of the closing
prices of the Parent
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Common Stock on the NASDAQ National Market System for the ten consecutive
trading days immediately following the Effective Time and, in such case,
all references herein to the cash proceeds of the sale of the Excess Shares
and similar references shall be deemed to mean and refer to the payments
calculated as set forth in this paragraph (iii). In such event, Excess
Shares shall not be issued or otherwise transferred to the Exchange Agent
pursuant to Sections 2.7(b) or (e).
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable
Legal Requirement (as defined in Section 3.2(c)). To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 2.6, cash for fractional shares, if any, as may be required pursuant to
Section 2.7(e) and any dividends or distributions payable pursuant to Section
2.7(d); provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash and other distributions, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
(h) No Liability. Notwithstanding anything to the contrary in this Section
2.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(i) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Company Common Stock who have not theretofore complied with the
provisions of this Section 2.7 shall thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock to which they are entitled pursuant to Section 2.7(e) and any
dividends or other distributions with respect to Parent Common Stock to which
they are entitled pursuant to Section 2.7(d), in each case, without any
interest thereon.
Section 2.8 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued in accordance with the terms hereof (including
any cash paid in respect thereof pursuant to Section 2.7(d) and (e)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Common Stock, and there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of Company
Common Stock that 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.
Section 2.9 Restricted Stock. If any shares of Company Common Stock that are
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture or other condition providing that
such shares ("Company Restricted Stock") may be forfeited or repurchased by
Company upon any termination of the stockholders' employment, directorship or
other relationship with Company (and/or any affiliate of Company) under the
terms of any restricted stock purchase agreement or other agreement with
Company that does not by its terms provide that such repurchase option, risk of
forfeiture or
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other condition lapses upon consummation of the Merger, then the shares of
Parent Common Stock issued upon the conversion of such shares of Company Common
Stock in the Merger will continue to be unvested and subject to the same
repurchase options, risks of forfeiture or other conditions following the
Effective Time, and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends noting such repurchase
options, risks of forfeiture or other conditions. Company shall take all
actions that may be necessary to ensure that, from and after the Effective
Time, Parent is entitled to exercise any such repurchase option or other right
set forth in any such restricted stock purchase agreement or other agreement. A
listing of the holders of Company Restricted Stock, together with the number of
shares and the vesting schedule of Company Restricted Stock held by each, and
any information concerning any elections timely made under Section 83(b) of the
Code, is set forth in Part 2.9 of the Company Disclosure Letter.
Section 2.10 Tax Consequences. It is intended by the parties hereto that the
Transaction shall constitute a "reorganization" within the meaning of Section
368(a) of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
Section 2.11 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company and Merger Sub, the officers and directors of
Company, Merger Sub and the Surviving Corporation will take all such lawful and
necessary action in the name of Company or Merger Sub. Parent shall cause
Merger Sub to perform all of its obligations relating to this Agreement and the
transactions contemplated hereby.
Section 2.12 Dissenting Shares. Notwithstanding Section 2.6, if the Merger
is effectuated pursuant to Section 253 of Delaware Law, Shares outstanding
immediately prior to the Effective Time and held by a holder who has demanded
appraisal for such Shares in accordance with Delaware Law shall not be
converted into a right to receive the Merger Consideration, unless such holder
fails to perfect or withdraws or otherwise loses his or her right to appraisal.
If after the Effective Time such holder fails to perfect or withdraws or loses
his or her right to appraisal, such Shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration. Company shall give Parent prompt notice of any demands received
by Company for appraisal of Shares, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
Company shall not, except with the prior written consent of Parent, make any
payment with respect to, or settle or offer to settle, any such demands. Any
amounts paid to a holder pursuant to a right of appraisal will be paid by
Company.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date of this Agreement and as of the Closing Date, except as
disclosed in (i) Company's Annual Report on Form 10-K for the year ending
December 31, 1999 and any Company SEC Reports (as defined below) filed
subsequent to such Form 10-K and prior to the date of this Agreement, or (ii)
the disclosure letter delivered by Company to Parent dated as of the date
hereof and certified by a duly authorized officer of Company (the "Company
Disclosure Letter"), Company represents and warrants to Parent and Merger Sub
as follows:
Section 3.1 Organization; Subsidiaries. (a) Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all requisite qualifications to do
business as a foreign corporation, to conduct its business in the manner in
which its business is currently being conducted, except where the failure to
have such qualifications would not, individually or in the aggregate, have a
Material Adverse Effect (as defined in Section 9.3) on Company.
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(b) Neither Company nor any of its subsidiaries identified in Part 3.1 of
the Company Disclosure Letter owns any capital stock of, or any equity interest
of any nature in, any corporation, partnership, joint venture arrangement or
other business entity, except for passive investments in equity interests of
public companies as part of the cash management program of Company. Neither
Company nor any of its subsidiaries has agreed or is obligated to make, or is
bound by any written, oral or other agreement, contract, subcontract, lease,
binding understanding, instrument, note, option, warranty, purchase order,
license, sublicense, insurance policy, benefit plan or legally binding
commitment or undertaking of any nature, as in effect as of the date hereof or
as may hereinafter be in effect under which it may become obligated to make any
future material investment in or material capital contribution to any other
entity. Neither Company, nor any of its subsidiaries, is a general partner of
any general partnership, limited partnership or other similar entity. Part 3.1
of the Company Disclosure Letter indicates the jurisdiction of organization of
each subsidiary of the Company and Company's direct or indirect equity interest
therein.
(c) Company has delivered or made available to Parent a true and correct
copy of the Certificate of Incorporation and Bylaws of Company and similar
governing instruments of each of its subsidiaries, each as amended to date
(collectively, the "Company Charter Documents"), and each such instrument is in
full force and effect. Neither Company nor any of its subsidiaries is in
violation of any of the provisions of Company Charter Documents.
Section 3.2 Company Capitalization. (a) The authorized capital stock of
Company consists solely of 100,000,000 shares of Company Common Stock, of which
there were 22,636,902 shares issued and outstanding as of May 16, 2000, and
10,000,000 shares of preferred stock, par value $0.001 per share, of which no
shares are issued or outstanding. All outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid and nonassessable and are
not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Company or any agreement or document to which
Company is a party or by which it is bound. As of the date of this Agreement,
there are no shares of Company Common Stock held in treasury by Company. From
and after the Effective Time, the shares of Parent Common Stock issued in
exchange for any shares of Company Restricted Stock will, without any further
act of Parent, Company or any other person, become subject to the restrictions,
conditions and other provisions of such Company Restricted Stock, and Parent
will automatically succeed to and become entitled to exercise Company's rights
and remedies under such Company Restricted Stock.
(b) As of the close of business on May 19, 2000, (i) 4,258,687 shares of
Company Common Stock are subject to issuance pursuant to outstanding options to
purchase Company Common Stock under the Company Stock Option Plan, the Oberon
1990 Plan, the Oberon 1998 Plan (collectively, the "Company Options"), and (ii)
1,500,000 shares of Company Common Stock are reserved for future issuance under
the Company ESPP. Part 3.2(b) of the Company Disclosure Letter sets forth the
following information with respect to each Company Option outstanding as of the
date of this Agreement: (i) the name of the optionee; (ii) the number of shares
of Company Common Stock subject to such Company Option; (iii) the exercise
price of such Company Option; (iv) the date on which such Company Option was
granted or assumed; (v) the date on which such Company Option expires and (vi)
whether the exercisability of such option will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of any
such acceleration. Company has made available to Parent an accurate and
complete copy of the Company Stock Option Plan, the Oberon 1990 Plan, the
Oberon 1998 Plan, the Company ESPP and the standard forms of stock option
agreements evidencing Company Options. There are no options outstanding to
purchase shares of Company Common Stock other than pursuant to the Company
Stock Option Plans. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable.
(c) All outstanding shares of Company Common Stock, all outstanding Company
Options, and all outstanding shares of capital stock of each subsidiary of
Company have been issued and granted in compliance in all material respects
with (i) all applicable securities laws and other applicable Legal Requirements
and
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(ii) all requirements set forth in applicable agreements or instruments. For
the purposes of this Agreement, "Legal Requirements" means any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation,
ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Entity
(as defined in Section 3.4).
Section 3.3 Obligations With Respect to Capital Stock. Except as set forth
in Section 3.2 hereof or Part 3.3 of the Company Disclosure Letter, there are
no equity securities, partnership interests or similar ownership interests of
any class of Company equity security, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Company owns all of the securities of its subsidiaries identified
on Part 3.1 of the Company Disclosure Letter, free and clear of all claims and
Encumbrances, and there are no other equity securities, partnership interests
or similar ownership interests of any class of equity security of any
subsidiary of Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. For purposes
of this Agreement, "Encumbrances" means any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on
the voting of any security, any restriction on the transfer of any security or
other asset, any restriction on the receipt of any income derived from any
asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset). There are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its subsidiaries is a party or by which it is bound obligating
Company or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or any of its
subsidiaries or obligating Company or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement. There are no
registration rights with respect to any equity security of any class of Company
or with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries.
Section 3.4 Authority; Non-Contravention. (a) Company has all requisite
corporate power and authority to enter into this Agreement and, subject to the
Company Stockholder Approvals (as defined below), to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Company, subject
only to the approval and adoption of this Agreement and the approval of the
Merger by Company's stockholders (the "Company Stockholder Approvals") and the
filing of the Certificate of Merger pursuant to Delaware Law. The affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock is sufficient for Company's stockholders to approve and adopt this
Agreement and approve the Merger, and no other approval of any holder of any
securities of Company is required in connection with the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Company and, assuming the due execution and delivery by Parent and
Merger Sub, constitutes the valid and binding obligation of Company,
enforceable against Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally and general principles of equity.
(b) The execution and delivery of this Agreement by Company does not, and
the performance of this Agreement by Company will not, (i) conflict with or
violate Company Charter Documents, (ii) subject to obtaining Company
Stockholder Approvals and compliance with the requirements set forth in Section
3.4(c), conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which Company or
any of its subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or
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both would become a default) under, or impair Company's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of Company or any
of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
agreement, lease, license, permit, franchise, concession or other instrument or
obligation to which Company or any of its subsidiaries is a party or by which
Company or any of its subsidiaries or its or any of their respective assets are
bound or affected, except, in the case of clauses (ii) and (iii), for such
conflicts, violations, breaches, defaults, impairments, or rights which,
individually or in the aggregate, would not have a Material Adverse Effect on
Company.
(c) No action by or in respect of, or filing with any court, administrative
agency or commission or other governmental authority or instrumentality,
foreign, domestic or supranational ("Governmental Entity") or other person, is
required to be obtained or made by Company in connection with the execution and
delivery of this Agreement or the consummation by Company of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which Company is qualified to
do business, (ii) compliance with any applicable requirements of the Securities
Act of 1933, as amended (the "Securities Act"), the Exchange Act, and any other
applicable securities law, whether state or foreign, (iii) such filings as may
be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
Material Adverse Effect on Company or the Surviving Corporation or have a
material adverse effect on the ability of Company to consummate the
transactions contemplated by this Agreement.
Section 3.5 SEC Filings; Company Financial Statements. (a) Company has filed
all forms, reports and documents required to be filed by Company with the SEC
since the effective date of the registration statement for Company's initial
public offering and has made available to Parent such forms, reports and
documents in the form filed with the SEC. All such required forms, reports and
documents (including those that Company may file subsequent to the date hereof)
are referred to herein as the "Company SEC Reports." As of their respective
dates, the Company SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Company
SEC Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected prior to the date of this
Agreement by a subsequently filed Company SEC Report. None of Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements of the Company (including,
in each case, any related notes thereto) contained in the Company SEC Reports
(the "Company Financials"), including each Company SEC Report filed after the
date hereof until the Closing, (i) comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (ii)
are prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited interim financial statements, as may be permitted by the
SEC under Form 10-Q, 8-K or any successor form under the Exchange Act) and
(iii) fairly present the consolidated financial position of Company and its
subsidiaries as at the respective dates thereof and the consolidated results of
Company's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. Each of the financial
statements of Oberon Software Incorporated ("Oberon") (including, in each case,
any related notes thereto) contained in the Company SEC Reports, including each
Company SEC Report filed after the date hereof until the Closing, (i) comply as
to form in all material respects with the published rules and regulations of
the SEC with respect thereto, (ii) are prepared in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and (iii) fairly present the financial
position of Oberon as at the respective dates thereof and the results of
Oberon's operations and cash flows for the periods indicated.
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The balance sheet of Company contained in the Company SEC Reports as of
March 31, 2000 is hereinafter referred to as the "Company Balance Sheet."
Except as disclosed in the Company Financials or in the Company SEC Documents
filed, in each case, prior to the date hereof, neither Company nor any of its
subsidiaries has any material liabilities or obligations (absolute, accrued,
contingent or otherwise) which are, individually or in the aggregate, material
to the business, results of operations or financial condition of Company and
its subsidiaries taken as a whole, except for liabilities incurred since the
date of Company Balance Sheet in the ordinary course of business consistent
with past practices and liabilities.
(c) Company has heretofore furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
Section 3.6 Absence of Certain Changes or Events. (a) Since the date of the
Company Balance Sheet the business of Company and its subsidiaries has been
conducted in the ordinary course consistent with past practices (other than the
transactions contemplated by this Agreement) and, there has not been (i) any
event, occurrence, development or state of circumstances or facts that has had
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Company, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of Company's or any of its subsidiaries' capital
stock, or any purchase, redemption or other acquisition by Company of any of
Company's capital stock or any other securities of Company or its subsidiaries
or any options, warrants, calls or rights to acquire any such shares or other
securities except for repurchases which are not, individually or in the
aggregate, material in amount from employees following their termination
pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any material change by Company in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, or
(iv) any revaluation by Company of any of its material assets, other than in
the ordinary course of business.
