<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- - --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Wang Laboratories, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
WANG LABORATORIES, INC.
290 CONCORD ROAD
BILLERICA, MASSACHUSETTS 01821
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON WEDNESDAY, MAY 26, 1999
The Annual Meeting of Stockholders of Wang Laboratories, Inc. (the
"Company") will be held at the Radisson Hotel, 10 Independence Dr., Chelmsford,
MA 01824 on Wednesday, May 26, 1999 at 10:00 a.m., local time, to consider and
act upon the following matters:
1. To elect three Class II Directors, each to serve for a three-year
term.
2. To approve the Amendment and Restatement of the Director Stock
Option Plan.
3. To approve an amendment to the Employees' Stock Incentive Plan to
increase the number of shares available for issuance under the
plan.
4. To approve an amendment to the 1995 Employees' Stock Purchase Plan
to increase the number of shares available for issuance under the
plan.
5. To approve an Amended and Restated Certificate of Incorporation
which would:
(i) change the name of the Company from "Wang Laboratories, Inc." to
"Wang Global Corporation",
(ii) increase the aggregate number of shares of Common Stock that the
Company is authorized to issue from 100 million to 200 million;
and
(iii) eliminate certain obsolete provisions related to restrictions
on the transfer of Common Stock.
6. To approve the issuance of additional shares of Common Stock to
Ing. C. Olivetti & Co. S.p.A. ("Olivetti") in connection with the
acquisition by the Company of the Services and Solutions Business
of Olivetti ("Olsy") on March 17, 1998.
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on March 29, 1999 will be
entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
ALBERT A. NOTINI
Secretary
Billerica, Massachusetts
April 26, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS
MAILED IN THE UNITED STATES.
<PAGE> 3
WANG LABORATORIES, INC.
290 CONCORD ROAD
BILLERICA, MASSACHUSETTS 01821
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 26, 1999
INTRODUCTION
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Wang Laboratories, Inc. (the "Company" or
"Wang") for use at the Annual Meeting of Stockholders ("Annual Meeting") to be
held on May 26, 1999, and at any adjournment of that meeting. All proxies will
be voted in accordance with the stockholders' instructions, and if no choice is
specified, the proxies will be voted in favor of the matters set forth in the
accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at any
time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting.
The Company's Annual Reports for the fiscal year ended June 30, 1998
("Fiscal 1998") and the six-month period ended December 31, 1998 (the "Stub
Period") were mailed to stockholders, along with these proxy materials, on or
about April 26, 1999.
QUORUM REQUIREMENT
At the close of business on March 29, 1999, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding and entitled to vote an aggregate of 46,695,565
shares of Common Stock of the Company, 2,875,000 Depositary Shares (the
"Depositary Shares") each representing one one-twentieth (1/20) of a share (or a
total of 143,750 shares) of 6 1/2% Series B Cumulative Convertible Preferred
Stock of the Company ("6 1/2% Preferred Stock") and 90,000 shares of 4 1/2%
Series A Cumulative Convertible Preferred Stock ("4 1/2% Preferred Stock"),
constituting all of the outstanding voting stock of the Company. This total
excludes approximately 13,220 shares of Common Stock held for distribution to
creditors by the distribution agent under the Company's reorganization plan
dated September 20, 1993 (the "Reorganization Plan") under Chapter 11 of the
U.S. Bankruptcy Code, as the Reorganization Plan provides that these shares may
not be voted by any party and shall not be considered outstanding for voting
purposes until distributed pursuant to the Reorganization Plan. Holders of
Common Stock, the 6 1/2% Preferred Stock and the 4 1/2% Preferred Stock are
entitled to one vote per share. Each holder of Depositary Shares is entitled to
exercise the voting rights relating to the number of shares of 6 1/2% Preferred
Stock represented by such Depositary Shares. As set forth in the Deposit
Agreement dated February 27, 1996 (filed by the Registrant as an Exhibit to
Amendment No. 1 to Form S-3 on August 14, 1996) between Wang and the American
Stock Transfer and Trust Company (the "Depositary"), the Depositary is
authorized to exercise the voting rights pertaining to the number of shares of
Wang 6 1/2% Series B Cumulative Preferred Stock ("Series B Preferred Stock")
represented by the Depositary Shares as instructed by the holders thereof. After
aggregating all voting Depositary Shares, the Depositary will disregard for
voting purposes any fractional share of Series B Preferred Stock remaining.