(b) Since the date of the Company Balance Sheet and through the date of this
Agreement, there has not been (i) any amendment of any material term of any
outstanding security of the Company or any of its subsidiaries, (ii) any
incurrence, assumption or guarantee by Company or any of its Subsidiaries of
any indebtedness for borrowed money other than in the ordinary course of
business and in amounts and on terms consistent with past practices, (iii) any
split, combination or reclassification of any of Company's or any of its
subsidiaries' capital stock, (iv) any granting by Company or any of its
subsidiaries of any increase in compensation or fringe benefits to any of their
officers or employees, or any payment by Company or any of its subsidiaries of
any bonus to any of their officers or employees, or any granting by Company or
any of its subsidiaries of any increase in severance or termination pay, other
than in the ordinary course, consistent with past practice, or any entry by
Company or any of its subsidiaries into, or material modification or amendment
of, any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Company of the nature contemplated hereby, (v) any
creation or other incurrence by Company or any of its Subsidiaries of any Lien
on any material asset other than in the ordinary course of business consistent
with past practices, (vi) any making of any material loan, advance or capital
contributions to or investment in any Person other than loans, advances or
capital contributions to or investments in its wholly-owned subsidiaries (or
advances to employees) in the ordinary course of business consistent with past
practices, (vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of Company or any of its
Subsidiaries that has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Company, or (viii) any
material change in the pricing of the license fees Company charges for
licensing its software.
Section 3.7 Taxes. (a) Company and each of its subsidiaries have timely
filed all material federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to Taxes required to be
filed by or on behalf of Company and each of its subsidiaries with any Tax
authority. Such
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Returns are true, correct and complete in all material respects, and Company
and each of its subsidiaries have paid all Taxes shown to be due on such
Returns.
(b) Company and each of its subsidiaries have withheld with respect to its
employees all federal and state income Taxes, Taxes pursuant to the Federal
Insurance Contribution Act ("FICA"), Taxes pursuant to the Federal Unemployment
Tax Act ("FUTA") and other Taxes required to be withheld, except such Taxes as
are not material to Company.
(c) Neither Company nor any of its subsidiaries has been delinquent in the
payment of any material Tax, nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its subsidiaries.
Company and its subsidiaries have not executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Company or any of its
subsidiaries by any Tax authority is presently in progress, nor has Company or
any of its subsidiaries been notified of any request for such an audit or other
examination that is reasonably likely to result in any adjustment that is
material to Company.
(e) No adjustment relating to any Returns filed by Company or any of its
subsidiaries has been proposed in writing formally or informally by any Tax
authority to Company or any of its subsidiaries or any representative thereof
that is reasonably likely to be material to Company.
(f) Neither Company nor any of its subsidiaries has any material liability
for unpaid Taxes which have not been accrued for or reserved on Company Balance
Sheet in accordance with GAAP, whether asserted or unasserted, contingent or
otherwise, other than any liability for unpaid Taxes that may have accrued
since the date of the Company Balance Sheet in connection with the operation of
the business of Company and its subsidiaries in the ordinary course.
(g) There is no agreement, plan or arrangement to which Company or any of
its subsidiaries is a party, including this Agreement and the agreements
entered into in connection with this Agreement, covering any employee or former
employee of Company or any of its subsidiaries that, individually or
collectively, would be reasonably likely to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code.
(h) Neither Company nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Company.
(i) Neither Company nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or
arrangement.
(j) Company and its subsidiaries have not been and will not be required to
include any adjustment in taxable income for any Tax period (or portion
thereof) pursuant to Section 481 of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Closing.
(k) Company has not been distributed in a transaction qualifying under
Section 355 of the Code within the last two years, nor has Company distributed
any corporation in a transaction qualifying under Section 355 of the Code
within the last two years.
(l) Company is not aware of any fact, circumstance, plan or intention on the
part of Company that would be reasonably likely to prevent the Transaction from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
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For the purposes of this Agreement, "Tax" or "Taxes" refers to (i) any and
all federal, state, local and foreign taxes, assessments and other governmental
charges, duties, impositions and liabilities relating to taxes, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts, (ii)
any liability for payment of any amounts of the type described in clause (i) as
a result of being a member of an affiliated consolidated, combined or unitary
group, and (iii) any liability for amounts of the type described in clauses
(i) and (ii) as a result of any express or implied obligation to indemnify
another person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
Section 3.8 Title to Properties. (a) Company does not own and has not owned
any real property interests. Part 3.8 of the Company Disclosure Letter list all
real property leases to which Company is a party and each amendment thereto
that is in effect as of the date of this Agreement that provide for annual
payments in excess of $500,000. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of
default (or event which with notice or lapse of time, or both, would constitute
a default) that would give rise to a material claim against Company.
(b) Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Encumbrances, except as reflected in the
Company Financials and except for liens for Taxes not yet due and payable and
such Encumbrances which are not material in character, amount or extent.
Section 3.9 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation relating
to any of the foregoing; (iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, URLs, logos, common law
trademarks and service marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated, throughout the
world, and (viii) any similar or equivalent rights to any of the foregoing
anywhere in the world.
"Company Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, Company or one of its subsidiaries.
"Registered Intellectual Property" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the subject of
an application, certificate, filing, registration or other document issued,
filed with, or recorded by any Governmental Entity.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or one of its
subsidiaries.
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(a) No material Company Intellectual Property or product or service of
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation (other than those imposed by applicable law)
restricting in any manner the use, transfer or licensing thereof by Company, or
which may affect the validity, use or enforceability of such Company
Intellectual Property.
(b) Each material item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property, except, in each case, as would not
materially adversely affect such item of Company Registered Intellectual
Property.
(c) Company or one of its subsidiaries owns and has good and exclusive title
to, or has license (sufficient for the conduct of its business as currently
conducted) to, each material item of Company Intellectual Property free and
clear of any Encumbrance (excluding licenses and related restrictions). The
Company Intellectual Property constitutes all the Intellectual Property
necessary to, or used or held for use in, the conduct of the business as
currently conducted. The consummation of the transactions contemplated by this
Agreement will not alter, impair or extinguish any material Company
Intellectual Property.
(d) Neither Company nor any of its subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual Property
that is or was material Company Intellectual Property, to any third party.
(e) Part 3.9(e) of the Company Disclosure Letter contains a true and
complete list of all in-bound OEM agreements and all distributor agreements to
which Company or any of its subsidiaries is a party. None of Company or its
subsidiaries is a party to any contract with a term of greater than one year
with a long-distance telecommunications provider, Internet Service Provider,
service farm provider or computer hardware provider.
(f) To Company's knowledge, the operation of the business of Company and its
Subsidiaries as such business currently is conducted, including the design,
development, marketing and sale of the products or services of Company and its
subsidiaries (including with respect to products currently under development)
has not and does not infringe or misappropriate the Intellectual Property of
any third party or, to its knowledge, constitute unfair competition or trade
practices under the laws of any jurisdiction.
(g) None of Company or any of its subsidiaries has received written or
credible oral notice from any third party that the operation of the business of
Company and its subsidiaries or any act, product or service of Company and its
subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction. There is no claim, action, suit, investigation or
proceeding pending against, or, to the knowledge of Company, threatened against
or affecting, Company, any of its subsidiaries, any present or former officer,
director or employee of Company or any of its subsidiaries (i) based upon, or
challenging or seeking to deny or restrict, the rights of the Company or any
subsidiary in any of the Company Intellectual Property, (ii) alleging that the
use of the Company Intellectual Property or any services provided, processes
used or products manufactured, used, imported or sold by Company or any
subsidiary do or may conflict with, misappropriate, infringe or otherwise
violate any Intellectual Property of any third party or (iii) alleging that
Company or any of its subsidiaries have infringed, misappropriated or otherwise
violated any Intellectual Property of any third party.
(h) Except as set forth in Part 3.9(h) of the Company Disclosure Letter, to
Company's knowledge, no person has or is infringing or misappropriating any
Company Intellectual Property, which infringement or misappropriation,
individually or in the aggregate, would be material to Company.
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(i) Company and its subsidiaries have taken reasonable steps to protect
Company's and its subsidiaries' rights in Company's and such subsidiaries'
confidential information and trade secrets, except where the failure to do so
would not would reasonably be expected to have a Material Adverse Effect on
Company.
(j) Except under license or service agreements with end users of products of
Company and its subsidiaries, none of Company and any of its subsidiaries has
given an indemnity in connection with any Intellectual Property right to any
person.
Section 3.10 Compliance with Laws. (a) Neither Company nor any of its
subsidiaries is in conflict with, or has violated or is in violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Company or any
of its subsidiaries or by which Company or any of its subsidiaries or any of
their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or any of its subsidiaries is a party
or by which Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for conflicts, violations
and defaults that, individually or in the aggregate, would not have a Material
Adverse Effect on Company. To Company's knowledge, no investigation or review
by any Governmental Entity is pending or, has been threatened in a writing
delivered to Company against Company or any of its subsidiaries, nor, to
Company's knowledge, has any Governmental Entity indicated an intention to
conduct an investigation of Company or any of its subsidiaries. There is no
judgment, injunction, order or decree binding upon Company or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any material business practice of Company
or any of its subsidiaries, or any acquisition of material property by Company
or any of its subsidiaries.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities (including,
without limitation all such permits required under environmental laws) that are
material to or required for the operation of the business of Company as
currently conducted (collectively, the "Company Permits"), and are in
compliance with the terms of Company Permits, except where the failure to hold
such Company Permits, or be in such compliance, would not, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect
on Company.
(c) No written notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed, no
penalty has been assessed, and no investigation, action, claim, suit,
proceeding or review is pending or, to the knowledge of the Company, is
threatened by any governmental entity or other Person relating to or arising
out of any environmental law. There are no material liabilities of or relating
to the Company or any of its subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise arising
under or relating to any environmental law and there are no facts, conditions,
situations or set of circumstances that could reasonably be expected to result
in or be the basis for any such material liability. For purposes of this
Section, the terms "Company" and "subsidiaries" shall include any entity that
is, in whole or in part, a predecessor of the Company or any of its
subsidiaries.
Section 3.11 Litigation. There are no claims, suits, actions, investigations
or proceedings (or any basis therefor) pending or, to the knowledge of Company,
threatened against, relating to or affecting Company, any of its subsidiaries
any officer, director or employee of Company or any of its subsidiaries or any
person for whom the Company or any subsidiary may be liable or any of their
respective properties, before any Governmental Entity or any arbitrator that
seeks to restrain or enjoin the consummation of the transactions contemplated
by this Agreement or which would reasonably be expected, either singly or in
the aggregate with all such claims, actions or proceedings, to have a Material
Adverse Effect on Company or have a material adverse effect on the ability of
the parties hereto to consummate the transactions contemplated hereby. As
of the date hereof, no director or executive officer of Company has asserted a
claim to seek indemnification from Company under Company Charter Documents or
any indemnification agreement between Company and such person.
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Section 3.12 Employee Benefit Plans. (a) Definitions. For purposes of this
Agreement, the following terms shall have the meanings set forth below:
(i) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded
or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by Company or
any Affiliate for the benefit of any Employee;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iii) "DOL" shall mean the Department of Labor;
(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of Company or any subsidiary of Company;
(v) "Employee Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between Company or any subsidiary
of Company, on the one hand, and any Employee or consultant of Company or
any subsidiary of Company, on the other hand;
(vi) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(vii) "ERISA Affiliate" shall mean any other person or entity under
common control with Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(ix) "International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by Company, whether informally or
formally, for the benefit of Employees outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Part 3.12 of the Company Disclosure Letter contains an
accurate and complete list of each Company Employee Plan and each Employee
Agreement and, to the knowledge of Company, any other material benefit plan,
program, or arrangement in which an Employee is eligible to participate (each
plan other than a Company Employee Plan, an "Outsourced Plan"). Company does
not have any plan or commitment to establish any new Company Employee Plan, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law), or to enter into any
Company Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. Company has made available to Parent: (i) correct and
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including all amendments thereto and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the most recent annual report (Form Series
5500 and all schedules and financial statements attached thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if Company Employee Plan is funded, the most recent
annual and periodic
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accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the summary of material modifications thereto, if
any, required under ERISA with respect to each Company Employee Plan; (vi) the
most recent IRS determination or opinion letter, and all rulings relating to
Company Employee Plans; (vii) all material written agreements and contracts
relating to each Company Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; (viii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee Plans,
in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to
Company; and (ix) all registration statements and prospectuses prepared in
connection with each Company Employee Plan. Additionally, the Company has
provided information with respect to the Outsourced Plans to the extent
reasonably practicable.
(d) Employee Plan Compliance. Except in each case, as would not,
individually or in the aggregate, result in a material liability to Company or
as set forth on Part 3.12 of the Company Disclosure Letter: (i) Company has
performed in all material respects all obligations required to be performed by
it under, is not in default or violation of, and has no knowledge of any
default or violation by any other party to, each Company Employee Plan, and
each Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code has received an opinion, determination, advisory or
notification letter from the Internal Revenue Service that it is so qualified
or has remaining a period of time to obtain such a letter from the IRS, and no
event has occurred since the date of such determination that could reasonably
be expected to result in the revocation of, or materially adversely affect,
such qualification; (iii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan; (iv) there
are no actions, suits or claims pending, or, to the knowledge of Company,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan (other than currently outstanding stock
options) can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Affiliates (other than expenses typically incurred in a
termination event); (vi) there are no audits, inquiries or proceedings pending
or, to the knowledge of Company, threatened by the IRS or DOL with respect to
any Company Employee Plan; (vii) neither Company nor any Affiliate is subject
to any penalty or tax with respect to any Company Employee Plan under Section
402(i) of ERISA or Sections 4975 through 4980 of the Code; and (viii) all
contributions due from Company or any Affiliate with respect to any of Company
Employee Plans have been made as required under ERISA or have been accrued on
the Company Balance Sheet.
(e) Pension Plans. Neither Company nor any ERISA Affiliate of Company has
now, nor has it ever, maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Title IV of ERISA or
Section 412 of the Code, that would result in material liability to Company.
(f) Multiemployer Plans. At no time has Company or any ERISA Affiliate of
Company contributed to or been requested to contribute to any Multiemployer
Plan, that would result in material liability to Company.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree health benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided
with retiree health benefits, except to the extent required by statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events)
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constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting (other than full
vesting as a result of partial or full plan termination of a qualified plan),
distribution, increase in benefits or obligation to fund benefits with respect
to any Employee. There is no contract, plan or arrangement (written or
otherwise) covering any Employee or former Employee of Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G or 162(m) of the
Code.
(i) Employment Matters. Company and each of its subsidiaries is in
compliance in all material respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to Employees. There are no pending, or, to Company's
knowledge, threatened material claims or actions against Company under any
worker's compensation policy or long-term disability policy. To Company's
knowledge, no Employee of Company has materially violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
Employee is bound due to such Employee being employed by Company and disclosing
to Company or using trade secrets or proprietary information of any other
person or entity.
(j) Labor. Company does not know of any activities or proceedings of any
labor union to organize any Employees that would be material to Company. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Company, threatened relating to any labor, safety or
discrimination matters involving any Employee, including charges of unfair
labor practices or discrimination complaints, which would reasonably be
expected to, individually or in the aggregate, result in any material liability
to Company. Neither Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act
which would reasonably be expected to, individually or in the aggregate, result
in any material liability to Company. Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by Company.
(k) International Employee Plans. Each International Employee Plan has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has material unfunded liabilities,
that as of the Effective Time, will not be offset by insurance or fully
accrued. Except as required by law, no condition exists that would prevent
Company or Parent from terminating or amending any International Employee Plan
at any time for any reason in accordance with the terms of each such
International Employee Plan (other than expenses typically incurred in a
termination event).
3.13 Certain Agreements. As of the date hereof, neither Company nor any of
its subsidiaries is a party to or is bound by: (a) any employment or consulting
agreement or commitment with any employee or member of Company's Board of
Directors, that, individually or in the aggregate, is material to Company,
other than those that are terminable by Company or any of its subsidiaries on
no more than thirty days notice without liability or financial obligation,
except to the extent general principles of law may limit Company's or any of
its subsidiaries' ability to terminate employees at will;
(b) any agreement or plan, including any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;
(c) any material guaranty or any instrument evidencing indebtedness for
borrowed money by way of direct loan or sale of debt securities;
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(d) any material agreement, obligation or commitment containing covenants
purporting to limit or which effectively limit Company's or any of its
subsidiaries' freedom to compete in any line of business or in any geographic
area or which would so limit Company or the Surviving Corporation or any of its
subsidiaries after the Effective Time;
(e) any agreement or commitment currently in force relating to the
disposition or acquisition by Company or any of its subsidiaries after the date
of this Agreement of a material amount of assets not in the ordinary course of
business, or pursuant to which Company has any material ownership or
participation interest in any corporation, partnership, joint venture,
strategic alliance or other business enterprise other than Company's
subsidiaries; or
(f) any agreement or commitment currently in force providing for capital
expenditures by Company or its subsidiaries in excess of $500,000.
The agreements required to be disclosed in the Company Disclosure Letter
pursuant to clauses (a) through (f) above or pursuant to Section 3.9 or are
required to be filed with any Company SEC Report ("Company Contracts") are
valid and in full force and effect, except to the extent that such invalidity
would not be material to Company. Neither Company nor any of its subsidiaries,
nor to Company's knowledge, any other party thereto, is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted, any of the terms or
conditions of any Company Contract in such a manner as would be material to
Company.
Section 3.14 Brokers' and Finders' Fees. Except for fees payable to
FleetBoston Robertson Stephens Inc. pursuant to an engagement letter that has
been provided to Parent, Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
Section 3.15 Insurance. Company and each of its subsidiaries have policies
of insurance and bonds of the type and in amounts customarily carried by
persons conducting business or owning assets similar to those of Company and
its subsidiaries. There is no material claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies have been paid and Company and its subsidiaries are otherwise in
compliance in all material respects with the terms of such policies and bonds.
To the knowledge of Company, there has been no threatened termination of, or
material premium increase with respect to, any of such material policies.
Section 3.16 Disclosure. Neither the Schedule 14D-9, nor any of the
information supplied or to be supplied by the Company or its subsidiaries or
representatives for inclusion or incorporation by reference in the Registration
Statement, the Post-Effective Amendment (as defined below) or the Offer
Documents will, at the respective times any such documents or any amendments or
supplements thereto are filed with the SEC, are first published, sent or given
to stockholders or become effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Schedule 14D-9 will comply as to form in all material respects
with the requirements of all applicable laws, including the Exchange Act and
the rules and regulations thereunder. No representations or warranty is made by
Company with respect to statements made or incorporated by reference in any
such documents based on information supplied by Parent or Merger Sub
specifically for inclusion or incorporation by reference therein.
Section 3.17 Fairness Opinion. Company's Board of Directors has received a
true and correct copy of an opinion from FleetBoston Robertson Stephens Inc.,
dated as of the date hereof, to the effect that, as of the date hereof, the
consideration to be received by Company's stockholders in the Offer and the
Merger is fair to Company's stockholders from a financial point of view.
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Section 3.18 Affiliates. Part 3.18 of the Company Disclosure Letter is a
complete list of those persons who may be deemed to be, in Company's reasonable
judgment, affiliates of Company within the meaning of Rule 145 promulgated
under the Securities Act. Except as set forth in Company SEC Reports, since the
date of Company's last proxy statement filed with the SEC, to the knowledge of
Company, no event has occurred as of the date of this Agreement that would be
required to be reported by Company pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date of this Agreement and as of the Closing Date, except as
disclosed in (i) Parent's Annual Report on Form 10-K for the year ending
December 31, 1999 and any Parent SEC Reports (as defined below) filed
subsequent to such Form 10-K and prior to the date of this Agreement, or (ii)
the disclosure letter delivered by Parent to Company dated as of the date
hereof and certified by a duly authorized officer of Parent (the "Parent
Disclosure Letter"), Parent and Merger Sub represent and warrant as follows:
Section 4.1 Organization of Parent and Merger Sub. (a) Each of Parent and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority, and all requisite qualifications to do
business as a foreign corporation, to conduct its business in the manner in
which its business is currently being conducted, except where the failure to
have such qualifications would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(b) Parent has delivered or made available to Company a true and correct
copy of the Certificate of Incorporation and Bylaws of Parent and Merger Sub,
each as amended to date (collectively, the "Parent Charter Documents"), and
each such instrument is in full force and effect. Neither Parent nor Merger Sub
is in violation of any of the provisions of the Parent Charter Documents.
Section 4.2 Parent and Merger Sub Capitalization. (a) The authorized capital
stock of Parent consists solely of 500,000,000 shares of Parent Common Stock
par value $.01 per share, of which there were 192,686,181 shares issued and
outstanding as of the close of business on April 30, 2000, and 10,000,000
shares of Preferred Stock, par value $0.01 per share, of which no shares are
issued or outstanding. All outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or
Bylaws of Parent or any agreement or document to which Parent is a party or by
which it is bound.
As of May 19, 2000, there were 16,151,407 shares of Parent Common Stock
authorized under the 1999 Equity Incentive Plan, of which 7,836,696 were
subject to outstanding options, 7,123,759 were issued pursuant to outstanding
options and 1,190,952 were available for future grants.
As of May 19, 2000, there were 8,072,856 shares of Parent Common Stock
authorized under the 1999 Employee Stock Purchase Plan, of which 1,848,216 were
issued pursuant to outstanding options.
As of May 19, 2000, there were 1,500,000 shares of Parent Common Stock
authorized under the 1999 Non-Employee Director Option Plan, of which 20,000
were subject to outstanding options and 1,480,000 were available for future
grants.
As of May 19, 2000, there were no shares of Parent Common Stock authorized
for future grant under the 1995 Stock Option/Stock Issuance Plan, and there
were 23,811,501 shares subject to outstanding options.
As of May 19, 2000, there were 24,000,000 shares of Parent Common Stock
authorized under the 1999 Supplemental Stock Option Plan, of which 23,887,500
were subject to outstanding options.
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All shares of Parent Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable.
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, $0.01 par value, all of which, as of the date hereof, are issued
and outstanding and are held by Parent. All of the outstanding shares of Merger
Sub's common stock have been duly authorized and validly issued, and are fully
paid and nonassessable. Merger Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
(c) All outstanding shares of Parent Common Stock, all outstanding Parent
options, and all outstanding shares of capital stock of each subsidiary of
Parent have been issued and granted in compliance with (i) all applicable
securities laws and other applicable material Legal Requirements and (ii) all
material requirements set forth in applicable agreements or instruments.
(d) The Parent Common Stock to be issued in the Offer and the Merger, when
issued in accordance with the provisions of this Agreement, will be validly
issued, fully paid and nonassessable.
Section 4.3 Obligations With Respect to Capital Stock. Except as set forth
in Section 4.2, there are no equity securities, partnership interests or
similar ownership interests of any class of Parent equity security, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities Parent owns free
and clear of all claims and Encumbrances, directly or indirectly through one or
more subsidiaries, except for shares of capital stock or other similar
ownership interests of certain subsidiaries of Parent that are owned by certain
nominee equity holders as required by the applicable law of the jurisdiction of
organization of such subsidiaries and except with respect to the securities of
entities in which Parent holds, directly or indirectly, less than 20% of the
outstanding voting securities, as of the date of this Agreement, there are no
equity securities, partnership interests or similar ownership interests of any
class of equity security of any subsidiary of Parent, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. There are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Parent or any of its subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of Parent
or any of its subsidiaries or obligating Parent or any of its subsidiaries to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or agreement.
Section 4.4 Authority; Non-Contravention. (a) Each of Parent and Merger Sub
has all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub, subject only to the filing of the
Certificate of Merger pursuant to Delaware Law. No approval of any holder of
any securities of Parent is required in connection with the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub and, assuming the due authorization,
execution and delivery by Company, constitutes the valid and binding
obligations of Parent and Merger Sub, respectively, enforceable against Parent
and Merger Sub in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws affecting the rights of creditors
generally and general principles of equity.
(b) The execution and delivery of this Agreement by each of Parent and
Merger Sub does not, and the performance of this Agreement by Parent and Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation or
Bylaws of Parent or Merger Sub, (ii) subject to compliance with the
requirements set forth in
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Section 4.4(c), conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or Merger Sub or by which any of their
respective properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Parent's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of; or result in the
creation of an Encumbrance on any of the properties or assets of Parent or
Merger Sub pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, concession or other instrument or
obligation to which Parent or Merger Sub is a party or by which Parent or
Merger Sub or any of their respective properties are bound or affected, except,
in the case of clauses (ii) and (iii), for such conflicts, violations,
breaches, defaults, impairments, or rights which, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. Part 4.4(b) of
the Parent Disclosure Letter list all consents, waivers and approvals under any
of Parent's or any of its subsidiaries' agreements, contracts, licenses or
leases required to be obtained in connection with the consummation of the
transactions contemplated hereby, which, if individually or in the aggregate
not obtained, would result in a material loss of benefits to Parent or the
Surviving Corporation as a result of the Merger.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other person is required
to be obtained or made by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Offer or Merger,
except for (i) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware, (ii) compliance with any applicable
requirements of the Securities Act, the Exchange Act, and any other applicable
securities law, whether state or foreign, (iii) such filings as may be required
under the HSR Act and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to Parent or the Surviving Corporation or have a material adverse effect on the
ability of the parties hereto to consummate the transactions contemplated
hereby.
Section 4.5 SEC Filings; Parent Financial Statements. (a) Parent has filed
all forms, reports and documents required to be filed by Parent with the SEC
since the effective date of the registration statement for Parent's initial
public offering, and has made available to Company such forms, reports and
documents in the form filed with the SEC. All such required forms, reports and
documents (including those that Parent may file subsequent to the date hereof)
are referred to herein as the "Parent SEC Reports." As of their respective
dates, the Parent SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Parent SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent corrected prior to
the date of this Agreement by a subsequently filed Parent SEC Report. None of
Parent's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements of Parent (including, in
each case, any related notes thereto) contained in the Parent SEC Reports (the
"Parent Financials"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) comply as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) are
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
under Form 1O-Q, 8-K or any successor form under the Exchange Act) and (iii)
fairly present the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated results of
Parent's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. The balance sheet of
Parent contained in Parent SEC Reports as of March 31, 2000 is hereinafter
referred to as the "Parent Balance Sheet." Except as disclosed in the Parent
Financials or in the Parent SEC Documents filed, in each case, prior to the
date hereof,
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neither Parent nor any of its subsidiaries has any material liabilities or
obligations (absolute, accrued, contingent or otherwise) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except for liabilities incurred since the date of the Parent Balance
Sheet in the ordinary course of business consistent with past practices and
liabilities incurred in connection with this Agreement.
(c) Parent has heretofore furnished to Company a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
Section 4.6 Absence of Certain Changes or Events. Since the date of the
Parent Balance Sheet there has not been (i) any event, occurrence, development
or state of circumstances or facts that has had or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Parent,
(ii) any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of
Parent's or any of its subsidiaries' capital stock, or any purchase, redemption
or other acquisition by Parent of any of Parent's capital stock or any other
securities of Parent or its subsidiaries or any options, warrants, calls or
rights to acquire any such shares or other securities except for repurchases
which are not, individually or in the aggregate, material in amount from
employees following their termination pursuant to the terms of their pre-
existing stock option or purchase agreements, (iii) any material change by
Parent in its accounting methods, principles or practices, except as required
by concurrent changes in GAAP or (iv) any revaluation by Parent of any of its
material assets, other than in the ordinary course of business.
Section 4.7 Taxes. (a) Parent and each of its subsidiaries have timely filed
all material Returns relating to Taxes required to be filed by or on behalf of
Parent and each of its subsidiaries with any Tax authority. Such Returns are
true, correct and complete in all material respects, and Parent and each of its
subsidiaries have paid all Taxes shown to be due on such Returns.
(b) Parent and each of its subsidiaries have withheld with respect to its
employees all federal and state income Taxes, Taxes pursuant to FICA, Taxes
pursuant to FUTA and other Taxes required to be withheld, except such Taxes as
are not material to Parent.
(c) Neither Parent nor any of its subsidiaries has been delinquent in the
payment of any material Tax, nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its subsidiaries.
Parent and its subsidiaries have not executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of Parent or any of its
subsidiaries by any Tax authority is presently in progress, nor has Parent or
any of its subsidiaries been notified of any request for such an audit or other
examination that is reasonably likely to result in any adjustment that is
material to Parent.
(e) No adjustment relating to any Returns filed by Parent or any of its
subsidiaries has been proposed in writing formally or informally by any Tax
authority to Company or any of its subsidiaries or any representative thereof
that is reasonably likely to be material to Parent.
(f) Neither Parent nor any of its subsidiaries has any material liability
for unpaid Taxes which have not been accrued for or reserved on the Parent
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, other than any liability for unpaid Taxes that may
have accrued since the date of the Parent Balance Sheet in connection with the
operation of the business of Parent and its subsidiaries in the ordinary
course.
(g) Neither Parent nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Parent.
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(h) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or
arrangement.
(i) Parent and its subsidiaries have not been and will not be required to
include any adjustment in taxable income for any Tax period (or portion
thereof) pursuant to Section 481 of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Closing.
(j) None of Parent's or its subsidiaries' assets are tax exempt use property
within the meaning of Section 168(h) of the Code.
(k) Parent has not been distributed in a transaction qualifying under
Section 355 of the Code within the last two years, nor has Parent distributed
any corporation in a transaction qualifying under Section 355 of the Code
within the last two years.
(l) Parent is not aware of any fact, circumstance, plan or intention on the
part of Parent that would be reasonably likely to prevent the Transaction from
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code.
Section 4.8 Title to Properties. Parent has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Encumbrances, except as reflected in
the Parent Financials and except for liens for Taxes not yet due and payable
and such Encumbrances which are not material to Parent.
Section 4.9 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Parent Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, Parent or one of its subsidiaries.
"Parent Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent or one of its
subsidiaries.
(a) No material Parent Intellectual Property or product or service of Parent
is subject to any proceeding or outstanding decree, order, judgment, agreement
or stipulation restricting in any manner the use, transfer or licensing thereof
by Parent, or which may affect the validity, use or enforceability of such
Parent Intellectual Property.
(b) Each material item of Parent Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property except, in each case, as would not
materially adversely affect such item of Parent Registered Intellectual
Property.
(c) Parent or one of its subsidiaries owns and has good and exclusive title
to, or has license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to, each material item of Parent
Intellectual Property free and clear of any Encumbrance (excluding licenses and
related restrictions). To the knowledge of Parent, Parent or one of its
subsidiaries owns, or holds a valid license to, free and clear of all
Encumbrances, all material Intellectual Property necessary to, or used or held
for use in, the conduct of the business as currently conducted and as proposed
to be conducted by Parent and its subsidiaries.
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(d) Neither Parent nor any of its subsidiaries has transferred ownership of,
or granted any license with respect to, any Intellectual Property that is or
was material Parent Intellectual Property, to any third party.
(e) To Parent's knowledge, the operation of the business of Parent and its
subsidiaries as such business currently is conducted, including the design,
development, marketing and sale of the products or services of Parent and its
subsidiaries (including with respect to products currently under development)
has not, does not and will not infringe or misappropriate the Intellectual
Property of any third party or, to its knowledge, constitute unfair competition
or trade practices under the laws of any jurisdiction.
(f) Except as set forth in Part 4.9(f) of the Parent Disclosure Letter, no
person has or is infringing or misappropriating any Parent Intellectual
Property, which infringement or misappropriation, individually or in the
aggregate, would be material to Parent.
(g) Parent and its subsidiaries have taken reasonable steps to protect
Parent's and its subsidiaries' rights in Parent's and such subsidiaries'
confidential information and trade secrets, except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect on Parent.
Section 4.10 Compliance with Laws. (a) Neither Parent nor any of its
subsidiaries is in conflict with, or has violated or is in violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any note, bond, mortgage,
indenture, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
is bound or affected, except for conflicts, violations and defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent. No investigation or review by any Governmental Entity is pending or, to
Parent's knowledge, has been threatened in a writing delivered to Parent
against Parent or any of its subsidiaries, nor, to Parent's knowledge, has any
Governmental Entity indicated an intention to conduct an investigation of
Parent or any of its subsidiaries. There is no judgment, injunction, order or
decree binding upon Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any material business practice of Parent or any of its subsidiaries,
or any acquisition of material property by Parent or any of its subsidiaries.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities that are
material to or required for the operation of the business of Parent as
currently conducted (collectively, the "Parent Permits"), and are in compliance
with the terms of the Parent Permits, except where the failure to hold such
Parent Permits, or be in such compliance, would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Parent.
Section 4.11 Litigation. There are no claims, suits, actions or proceedings
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or any of its subsidiaries, before any Governmental Entity or
any arbitrator that seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or which would reasonably be
expected, either singly or in the aggregate with all such claims, actions or
proceedings, to have a Material Adverse Effect on Parent or have a material
adverse effect on the ability of the parties hereto to consummate the
transactions contemplated hereby. No director or executive officer of the
Parent has asserted a claim to seek indemnification from the Parent under
Parent Charter Documents or any indemnification agreements between Parent and
such person.
Section 4.12 Brokers' and Finders' Fees. Except for fees payable to Morgan
Stanley Dean Witter, Parent has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
Section 4.13 Disclosure Documents. Neither the Offer Documents or the
Registration Statement or the Post-Effective Amendment, nor any of the
information supplied or to be supplied by Parent or its subsidiaries
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or representatives for inclusion or incorporation by reference in the Schedule
14D-9 or the Company Proxy Statement will, at the respective times any such
documents or any amendments or supplements thereto are filed with the SEC, are
first published, sent or given to stockholders or become effective under the
Securities Act or, in the case of the Company Proxy Statement, at the time of
the Company Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Offer Documents
and the Registration Statement and the Post-Effective Amendment will comply as
to form in all material respects with the requirements of all applicable laws,
including the Securities Act and the Exchange Act, as applicable, and the rules
and regulations thereunder. No representation or warranty is made by Parent or
Merger Sub with respect to statements made or incorporated by reference therein
based on information supplied by Company for inclusion or incorporation by
reference therein.
Section 4.14 Affiliates. Except as set forth in Parent SEC Reports, since
the date of Parent's last proxy statement filed with the SEC, to the knowledge
of Parent, no event has occurred as of the date of this Agreement that would be
required to be reported by Parent pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
ARTICLE V.
CONDUCT PRIOR TO THE EFFECTIVE TIME
Section 5.1 Conduct of Business by Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Appointment Time, Company and each of
its subsidiaries shall, except to the extent that Parent shall otherwise
consent in writing and except as provided in Part 5.1 of Parent Disclosure
Letter, carry on its business in the ordinary course and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, pay or
perform other material obligations when due, and use its commercially
reasonable efforts to (i) preserve intact its present business organization,
(ii) keep available the services of its present officers and employees and
(iii) preserve its relationships with customers, suppliers, licensors,
licensees and others with which it has business dealings. In addition, during
that period Company will promptly notify Parent of any material event involving
its business or operations consistent with the agreements contained herein.
In addition, except as permitted by the terms of this Agreement, and except
as contemplated by this Agreement or provided in Schedule 5.1 of the Company
Disclosure Letter, without the prior written consent of Parent during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Appointment Time,
Company shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or employee except
pursuant to written agreements in effect, or policies existing, on the date
hereof (or as required by applicable law) and as previously disclosed in
writing to Parent or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to any material Company
Intellectual Property, other than non-exclusive licenses in the ordinary course
of business and consistent with past practice;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock of Company or split, combine or reclassify any
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capital stock of Company or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock
of Company;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any shares
of capital stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to issue any
such shares or convertible securities, other than the issuance, delivery and/or
sale of (i) shares of Company Common Stock pursuant to the exercise of Company
Options, (ii) shares of Company Common Stock issuable to participants in the
Company ESPP, (iii) shares of Company Common Stock issuable to participants in
Company's 401(k) Plan, in the case of (i), (ii) and (iii), consistent with the
terms thereof, and (iv) pursuant to grants of Company Options to newly hired
employees in the ordinary course of business, consistent with past practice,
and not to exceed in the aggregate pursuant to this clause (iv) 400,000 shares
of Company Common Stock;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or, except
as required by agreements listed in Part 3.1 of the Disclosure Schedule, by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Company or enter into any material joint ventures, strategic
relationships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the business of
Company;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Company,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing, other than in the ordinary course of business, consistent
with past practice;
(k) Except as required to comply with any Legal Requirement or as set forth
in Part 3.12 of the Company Disclosure Letter, adopt or amend any employee
benefit plan or employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement, pay any
special bonus or special remuneration to any director or employee, or increase
the salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than with respect to employees and consultants (other than officers) in the
ordinary course of business, consistent with past practice, or change in any
material respect any management policies or procedures that are material to the
business of Company;
(1) Make any material capital expenditures, except in accordance with the
current Company annual budget and plan, as previously disclosed to Parent;
(m) Modify, amend or terminate any Company Contract to which Company or any
subsidiary thereof is a party or waive, release or assign any material rights
or claims thereunder other than in the ordinary course of business consistent
with past practice;
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(n) Enter into any licensing or other agreement with regard to the
acquisition, distribution or licensing of any material Intellectual Property
other than licenses, distribution or other similar agreements entered into in
the ordinary course of business consistent with past practice;
(o) Revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(p) Materially change the pricing of the license fees Company charges for
licensing its software;
(q) Take any action that would materially delay the consummation of the
transactions contemplated hereby; or
(r) Agree in writing or otherwise to take any of the actions described in
Section 5.1 (a) through (q) above.
Section 5.2 Conduct of Business by Parent. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent
in writing and except as provided in Part 5.2 of the Parent Disclosure Letter,
carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, pay or
perform other material obligations when due, and use its commercially
reasonable efforts consistent with past practices and policies to (i) preserve
intact its present business organization, (ii) keep available the services of
its present officers and employees and (iii) preserve its relationships with
customers, suppliers, licensors, licensees and others with which it has
business dealings; provided, however, that nothing in this Section 5.2 shall
prevent Parent or any of its subsidiaries from reviewing and pursuing any
acquisition opportunities.
In addition, except as permitted by the terms of this Agreement, and except
as contemplated by this Agreement or provided in Part 5.2 of the Parent
Disclosure Letter, without the prior written consent of Company, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Parent shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
(a) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock of Parent; provided that Parent shall not be
prohibited under this clause (a) from effecting any stock split, reverse stock
split, stock dividend, reorganization, recapitalization, reclassification or
other like change with respect to Parent Common Stock on or after the date
hereof;
(b) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(c) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents;
(d) Except as required by GAAP, make any change in accounting methods,
principles or practices or any change in tax accounting methods or any tax
elections;
(e) Take any action that would materially delay the consummation of the
transactions contemplated hereby; or
(f) Agree in writing or otherwise to take any of the actions described in
Section 5.2 (a) through (e) above.
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ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.1 Stockholder Approval; Preparation of Registration Statement and
Proxy Statement/ Prospectus. (a) If approval of Company's stockholders is
required by applicable law in order to consummate the Merger other than
pursuant to Section 253 of Delaware Law, following the acceptance for exchange
of Shares pursuant to the Offer, Parent and Company shall, as soon as
practicable following the acceptance of Shares pursuant to the Offer, prepare
and Company shall file with the SEC the Company Proxy Statement and Parent and
Company shall prepare and Parent shall file with the SEC a post-effective
amendment to the Registration Statement (the "Post-Effective Amendment") for
the offer and sale of the Parent Stock pursuant to the Merger and in which the
Company Proxy Statement will be included as a prospectus. Each of Company and
Parent shall use all reasonable efforts to have the Post-Effective Amendment
declared effective under the Securities Act as promptly as practicable after
such filing. Company will use all reasonable efforts to cause the Company Proxy
Statement to be mailed to Company's stockholders as promptly as practicable
after the Post-Effective Amendment is declared effective under the Securities
Act. Parent shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or to file a general
consent to service of process) required to be taken under any applicable state
securities laws in connection with the issuance of Parent Common Stock in the
Offer and the Merger and Company shall furnish all information concerning
Company and the holders of capital stock of Company as may be reasonably
requested in connection with any such action and the preparation, filing and
distribution of the Company Proxy Statement. No filing of, or amendment or
supplement to, or correspondence to the SEC or its staff with respect to, the
Post-Effective Amendment will be made by Parent, or the Company Proxy Statement
will be made by Company, without providing the other party a reasonable
opportunity to review and comment thereon. Parent will advise Company, promptly
after it receives notice thereof, of the time when the Post-Effective Amendment
has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Parent
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Post-Effective
Amendment or comments thereon and responses thereto or requests by the SEC for
additional information. Company will advise Parent, promptly after it receives
notice thereof, of any request by the SEC for the amendment of the Company
Proxy Statement or comments thereon and responses thereto or requests by the
SEC for additional information. If at any time prior to the Effective Time any
information relating to Company or Parent, or any of their respective
affiliates, officers or directors, should be discovered by Company or Parent
which should be set forth in an amendment or supplement to either of the Post-
Effective Amendment or the Company Proxy Statement, so that any of such
documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and
an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Company.
(b) If approval of the Company's stockholders is required by applicable law
in order to consummate the Merger, Company shall establish, prior to or as soon
as practicable following the date upon which the Post-Effective Amendment
becomes effective, a record date (which shall be prior to or as soon as
practicable following the date upon which the Post-Effective Amendment becomes
effective) for, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Company Stockholders Meeting") for the purpose of
considering and taking action upon this Agreement and the Merger and (with the
consent of Parent) such other matters as may in the reasonable judgment of
Company be appropriate for consideration at the Company Stockholders Meeting.
Once the Company Stockholders Meeting has been called and noticed, Company
shall not postpone or adjourn the Company Stockholders Meeting (other than for
the absence of a quorum) without the consent of Parent. Subject to Company's
right, pursuant to Section 6.3(b) hereof, to withdraw or modify the
Recommendations, the Board of Directors of Company shall include in the Post-
Effective Amendment and the Company Proxy Statement a copy of the
Recommendations as such Recommendations pertain to the Merger and this
Agreement. Notwithstanding the foregoing, if approval of the Company's
stockholders is required by
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applicable law in order to consummate the Merger, the Board of Directors of
Company shall submit this Agreement and the Merger for approval to the
Company's stockholders whether or not the Board of Directors of Company
determines in accordance with Section 6.3(b) after the date hereof that this
Agreement and the Merger are no longer advisable and recommends that the
stockholders of Company reject it. Unless the Board of Directors of Company has
withdrawn its recommendation of this Agreement and the Merger in compliance
with Section 6.3(b), Company shall use its reasonable best efforts to solicit
from stockholders of Company proxies in favor of this Agreement and the Merger
and shall take all other actions necessary or advisable to secure the vote or
consent of stockholders required by Delaware Law to effect the Merger.
(c) Notwithstanding the foregoing clauses (a) and (b) above, if Merger Sub
shall acquire at least 90% of the outstanding Shares in the Offer, the parties
hereto shall take all necessary actions (including actions referred to in
clause (a) above, as applicable) to cause the Merger to become effective, as
soon as practicable after the expiration of the Offer, without a meeting of
stockholders of Company, in accordance with Section 253 of Delaware Law.
Section 6.2 Antitrust Filings. (a) Promptly after the date of this
Agreement, each of Company and Parent will prepare and file (i) with the United
States Federal Trade Commission and the Antitrust Division of the United States
Department of Justice Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by
the parties (the "Antitrust Filings") and (ii) any other filings required to be
filed by it under the Exchange Act, the Securities Act or any other federal,
state or foreign laws relating to the Merger and the transactions contemplated
by this Agreement (the "Other Filings"). Company and Parent each shall promptly
supply the other with any information which may be required in order to
effectuate any filings pursuant to this Section 6.2.
(b) Each of Company and Parent will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials in connection with any filing made pursuant hereto and of any request
by the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement, the Post-Effective Amendment, the
Company Proxy Statement or any Antitrust Filings or Other Filings or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the other
hand, with respect to the Registration Statement, the Post-Effective Amendment,
the Company Proxy Statement, the Merger or any Antitrust Filing or Other
Filing. Each of Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under
Section 6.1 and this Section 6.2 to comply in all material respects with all
applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an
amendment or supplement the Registration Statement, the Post-Effective
Amendment, the Company Proxy Statement or any Antitrust Filing or Other Filing,
Company or Parent, as the case may be, will promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Company and/or Parent,
such amendment or supplement.
Section 6.3 No Solicitation. (a) From the date hereof until the Appointment
Date or termination of the Agreement in accordance with Article VIII hereof,
whichever is earlier, neither Company nor any of its subsidiaries shall, nor
shall Company or any of its subsidiaries authorize or permit any of its or
their officers, directors, employees, investment bankers, attorneys,
accountants, consultants or other agents or advisors to, directly or
indirectly, (i) solicit, initiate or knowingly take any action to facilitate or
encourage the submission or announcement of any Acquisition Proposal (as
defined below), (ii) enter into or participate in any discussions or
negotiations with, furnish any information relating to Company or any of its
subsidiaries or afford access to the business, properties, assets, books or
records of Company or any of its subsidiaries to, otherwise cooperate in any
way with, or knowingly assist, participate in, facilitate or encourage any
effort by any third party that has made an Acquisition Proposal, (iii) approve,
endorse or recommend any Acquisition
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Proposal or (iv) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Proposal.
(b) Notwithstanding the foregoing, the Board of Directors of Company,
directly or indirectly through advisors, agents or other intermediaries, may
(i) engage in negotiations or discussions with any third party that, subject to
Company's compliance with Section 6.3(a), has made (and not withdrawn) a bona
fide Acquisition Proposal that the Board of Directors of Company reasonably
determines (after consultation with Company's financial advisor) constitutes a
Superior Proposal, (ii) furnish to such third party nonpublic information
relating to Company or any of its subsidiaries pursuant to a confidentiality
agreement with terms no less favorable to Company than those contained in the
Confidentiality Agreement, (iii) take and disclose to its stockholders a
position contemplated by Rule 14e-2(a) under the Exchange Act or otherwise make
disclosure to them, (iv) following receipt of such an Acquisition Proposal,
withdraw, modify in a manner adverse to Parent, or fail to make its
Recommendations, and/or (v) take any action ordered to be taken by Company by
any court of competent jurisdiction if, in each case (1) neither Company nor
any representative of Company and its subsidiaries shall have violated any of
the restrictions set forth in this Section 6.3, (2) the Board of Directors of
Company determines in good faith, after consultation with its outside legal
counsel, that it is necessary for the Board of Directors to take such action in
order to satisfy its fiduciary obligations to Company's stockholders under
applicable law, (3) prior to furnishing any such nonpublic information to, or
entering into any such discussions with, such person or group, Company gives
Parent written notice of the identity of such person or group and all of the
material terms and conditions of such Acquisition Proposal and of Company's
intention to furnish nonpublic information to, or enter into discussions with,
such person or group, and Company receives from such person or group an
executed confidentiality agreement containing terms at least as restrictive
with regard to Company's confidential information as the Confidentiality
Agreement, (4) gives Parent prompt advance notice of its intent to furnish such
nonpublic information or enter into such discussions (which notice shall in no
event be given less than one business day prior to furnishing such information
or entering into such discussions), and (5) contemporaneously with furnishing
any such nonpublic information to such person or group, Company furnishes such
nonpublic information to Parent (to the extent such nonpublic information has
not been previously furnished by the Company to Parent). Company and its
subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding two sentences
by any officer, director or employee of Company or any of its subsidiaries or
any investment banker, attorney or other advisor or representative of Company
or any of its subsidiaries shall be deemed to be a breach of this Section 6.3
by Company.
(c) In addition to the obligations of Company set forth in paragraph (a) of
this Section 6.3, Company as promptly as reasonably practicable shall advise
Parent orally and in writing of any Acquisition Proposal, or any inquiry with
respect to or which Company reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person or group making any such
Acquisition Proposal or inquiry. Company will keep Parent informed as promptly
as reasonably practicable in all material respects of material amendments of
any such Acquisition Proposal or inquiry.
"Superior Proposal" means any bona fide, unsolicited written Acquisition
Proposal for at least a majority of the outstanding shares of Company Common
Stock on terms that the Board of Directors of Company determines in good faith
by a majority vote, after consultation with its financial advisor of nationally
recognized reputation and taking into account all the terms and conditions of
the Acquisition Proposal, are more favorable to the Company's stockholders than
as provided hereunder.
For purposes of this Agreement, "Acquisition Proposal" shall mean any offer
or proposal by a third party, other than Parent, Merger Sub or any affiliate
thereof, relating to: (A) any acquisition or purchase from Company by any
person or "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 25% interest in the
outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person
or
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"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 25% or more of the outstanding
voting securities of Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving Company
pursuant to which the stockholders of Company immediately preceding such
transaction would hold less than 75% of the equity interests in the surviving
or resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition, or disposition of more than 25% of
the consolidated assets of Company; or (C) any liquidation or dissolution of
Company.
Section 6.4 Obligations of Merger Sub. Parent will take all action necessary
to cause Merger Sub to perform its obligations under this Agreement and to
consummate the Offer and the Merger on the terms and subject to the conditions
set forth in this Agreement.
Section 6.5 Voting of Shares. Parent and Merger Sub agree to vote all Shares
acquired in the Offer or otherwise beneficially owned by them or any of their
subsidiaries in favor of approval and adoption of this Agreement and the Merger
at the Company Stockholder Meeting or pursuant to Section 253 of the DGCL, on
the terms and subject to the conditions set forth in this Agreement.
Section 6.6 Registration Statement. Parent shall promptly prepare and file
with the SEC under the Securities Act the Registration Statement and shall use
all reasonable efforts to cause the Registration Statement to be declared
effective by the SEC as promptly as practicable. Parent shall promptly take any
action required to be taken under foreign or state securities laws in
connection with the issuance of Parent Common Stock in the Merger. Parent shall
include as an exhibit to the Registration Statement a tax opinion of Davis Polk
& Wardwell, in form and substance reasonably satisfactory to Parent and to
Company, on the basis of customary facts, representations and assumptions set
forth in such opinion (including without limitation assumptions that (i) the
minimum Condition shall be satisfied, and (ii) the Merger shall be completed
promptly following the Offer), to the effect that the Transaction will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code.
Section 6.7 Confidentiality; Access to Information. (a) The parties
acknowledge that Company and Parent have previously executed the
Confidentiality Agreement which Confidentiality Agreement will continue in full
force and effect in accordance with its terms.
(b) Company will afford Parent and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of Company during the period prior to
the Effective Time to obtain all information concerning the business, including
the status of product development efforts, properties, results of operations
and personnel of Company, as Parent may reasonably request, including without
limitation copies of working papers of accountants, contracts, and other
corporate documents, and access to other parties with whom it has business
dealings. Parent will afford Company and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of Parent during the period prior to
the Effective Time to obtain all information concerning the business, including
the status of product development efforts, properties, results of operations
and personnel of Parent, as Company may reasonably request, including without
limitation copies of working papers of accountants, contracts, and other
corporate documents, and access to other parties with whom it has business
dealings. No information or knowledge obtained in any investigation pursuant to
this Section will affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Offer and the Merger.
Section 6.8 Public Disclosure. Parent and Company will consult with each
other, and to the extent practicable, agree, before issuing any press release
or otherwise making any public statement with respect to the Offer, Merger,
this Agreement or an Acquisition Proposal and will not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange; provided, however, that this Section 6.8 shall terminate in the event
the
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Board of Directors of Company shall withdraw its Recommendations. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
Section 6.9 Reasonable Efforts; Notification. (a) Upon the terms and subject
to the conditions set forth in this Agreement, each of the parties agrees to
use all reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including using reasonable efforts
to accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Annex I and Article VII to be
satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Governmental Entities and
the making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any) and
the taking of all reasonable steps as may be necessary to avoid any suit,
claim, action, investigation or proceeding by any Governmental Entity, (iii)
the obtaining of all necessary consents, approvals or waivers from third
parties, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of
any additional instruments necessary to consummate the transactions
contemplated by, and to carry out fully the purposes of, this Agreement.
Notwithstanding anything in this Agreement to the contrary, neither Parent nor
any of its affiliates shall be under any obligation to make proposals, execute
or carry out agreements or submit to orders providing for the sale or other
disposition or holding separate (through the establishment of a trust or
otherwise) of any assets or categories of assets of Parent, any of its
affiliates or Company or its subsidiaries or the holding separate of the shares
of Company Common Stock (or shares of stock of the Surviving Corporation) or
imposing or seeking to impose any limitation on the ability of Parent or any of
its subsidiaries or affiliates to conduct their business or own such assets or
to acquire, hold or exercise full rights of ownership of the shares of Company
Common Stock (or shares of stock of the Surviving Corporation).
(b) Each of Company and Parent will give prompt notice to the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the transactions
contemplated hereby, (ii) any notice or other communication from any
Governmental Entity in connection with the transactions contemplated hereby,
(iii) any litigation relating to, involving or otherwise affecting Company,
Parent or their respective subsidiaries that relates to the consummation of the
transactions contemplated hereby. Company shall give prompt notice to Parent of
any representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that the conditions
set forth in Annex I or Article VII would not be satisfied, provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement. Parent shall give prompt notice to Company of
any representation or warranty made by it or Merger Sub contained in this
Agreement becoming untrue or inaccurate, or any failure of Parent or Merger Sub
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Annex I or Article VII would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
Section 6.10 Stock Options and ESPP. (a) At the Effective Time, each
outstanding Company Option and each outstanding warrant to purchase Company
Common Stock, whether or not then exercisable, will be assumed by Parent. Each
Company Option so assumed by Parent under this Agreement will continue to have,
and be subject to, the same terms and conditions set forth in the Company Stock
Option Plan immediately prior to the Effective Time (including, without
limitation, any repurchase rights or vesting provisions), except that, subject
to Section 6.10(b), (i) each Company Stock Option will be exercisable (or will
become exercisable in
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accordance with its terms) for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock that
were issuable upon exercise of such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent. Continuous employment with Company or its
subsidiaries shall be credited to the optionee for purposes of determining the
vesting of all assumed Company Options after the Effective Time.
(b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 6.10 shall be applied consistent with such intent in accordance with
Section 424 of the Code.
(c) At the Effective Time, the Company ESPP shall be assumed by Parent;
provided however, that no new offering period shall commence under the Company
ESPP and no employee of Company or any of its subsidiaries not participating in
the Company ESPP as of the date hereof shall become a participant in the
Company ESPP after such date.
Section 6.11 Form S-8. Parent agrees to use its reasonable efforts to file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Options as soon as is reasonably
practicable (and in any event within 10 days) after the Effective Time and
shall maintain the effectiveness of such registration statement thereafter for
so long as any of such options or other rights remain outstanding.
Section 6.12 Indemnification. (a) From and after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, fulfill and honor in all
respects the obligations of Company pursuant to any indemnification agreements
between Company and its directors and officers as of the Effective Time (the
"Indemnified Parties") and any indemnification provisions under Company's or
the Surviving Corporation's Certificate of Incorporation or Bylaws as in effect
on the date hereof. The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Certificate of Incorporation and Bylaws of Company as in
effect on the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of Company, unless such modification is required by law.
(b) In the event that Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person in a single transaction or a series of transactions, then, and in each
such case, Parent shall make or cause to be made proper provision so that the
successors and assigns of Parent assume the indemnification obligations of
Parent under this Section 6.12 for the benefit of the Indemnified Parties.
(c) For a period of six years after the Effective Time, Parent will either
(i) cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by Company's directors' and officers' liability insurance
policy on terms comparable to those applicable to the current directors and
officers of Company; provided, however, that in no event will Parent or the
Surviving Corporation be required to expend in excess of 150% of the annual
premium currently paid by Company for such coverage (or such coverage as is
available for such 150% of such annual premium), or (ii) if mutually agreed
between Company and Parent, purchase a directors' and officers' liability
insurance on terms comparable to those applicable to the current directors and
officers of Company covering all periods prior to the Effective Time.
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(d) This Section 6.12 shall survive the consummation of the Merger, is
intended to benefit Company, the Surviving Corporation and each Indemnified
Party, shall be binding on all successors and assigns of the Surviving
Corporation and Parent, and shall be enforceable by the Indemnified Parties.
Section 6.13 Nasdaq Listing. Parent agrees to authorize for listing on
NASDAQ National Market System the shares of Parent Common Stock issuable, and
those required to be reserved for issuance, in connection with the Offer and
the Merger, effective upon official notice of issuance.
Section 6.14 Letters of Accountants. Company and Parent shall use their
respective reasonable efforts to cause to be delivered to Parent letters of
Company's and Parent's independent accountants, respectively, dated no more
than two business days before the date on which the Registration Statement
becomes effective (and satisfactory in form and substance to Parent), that is
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
Section 6.15 Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of Parent and Company and their respective Boards of Directors
shall grant such approvals and take such lawful actions as are necessary to
ensure that such transactions may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise act to eliminate or
minimize the effects of such statute and any regulations promulgated thereunder
on such transactions. Company agrees that on and after the date hereof, it will
not adopt any "poison pill" rights plan or any similar antitakeover plan or
take any other action that would impede or prevent completion of the Offer, the
Merger or this Agreement.
Section 6.16 Certain Employee Benefits. Employees of Company and its
subsidiaries will be granted credit for purposes of eligibility, vesting and
vacation accrual for all service with Company and its subsidiaries under each
employee benefit plan, program or arrangement of Parent or its Affiliates in
which such Employees are eligible to participate. If Employees become eligible
to participate in a welfare plan maintained or contributed to by Parent or its
Affiliates, Parent will cause such plan to (i) waive any preexisting condition
exclusions and waiting period limitations for conditions covered under the
applicable welfare plan under which Company employees participate (but only to
the extent corresponding exclusions and limitations were satisfied by such
Employees under the applicable welfare plans maintained or contributed to by
Company); and (ii) credit any deductible or out of pocket expenses or offsets
(or similar expenses) incurred by the Employees and their beneficiaries under
such plans during the portion of the calendar year prior to such participation.
Section 6.17 Tax Matters. Each of Parent, Merger Sub and Company agrees that
it will not take any action, or fail to take any action, which action or
failure to act would be reasonably likely to cause the Transaction to fail to
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
Each of Parent, Merger Sub and Company agrees to use its reasonable efforts to
make representations to Davis Polk & Wardwell and Wilson Sonsini Goodrich &
Rosati in support of their tax opinions in Section 6.6 and in Annex I.
Section 6.18 Employment Agreement. Company agrees to cooperate with Parent
in its efforts to negotiate employment or other agreements with key employees
identified by Parent between the date hereof and the Effective Time.
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ARTICLE VII.
CONDITIONS TO THE MERGER
Section 7.1 Conditions to Obligations of Each Party to Effect the
Merger. The obligations of Company, Parent and Merger Sub to consummate the
Merger are subject to the satisfaction of the following conditions:
(a) if required by Delaware law, this Agreement shall have been approved and
adopted by the stockholders of Company;
(b) Merger Sub shall have accepted for exchange and exchanged all of the
Shares tendered pursuant to the Offer;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(d) the Registration Statement or the Post-Effective Amendment, as the case
may be, shall have been declared effective and no stop order suspending
effectiveness shall be in effect and no proceedings for such purpose shall be
pending before or threatened by the SEC; and
(e) the shares of Parent Common Stock to be issued in the Merger shall have
been approved for listing on the NASDAQ National Market System, subject to
official notice of issuance.
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Appointment Date (notwithstanding any
approval of this Agreement by the stockholders of Company):
(a) by mutual written agreement of Company and Parent; or
(b) by either Company or Parent, if:
(i) the Offer shall have expired or been terminated in accordance with
the terms of this Agreement without Parent or Merger Sub having accepted
for exchange any Shares pursuant to the Offer, provided that Parent and
Merger Sub shall not be permitted to terminate this Agreement pursuant to
this Section 8.1(b)(i) if the Offer is terminated or expires without Shares
having been accepted for exchange as a result of a breach by Parent or
Merger Sub of this Agreement; or
(ii) the Offer has not been consummated on or before September 30, 2000
(the "End Date"); provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(ii) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
principal cause of or resulted in the failure of the Offer to have been
consummated on or before such date and such action or failure to act
constitutes a material breach of this Agreement; or
(iii) there shall be any applicable law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or any judgment,
injunction, order or decree of any court or governmental body having
competent jurisdiction enjoining Company or Parent from consummating the
Merger is entered and such judgment, injunction, judgment or order shall
have become final and nonappealable; or
(iv)(A) any representation or warranty of the other party contained in
this Agreement shall be or have become inaccurate such that, in the
aggregate, such inaccuracies would reasonably be expected to have a
Material Adverse Effect on such other party, or (B) the other party fails
to perform any material
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covenant contained in this Agreement; provided, however, that such
inaccuracy or failure to perform has not been or is incapable of being
cured by such other party within 30 days following receipt by the
terminating party of notice of such inaccuracy or failure to perform; or
(c) by Parent if a Triggering Event shall have occurred.
For purposes of this Agreement, a "Triggering Event" shall be deemed to have
occurred if, prior to the Appointment Time: (i) the Board of Directors of
Company or any committee thereof shall have approved or recommended to Company
stockholders any Acquisition Proposal, (ii) the Board of Directors of Company
or any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its Recommendations; (iii)
Company shall have failed to include in the Offer Documents, the Schedule 14D-9
or the Post-Effective Amendment the Recommendations; or (iv) a tender or
exchange offer relating to 40% or more of the Shares shall have been commenced
by a person unaffiliated with Parent, and Company shall not have sent to its
securityholders pursuant to Rule 14e-2 promulgated under the Securities Act,
within 10 business days after such tender or exchange offer is first published
sent or given, a statement disclosing that Company recommends rejection of such
tender or exchange offer.
The party desiring to terminate this Agreement pursuant to this Section 8.1
(other than pursuant to Section 8.1(a)) shall give notice of such termination
to the other party.
Section 8.2 Notice of Termination; Effect of Termination. Any proper
termination of this Agreement under Section 8.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto. In the event of the termination of this Agreement under
Section 8.1, this Agreement shall be of no further force or effect without
liability of any party (or any stockholder, director, officer, employee, agent,
consultant or representative of such party) to the other parties hereto, except
(i) as set forth in this Section 8.2, Section 8.3 and Article 9, each of which
shall survive the termination of this Agreement, and (ii) that nothing herein
shall relieve any party from liability for any willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms. In
the event that Company gives Parent notice of an inaccuracy or failure to
perform such that this Agreement would be subject to termination pursuant to
Section 8.1(b)(iv), Parent shall cause Merger Sub to not consummate the Offer
until such inaccuracy or failure to perform is cured.
Section 8.3 Fees and Expenses. (a) General. Except as set forth in this
Section 8.3, all fees and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses whether or not the Merger is consummated; provided, however, that
Parent and Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing with the SEC of the Registration Statement (including
financial statements and exhibits) and any amendments or supplements thereto.
(b) Company Payments. If this Agreement is terminated by Parent or Company,
as applicable, prior to the appointment time pursuant to Sections 8.1(b)(i) or
(ii) or Section 8.1(c), Company shall promptly, but in any event no later than
two days after the date of such termination, pay Parent a fee equal to $50
million in immediately available funds (the "Termination Fee"); provided, that
in the case of a termination under Section 8.1(b)(i) or (ii) prior to which no
Triggering Event has occurred, (i) such payment shall be made only if (A)
following the date of this Agreement and prior to the termination of this
Agreement, any Acquisition Proposal shall have been publicly announced or shall
have become publicly known and not withdrawn at least 5 business days prior to
the scheduled expiration date of the Offer, and (B) within 12 months following
the termination of this Agreement, either a Company Acquisition (as defined
below) is consummated, or Company enters into an agreement providing for a
Company Acquisition and such Company Acquisition is later consummated, and (ii)
such payment shall be made promptly, but in any event no later than two days
after the consummation of such Company Acquisition. Company acknowledges that
the agreements contained in this Section 8.3(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these
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agreements, Parent would not enter into this Agreement. Accordingly, if Company
fails to pay in a timely manner the amounts due pursuant to this Section
8.3(b), and, in order to obtain such payment, Parent makes a claim that results
in a judgment against Company, Company shall pay to Parent its reasonable costs
and expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amounts set forth in this Section
8.3(b) at the prime rate of The Chase Manhattan Bank in effect on the date such
payment was required to be made. Payment of the fees described in this Section
8.3(b) shall not be in lieu of damages incurred in the event of breach of this
Agreement.
For the purposes of this Agreement, "Company Acquisition" shall mean any of
the following transactions (other than the transactions contemplated by this
Agreement): (i) a sale or other disposition by Company of a business or assets
representing 40% or more of the consolidated net revenues, net income or assets
of Company immediately prior to such sale; (ii) the acquisition by any person
or group (including by way of a tender offer or an exchange offer or issuance
by Company), directly or indirectly, of beneficial ownership or a right to
acquire beneficial ownership of shares representing 40% or more of any class of
equity securities of Company; or (iii) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Company (other than a transaction in which Company is the acquiror
and in which the current Company stockholders retain more than 60%, directly or
indirectly, of the surviving or successor corporation); it being understood
that a widely distributed offering of Company Common Stock shall not constitute
a Company Acquisition.
Section 8.4 Amendment. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Parent and Company.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE IX.
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. The
representations and warranties of Company, Parent and Merger Sub contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective
Time.
Section 9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon delivery either personally or by
commercial delivery service, or sent via facsimile (receipt confirmed) to the
parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Vignette Corporation
901 South Mopac Expressway
Austin, Texas 78746
Attention: Senior Vice President-Corporate Development
Facsimile No.: 512-306-4510
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with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: David W. Ferguson
Facsimile No.: 650-752-2111
(b) if to Company, to:
OnDisplay, Inc.
12667 Alcosta Boulevard
Suite 250
San Ramon, CA 94583
Attention: David Petroni
Facsimile No.: 925-480-1000
with a copy to:
Wilson Sonsini Goodrich & Rosati
One Market
Spear Street Tower
Suite 1600
San Francisco, CA 94105
Attention: Michael J. Kennedy
Robert T. Ishii
Facsimile No.: 415-947-2099
Section 9.3 Interpretation; Certain Defined Terms. (a) When a reference is
made in this Agreement to Exhibits, such reference shall be to an Exhibit to
this Agreement unless otherwise indicated. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with respect
to a party hereto, with respect to any matter in question, that any of the
executive officers of such party has actual knowledge of such matter, after
reasonable inquiry of such matter. For purposes of this definition, the
"executive officers" of Company shall be those person listed on Part 9.3(b) of
the Company Disclosure Letter.
(c) For purposes of this Agreement, the term "Material Adverse Effect" when
used in connection with an entity means any change, event, circumstance or
effect that is or is reasonably likely to be materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition, operations or results of operations of such entity taken as a whole
with its subsidiaries, except to the extent that any such change, event,
circumstance or effect results from (i) changes in general economic conditions,
(ii) changes affecting the industry generally in which such entity operates
(provided that such changes do not affect such entity in a substantially
disproportionate manner), (iii) changes in the trading prices for such entity's
capital stock, and (iv) changes that are attributable to the announcement or
pendency of or compliance with this Agreement or the transactions contemplated
hereby or to actions taken by Company that are jointly agreed between Company
and Parent.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
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estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(e) For purposes of this Agreement, "subsidiary" of a specified entity will
be any corporation, partnership, limited liability company, joint venture or
other legal entity of which the specified entity (either alone or through or
together with any other subsidiary) owns, directly or indirectly, 50% or more
of the stock or other equity or partnership interests the holders of which are
generally entitled to vote for the election of the Board of Directors or other
governing body of such corporation or other legal entity.
Section 9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
Section 9.5 Entire Agreement; Third Party Beneficiaries. This Agreement, its
Exhibits and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the Company
Disclosure Letter and the Parent Disclosure Letter (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
other than the Continuing Directors, except as specifically provided in Section
6.12.
Section 9.6 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
Section 9.7 Other Remedies; Specific Performance. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
Section 9.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
Section 9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
Section 9.10 Assignment. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
consent of the other parties hereto. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their
A-41
<PAGE>
respective successors and permitted assigns. Any purported assignment in
violation of this Section shall be void.
Section 9.11 Waiver of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
A-42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed by their duly authorized respective officers as of the
date first written above.
VIGNETTE CORPORATION
/s/ Joel G. Katz
By: _________________________________
Name: Joel G. Katz
Title: Chief Financial Officer
WHEELS ACQUISITION CORP.
/s/ Joel G. Katz
By __________________________________
Name: Joel G. Katz
Title: President and Assistant
Secretary
ONDISPLAY, INC.
/s/ Mark A. Pine
By __________________________________
Name: Mark A. Pine
Title: Chairman and Chief
Executive Officer
A-43
<PAGE>
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the terms of
this Agreement, Merger Sub shall not be required to accept for exchange or
exchange or deliver any shares of Parent Common Stock for (subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Merger Sub's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer)) any Shares tendered,
if by the expiration of the Offer (as it may be extended in accordance with the
requirements of Section 1.1), (1) the Minimum Condition shall not have been
satisfied, (2) the applicable waiting period under the HSR Act shall not have
expired or been terminated, (3) the Registration Statement shall not have
become effective under the Securities Act or shall be the subject of any stop
order or proceedings seeking a stop order, (4) the shares of Parent Common
Stock to be issued in the Offer and the Merger shall not have been approved for
listing on the NASDAQ National Market System, subject to official notice of
issuance, (5) Parent shall not have received an opinion of Davis Polk &
Wardwell, in form and substance reasonably satisfactory to Parent and to
Company, on the basis of reasonable customary facts, representations and
assumptions set forth in such opinion, to the effect that the Transaction will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that each of Parent, Merger Sub and
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code, (6) Company shall not have received an opinion of Wilson
Sonsini Goodrich and Rosati, Professional Corporation, in form and substance
reasonably satisfactory to Parent and to Company, on the basis of reasonable
customary facts, representations and assumptions set forth in such opinion, to
the effect that the Transaction will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and that
each of Parent, Merger Sub and Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code; provided, however, that if
Wilson Sonsini Goodrich and Rosati does not render such opinion, this condition
shall nonetheless be deemed to be satisfied if Davis Polk & Wardwell renders
such opinion to the Company or (6) at any time on or after the date of this
Agreement and prior to the acceptance for exchange of Shares pursuant to the
Offer, any of the following conditions exist and are continuing:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, domestic, foreign or
supranational, before any court or governmental authority or agency, domestic,
foreign or supranational challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
making of the Offer, the acceptance for payment of or payment for some or all
of the Shares by Parent or Merger Sub or the consummation of the Merger; or
(b) a judgment, order, decree, statute, law, ordinance, rule or regulation,
entered, enacted, promulgated, enforced or issued by any court, government or
governmental authority or agency, domestic, foreign or supranational or any
other legal restraint or prohibition preventing the consummation of the Offer
or making the Offer illegal shall be in effect; or
(c) Company shall have failed to perform in any material respect any of its
covenants, obligations or agreements under this Agreement such that the
aggregate of all such breaches would reasonably be expected to have a Material
Adverse Affect on Company; or
(d) the representations and warranties of Company contained in this
Agreement, disregarding all qualifications and exceptions contained therein
relating to materiality or Material Adverse Effect or any similar standard or
qualification, shall be true at and as of the expiration of the Offer as if
made at and as of such time (other than representations or warranties that
address matters only as of a certain date, which shall be true and correct as
of such date), with such exceptions as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Company;
or
(e) the Merger Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Merger Sub
and may, subject to the terms of the Merger Agreement, be waived by Parent and
Merger Sub in their reasonable discretion in whole at any time or in part from
time to time.
A-44
<PAGE>
ANNEX B
STOCKHOLDER AGREEMENT
AGREEMENT, dated as of May 21, 2000 among Vignette Corporation, a Delaware
corporation ("Buyer"), and the holders of the shares of common stock, par value
$.001 per share, of OnDisplay, Inc., a Delaware corporation (the "Company"),
listed on the signature pages hereof (each a "Stockholder").
WHEREAS, in order to induce Buyer and Wheels Acquisition Corp. to enter into
an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), with Company, Buyer has requested each Stockholder, and each
Stockholder has agreed, to enter into this Agreement with respect to the number
of shares of common stock of the Company set forth next to such Stockholder's
name on the signature pages hereto (the "Shares").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT; AGREEMENT TO TENDER
Section 1.01. Voting Agreement. Each Stockholder hereby agrees to vote all
Shares that such Stockholder is entitled to vote at the time of any vote to
approve and adopt the Merger Agreement, the Merger and all agreements related
to the Merger and any actions related thereto at any meeting of the
stockholders of the Company, and at any adjournment thereof, at which such
Merger Agreement and other related agreements (or any amended version thereof),
or such other actions, are submitted for the consideration and vote of the
stockholders of the Company. Each Stockholder hereby agrees that it will not
vote any Shares in favor of the approval of any (i) Acquisition Proposal, (ii)
reorganization, recapitalization, liquidation or winding up of the Company or
any other extraordinary transaction involving the Company, (iii) corporate
action the consummation of which would frustrate the purposes, or prevent or
delay the consummation, of the Offer, the Merger or any other transactions
contemplated by the Merger Agreement or (iv) other matter relating to, or in
connection with, any of the foregoing matters.
Section 1.02. Irrevocable Proxy. Each Stockholder hereby revokes any and all
previous proxies granted with respect to the Shares. By entering into this
Agreement, each Stockholder hereby grants a proxy appointing Buyer as such
Stockholder's attorney-in-fact and proxy, with full power of substitution, for
and in such Stockholder's name, to vote, express, consent or dissent, or
otherwise to utilize such voting power in the manner contemplated by Section
1.01 above as Buyer or its proxy or substitute shall, in Buyer's sole
discretion, deem proper with respect to the Shares (including the right to sign
its name (as stockholder) to any consent, certificate or other document
relating to the Company that the law of the State of Delaware may permit or
require.) The proxy granted by each Stockholder pursuant to this Article 1 is
irrevocable and is granted in consideration of Buyer entering into this
Agreement and the Merger Agreement and incurring certain related fees and
expenses. The proxy granted by each Stockholder shall be revoked only upon
termination of this Agreement in accordance with its terms.
Section 1.03. Agreement to Tender. Each Stockholder hereby agrees to tender,
upon the request of Buyer (and agrees that it will not withdraw), pursuant to
and in accordance with the terms of the Offer, the Shares. Within five business
days after the commencement of the Offer, each Stockholder shall (x) deliver to
the depositary designated in the Offer (i) a letter of transmittal with respect
to the Shares complying with the terms of the Offer, (ii) certificates
representing of the Shares and (iii) all other documents or instruments
required to be delivered pursuant to the terms of the Offer, and/or (y)
instruct its broker or such other person who is the holder of record of any
Shares beneficially owned by such Stockholder to tender such shares for
exchange in the Offer pursuant to the terms and conditions of the Offer.
B-1
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Each Stockholder, severally and not jointly, represents and warrants to
Buyer that:
Section 2.01. Corporate Authorization. The execution, delivery and
performance by such Stockholder of this Agreement and the consummation by such
Stockholder of the transactions contemplated hereby are within the powers of
such Stockholder and have been duly authorized by all necessary action. If this
Agreement is being executed in a representative or fiduciary capacity, the
person signing this Agreement has full power and authority to enter into and
perform this Agreement. This Agreement constitutes a valid and binding
Agreement of such Stockholder.
Section 2.02. Non-Contravention. The execution, delivery and performance by
such Stockholder of this Agreement and, subject to compliance with the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), and
securities laws, as applicable, the consummation of the transactions
contemplated hereby, do not and will not (i) violate the certificate of
incorporation or bylaws, limited partnership agreement or other organizational
documents, as applicable, of such Stockholder, (ii) violate any applicable law,
rule, regulation, judgment, injunction, order or decree, (iii) require any
consent or other action by any person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration or to a
loss of any benefit to which such Stockholder is entitled under any provision
of any agreement or other instrument binding on such Stockholder or (iv) result
in the imposition of any Encumbrance on any asset of such Stockholder.
Section 2.03. Ownership of Shares. Such Stockholder is the record and
beneficial owner of the Shares, free and clear of any Encumbrance and any other
limitation or restriction (including any restriction on the right to vote or
otherwise dispose of the Shares, other than any such restriction that has been
waived with respect to this agreement and the Merger Agreement and the
agreements and transactions contemplated hereby and thereby).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Stockholder:
Section 3.01. Corporate Authorization. The execution, delivery and
performance by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby are within the corporate powers of Buyer and
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding Agreement of Buyer.
ARTICLE 4
COVENANTS OF STOCKHOLDER
Each Stockholder hereby covenants and agrees that:
Section 4.01. No Proxies for or Encumbrances on Shares. Except pursuant to
the terms of this Agreement, such Stockholder shall not, without the prior
written consent of Buyer, directly or indirectly, (i) grant any proxies or
enter into any voting trust or other agreement or arrangement with respect to
the voting of any Shares with respect to any matter contemplated by this
Agreement or in a manner inconsistent with this Agreement or (ii) acquire,
sell, assign, transfer, encumber or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect acquisition or sale,
B-2
<PAGE>
assignment, transfer, encumbrance or other disposition of, any Shares during
the term of this Agreement other than pursuant to the Offer.
Section 4.02. Appraisal Rights. Such Stockholder agrees not to exercise any
rights (including, without limitation, under Section 262 of the General
Corporation Law of the State of Delaware) to demand appraisal of any Shares
which may arise with respect to the Merger.
ARTICLE 5
MISCELLANEOUS
Section 5.01. Further Assurances. Buyer and each Stockholder will each
execute and deliver, or cause to be executed and delivered, all further
documents and instruments and use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, to consummate and
make effective the transactions contemplated by this Agreement.
Section 5.02. Amendments; Termination. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement or
in the case of a waiver, by the party against whom the waiver is to be
effective. This Agreement shall terminate upon the termination of the Merger
Agreement in accordance with its terms.
Section 5.03. Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
Section 5.04. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Buyer may transfer
or assign its rights and obligations to any affiliate of Buyer.
Section 5.05. Governing Law. This Agreement shall construed in accordance
with and governed by the laws of the State of Delaware.
Section 5.06. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received counterparts hereof signed by all of the other parties hereto.
Section 5.07. Severability. If any term, provision or covenant of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions and
covenants of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Section 5.08. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
Section 5.09. Capitalized Terms. Capitalized terms used but not defined
herein shall have the respective meanings set forth in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
VIGNETTE CORPORATION
/s/ Joel G. Katz
By: ________________________________
Name: Joel G. Katz
Title: Chief Financial Officer
B-4
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of OnDisplay, Inc.
----------- ----------------------
<S> <C>
MATRIX PARTNERS IV, L.P. 2,480,181
/s/ Timothy Barrows
By: ______________________________
Name: Matrix Partners IV, L.P.
Its: General Partner
MATRIX PARTNERS IV
ENTREPRENEURS L.P. 130,536
/s/ Timothy Barrows
By: ______________________________
Name: Matrix IV Entrepreneurs
Fund L.P.
Its: General Partner
NORWEST VENTURE
PARTNERS VI L.P. 2,015,361
/s/ Promod Haque
By: ______________________________
Name: Promod Haque
Its: Partner
ATLAS VENTURE FUND II L.P. 1,857,347
By Atlas Venture Associate II L.P.
/s/ Christopher Spray
By: ______________________________
Name:
Its: General Partner
MARK PINE 1,134,455
/s/ Mark Pine, /s/ Rebecca Pine
By: ______________________________
Name: Mark Pine, Rebecca Pine
Its: Trustees
TRUNG DUNG 766,914
/s/ Trung Dung
By: ______________________________
Name:
Its:
OLIVIER SERMET 143,722
/s/ Olivier Sermet
By: ______________________________
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of OnDisplay, Inc.
----------- ----------------------
<S> <C>
VENKAT MOHAN 77,688
/s/ Venkat Mohan
By: ______________________________
DAVE LARSON 77,688
/s/ Dave Larson
By: ______________________________
SANTI PIERINI 59,043
/s/ Santi Pierini
By: ______________________________
MARGARET L. TAYLOR 42,728
/s/ Margaret L. Taylor
By: ______________________________
CARMINE VILLANI 31,075
/s/ Carmine Villani
By: ______________________________
CAROL RICHWOOD 11,653
/s/ Carol Richwood
By: ______________________________
</TABLE>
B-6
<PAGE>
ANNEX C
OPINION OF ONDISPLAY FINANCIAL ADVISOR
May 21, 2000
Board of Directors
OnDisplay, Inc.
12667 Alcosta Blvd., Suite 300
San Ramon, CA 94583
Members of the Board:
We understand that OnDisplay, Inc. ("OnDisplay"), Vignette Corporation
("Vignette") and Wheels Acquisition Corp. (a wholly owned subsidiary of
Vignette, "Merger Sub") are proposing to enter into an Agreement and Plan of
Merger (the "Agreement") which will provide, among other things, for the Offer
and the Merger (as such terms are defined below). Under the terms set forth in
a draft of the Agreement dated May 20, 2000 (the "Draft Agreement") (i) Merger
Sub will commence an exchange offer (the "Offer") to purchase the outstanding
shares of common stock of OnDisplay, par value $.001 per share ("OnDisplay
Common Stock") in exchange for right to receive from Merger Sub 1.58 shares
(the "Exchange Ratio") of the shares of common stock of Vignette, par value
$.01 per share ("Vignette Common Stock") and (ii) following the Offer (subject
to Merger Sub receiving at least a majority of OnDisplay Common Stock pursuant
to the Offer), Merger Sub will be merged with and into OnDisplay (the "Merger")
and each share of OnDisplay Common Stock, (other than certain shares to be
canceled pursuant to the Agreement and shares held by stockholders who properly
exercise dissenters' rights ("Dissenting Shares")), will be converted into the
right to receive the number of shares of Vignette Common Stock equal to the
Exchange Ratio. Outstanding options and warrants to acquire OnDisplay Common
Stock will be assumed and converted into options and warrants to acquire
Vignette Common Stock pursuant to the terms of the Draft Agreement. Upon
consummation of the Merger, OnDisplay will become a wholly owned subsidiary of
Vignette. The Offer and the Merger are collectively referred to in this opinion
as the "Transaction". The terms and conditions of the Transaction are set out
more fully in the Draft Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view and as of the date hereof to the "Holders of OnDisplay
Common Stock". The "Holders of OnDisplay Common Stock" are defined in this
opinion as all holders of OnDisplay Common Stock other than Vignette, Merger
Sub or any affiliates of Vignette or Merger Sub, or any holders of Dissenting
Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of OnDisplay and Vignette,
respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning OnDisplay and Vignette prepared by
the managements of OnDisplay and Vignette, respectively;
(iii) reviewed with OnDisplay and Vignette the publicly available
consensus estimates of research analysts relating to OnDisplay and
Vignette, respectively;
(iv) held discussions with the respective managements of OnDisplay and
Vignette concerning the businesses, past and current operations,
financial condition and future prospects of both OnDisplay and
Vignette, independently and combined, including discussions with
the managements of OnDisplay and Vignette concerning cost savings
and other synergies that are expected to result from the
Transaction as well as their views regarding the strategic
rationale for the Transaction;
(v) reviewed the financial terms and conditions set forth in the Draft
Agreement;
C-1
<PAGE>
Board of Directors
OnDisplay, Inc.
May 21, 2000
Page 2
(vi) reviewed the stock price and trading history of OnDisplay and
Vignette;
(vii) compared the financial performance of OnDisplay and Vignette and
the prices and trading activity of OnDisplay Common Stock and
Vignette Common Stock with that of certain other publicly traded
companies comparable with OnDisplay and Vignette, respectively;
(viii) compared the financial terms of the Transaction with the financial
terms, to the extent publicly available, of other transactions that
we deemed relevant;
(ix) reviewed the pro forma impact of the Transaction on Vignette's net
revenue per share;
(x) reviewed and considered in the analysis, publicly available
consensus estimates of research analysts relating to the relative
contributions of OnDisplay and Vignette to the combined company;
(xi) participated in discussions and negotiations among representatives
of OnDisplay and Vignette and their financial and legal advisors;
and
(xii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by management of OnDisplay and Vignette) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of management of OnDisplay and Vignette that they are not aware of
any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of OnDisplay or Vignette, nor
were we furnished with any such evaluation or appraisal. In this regard, we
note that each of OnDisplay and Vignette face exposure to the Year 2000
problem. We have not undertaken any independent analysis to evaluate the
reliability or accuracy of the assumptions made by the managements of OnDisplay
and Vignette with respect to the potential effect that the Year 2000 problem
might have on their respective businesses. We have assumed that the Transaction
will be consummated upon the terms set forth in the Draft Agreement without
material alteration thereof, including, among other things, that the Merger
will be accounted for as a "purchase" business combination in accordance with
U.S. generally accepted accounting principles ("GAAP") and that the Transaction
will be treated as a tax-free reorganization pursuant to the Internal Revenue
Code of 1986, as amended. In addition, we have assumed that the historical
financial statements of each of OnDisplay and Vignette reviewed by us have been
prepared and fairly presented in accordance with U.S. GAAP consistently
applied. We have relied as to all legal matters relevant to rendering our
opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to the Holders of OnDisplay Common Stock of the Exchange Ratio. We do
not express any opinion as to (i) the value of any employee agreement or other
arrangement entered into in connection with the Transaction, (ii) any tax or
other consequences that might result from the Transaction or (iii) what the
value of Vignette Common Stock will be when issued to OnDisplay's stockholders
pursuant to the Transaction or the price at which the shares of Vignette Common
Stock that are issued pursuant to the Transaction may be traded in the future.
Our opinion does not address the relative merits of the Transaction and the
other business
C-2
<PAGE>
Board of Directors
OnDisplay, Inc.
May 21, 2000
Page 3
strategies that OnDisplay's Board of Directors has considered or may be
considering, nor does it address the decision of the OnDisplay Board of
Directors to proceed with the Transaction.
In connection with the preparation of our opinion, we were not authorized to
solicit, and did not solicit, third-parties regarding alternatives to the Offer
and the Merger.
We are acting as financial advisor to OnDisplay in connection with the
Transaction and will receive (i) a fee contingent upon the delivery of this
opinion and (ii) an additional fee contingent upon the consummation of the
Transaction. In addition, OnDisplay has agreed to indemnify us for certain
liabilities that may arise out of our engagement. In the past, we have provided
certain investment banking services from time to time to OnDisplay for which we
have been paid fees, including acting as lead manager for OnDisplay's initial
public offering and as financial advisor for OnDisplay in connection with On
Display's acquisition of Oberon Software. We maintain a market in the shares of
OnDisplay Common Stock and Vignette Common Stock. In the ordinary course of
business, we may trade in OnDisplay's securities and Vignette's securities for
our own account and the account of our customers and, accordingly, may at any
time hold a long or short position in OnDisplay's securities or Vignette's
securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of OnDisplay in connection with its evaluation of the Transaction.
Our opinion is not intended to be and does not constitute a recommendation (i)
to any stockholder of OnDisplay as to whether such stockholder shall accept or
decline the Offer, or take any other action with respect to the Offer or (ii)
to any stockholder of OnDisplay or Vignette as to how such stockholder should
vote, or take any other action, with respect to the Merger. This opinion may be
included in the Tender Offer Statement or Prospectus of Vignette or the
Solicitation/Recommendation Statement or Proxy Statement of OnDisplay
distributed in connection with the Transaction, provided that this opinion is
reproduced therein in full and any description of, or reference to, us or any
summary of this opinion included therein is in form and substance acceptable to
us and our legal counsel. This opinion may not be summarized, described or
referred to or furnished to any party except with our express prior written
consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to the Holders of
OnDisplay Common Stock from a financial point of view.
Very truly yours,
/s/ FleetBoston Robertson Stephens
Inc.
FleetBoston Robertson Stephens Inc.
C-3
<PAGE>
The Exchange Agent:
ChaseMellon
SHAREHOLDER SERVICES
By Mail:
Reorganization Department
PO Box 3301
South Hackensack, NJ 07606
By Hand:
Reorganization Department
120 Broadway
13th Floor
New York, NY 10271
By Overnight:
Reorganization Department
85 Challenger Road
Mail Stop--Reorg
Ridgefield Park, NJ 07660
Facsimile (for eligible institutions only):
(201) 296-4293
Confirm facsimile by telephone ONLY:
(201) 296-4860
[LOGO OF MACKENZIE PARTNERS, INC.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Exculpation. Section 102(b)(7) of the Delaware Law permits a corporation to
include in its certificate of incorporation a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director for any breach
of the director's duty of loyalty to the corporation or its stockholders, for
acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law, for the payment of unlawful
dividends, or for any transaction from which the director derived an improper
personal benefit. The Vignette certificate of incorporation limits the personal
liability of a director to Vignette and its stockholders for monetary damages
for a breach of fiduciary duty as a director to the fullest extent permitted by
law.
Indemnification. Section 145 of the Delaware Law permits a corporation to
indemnify any of its directors, officers, employees or agents who was or is a
party, or is threatened to be made a party to any third party proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
firm, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner such person reasonably believed to be in and not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reason to believe that such person's conduct was
unlawful. In a derivative action, i.e., one by or in the right a corporation,
the corporation is permitted to indemnify any of its directors, officers,
employees or agents against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of an action or suit if the person acted in good faith and in a manner that he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that such person is fairly and reasonably entitled to indemnity for
such expenses despite the adjudication of liability. The Vignette bylaws
provide for indemnification of directors, officers, employees or agents for any
liability incurred in their official capacity to the fullest extent permissible
under Delaware Law.
Insurance. The directors and officers of Vignette are insured under a policy
of directors' and officers' liability insurance issued by National Union,
Lloyds of London, Clarendon, Zurich.
Merger Agreement Provisions Relating to OnDisplay Directors and
Officers. The merger agreement provides that, for six years after the effective
time of the merger, Vignette will honor the obligations of OnDisplay pursuant
to indemnification agreements between OnDisplay and its directors and officers
and to indemnify and hold harmless each person who was a director or offer of
OnDisplay at or prior to the date of the merger agreement from their acts or
omissions in those capacities to the extent provided under the OnDisplay's
certificate of incorporation and bylaws in effect at such time.
The merger agreement also provides that, for six years from the effective
time of the merger, Vignette shall provide directors' and officers' liability
insurance for each person currently covered by OnDisplay's directors' and
officers' liability insurance policy either by maintaining OnDisplay's current
insurance policy or by purchasing comparable insurance. The terms of this
insurance policy must be no less favorable that those of the OnDisplay policy
in effect at the effective time, except that Vignette will be obligated to pay
premiums for such insurance only up to 150% of the annual premiums that
OnDisplay paid for such insurance as of May 21, 2000.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
(a) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
2(a)+ Agreement and Plan of Merger dated as of May 21, 2000 among
Vignette, OnDisplay and Wheels Acquisition Corp. (included as
Annex A to the Prospectus contained in this Registration
Statement).
2(b)+ Stockholder Agreement dated as of May 21, 2000 between Vignette
and the stockholders listed on the signature page thereto
(included as Annex B to the Prospectus contained in this
Registration Statement).
3(a)* Amended and Restated Certificate of Incorporation of Vignette,
as amended to date (incorporated by reference to Vignette's
Registration Statement on Form S-1 as amended, file no. 333-
68345).
3(b)* Amended and Restated Bylaws of Vignette (incorporated by
reference to Vignette's Registration Statement on Form S-1 as
amended, file no. 333-68345).
4* Specimen Common Stock Certificate (incorporated by reference to
Vignette's Registration Statement on Form S-1 as amended, file
no. 333-68345).
5+ Opinion of Davis Polk & Wardwell regarding the validity of the
securities being registered.
8+ Opinion of Davis Polk & Wardwell regarding material federal
income tax consequences of the offer and the merger.
21* Subsidiaries of the Registrant (incorporated by reference to
the Registrant's Annual Report on 10-K for the fiscal year
ended December 31, 2000).
23(a)+ Consent of Ernst & Young LLP, independent auditors.
23(b)+ Consent of Ernst & Young LLP, independent auditors.
23(c)+ Consent of Ernst & Young LLP, independent auditors.
23(d)+ Consent of PricewaterhouseCoopers LLP.
23(e)+ Consent of Davis Polk & Wardwell (included in the opinion filed
as Exhibit 5 to this Registration Statement).
23(f)+ Consent of Davis Polk & Wardwell (included in the opinion filed
as Exhibit 8 to this Registration Statement).
23(g)+ Consent of FleetBoston Robertson Stephens Inc.
24+ Power of Attorney.
99(a)+ Form of Letter of Transmittal
99(b)+ Form of Notice of Guaranteed Delivery
99(c)+ Form of Letter to Brokers, Dealers, etc.
99(d)+ Form of Letter to Clients
99(e)+ Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
</TABLE>
--------
(b) Not applicable.
(c) The opinion of FleetBoston Robertson Stephens Inc. is included as Annex
C to the Prospectus contained in this Registration Statement.
+ Previously filed.
* Incorporated by reference.
II-2
<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(6) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-3
<PAGE>
(7) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(8) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin, State of Texas,
on June 20, 2000.
Vignette Corporation
(Registrant)
/s/ Joel G. Katz
By: _________________________________
Joel G. Katz
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and June 20, 2000
____________________________________ President and Director
Gregory A. Peters (Principal Executive
Officer)
/s/ Joel G. Katz Chief Financial Officer and June 20, 2000
____________________________________ Secretary (Principal
Joel G. Katz Financial and Accounting
Officer)
* Director June 20, 2000
____________________________________
Robert E. Davoli
* Director June 20, 2000
____________________________________
Joseph A. Marengi
* Director June 20, 2000
____________________________________
Steven G. Papermaster
* Director June 20, 2000
____________________________________
John D. Thornton
</TABLE>
/s/ Joel G. Katz
*By:______________________
Joel G. Katz
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
2(a)+ Agreement and Plan of Merger dated as of May 21, 2000 among
Vignette, OnDisplay and Wheels Acquisition Corp. (included as
Annex A to the Prospectus contained in this Registration
Statement).
2(b)+ Stockholder Agreement dated as of May 21, 2000 between Vignette
and the stockholders listed on the signature page thereto
(included as Annex B to the Prospectus contained in this
Registration Statement).
3(a)* Amended and Restated Certificate of Incorporation of Vignette,
as amended to date (incorporated by reference to Vignette's
Registration Statement on Form S-1 as amended, file no. 333-
68345).
3(b)* Amended and Restated Bylaws of Vignette (incorporated by
reference to Vignette's Registration Statement on Form S-1 as
amended, file no. 333-68345).
4* Specimen Common Stock Certificate (incorporated by reference to
Vignette's Registration Statement on Form S-1 as amended, file
no. 333-68345).
5+ Opinion of Davis Polk & Wardwell regarding the validity of the
securities being registered.
8+ Opinion of Davis Polk & Wardwell regarding material federal
income tax consequences of the offer and the merger.
21* Subsidiaries of the Registrant (incorporated by reference to
the Registrant's Annual Report on 10-K for the fiscal year
ended December 31, 2000).
23(a)+ Consent of Ernst & Young LLP., independent auditors.
23(b)+ Consent of Ernst & Young LLP., independent auditors.
23(c)+ Consent of Ernst & Young LLP., independent auditors.
23(d)+ Consent of PricewaterhouseCoopers LLP.
23(e)+ Consent of Davis Polk & Wardwell (included in the opinion filed
as Exhibit 5 to this Registration Statement).
23(f)+ Consent of Davis Polk & Wardwell (included in the opinion filed
as Exhibit 8 to this Registration Statement).
23(g)+ Consent of FleetBoston Robertson Stephens Inc.
24+ Power of Attorney.
99(a)+ Form of Letter of Transmittal
99(b)+ Form of Notice of Guaranteed Delivery
99(c)+ Form of Letter to Brokers, Dealers, etc.
99(d)+ Form of Letter to Clients
99(e)+ Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9
</TABLE>
--------
(b)Not applicable.
(c) The opinion of FleetBoston Robertson Stephens Inc. is included as Annex C
to the Prospectus contained in this Registration Statement.
+ Previously filed.
* Incorporated by reference.