The holders of shares representing a majority of the votes represented by
the shares of Common Stock, 6 1/2% Preferred Stock and 4 1/2% Preferred Stock
outstanding and entitled to vote at the Annual Meeting shall constitute a quorum
for the transaction of business at the Annual Meeting. Shares of Common Stock,
6 1/2% Preferred Stock and 4 1/2% Preferred Stock represented in person or by
proxy (including shares which abstain or otherwise do not vote with respect to
one or more of the matters presented for stockholder approval) will be counted
for purposes of determining whether a quorum is present at the Annual Meeting.
<PAGE> 4
VOTES REQUIRED
The affirmative vote of the holders of shares representing a plurality of
the votes cast by the holders of the Common Stock, 6 1/2% Preferred Stock and
4 1/2% Preferred Stock is required for the election of Directors. The
affirmative vote of the holders of shares representing a majority of the votes
represented by the shares of Common Stock, 6 1/2% Preferred Stock and 4 1/2%
Preferred Stock present and entitled to vote at the meeting on the matter is
required for the approval of the Amendment and Restatement of the Director Stock
Option Plan, for the approval of the amendment to the Employees' Stock Incentive
Plan and for the approval of the amendment to the Employees' Stock Purchase
Plan. The affirmative vote of the holders of shares representing a majority of
the votes represented by the shares of Common Stock, 6 1/2% Preferred Stock and
4 1/2% Preferred Stock present and entitled to vote at the meeting on the
matter, excluding the shares currently held by Ing. C. Olivetti & Co. S.p.A.
("Olivetti"), is required for the approval of the issuance of additional shares
of Common Stock to Olivetti. The affirmative vote of the holders of shares
representing a majority of the votes represented by the holders of Common Stock,
6 1/2% Preferred Stock and 4 1/2% Preferred Stock outstanding on the record date
is required for approval of the Amended and Restated Certificate of
Incorporation.
Shares which abstain from voting as to a particular matter will not be
counted as votes in favor of such matter, but will be counted as shares
represented and entitled to vote on such matter. Accordingly, an abstention from
voting on a matter has the same effect as a vote against the matter (except with
respect to the election of directors as to which abstentions have no effect).
Shares held in street name by brokers and nominees who indicate on their proxy
that they do not have discretionary authority to vote such shares as to a
particular matter will not be counted as votes in favor of such matter and also
will not be counted as shares represented and entitled to vote on such matter.
Accordingly, a "broker non-vote" on a matter that requires the affirmative vote
of the holders of shares representing a certain percentage of the votes
represented by the shares present and entitled to vote on a matter, such as the
matters presented at this Annual Meeting, has no effect on the voting on such
matter. However, because shares represented by "broker non-votes" are considered
outstanding shares, "broker non-votes" with respect to a matter that requires
the affirmative vote of a certain percentage of the outstanding shares (such as
approval of the Amended and Restated Certificate of Incorporation) will have the
same effect as a vote against the matter.
BENEFICIAL OWNERSHIP OF VOTING STOCK
The following table sets forth the beneficial ownership of the Company's
Common Stock, 6 1/2% Preferred Stock and 4 1/2% Preferred Stock on March 29,
1999 (i) by each person who is known by the Company to beneficially own more
than 5% of the outstanding shares of either the common or any preferred class of
the Company's stock, (ii) by each Director and nominee for Director, (iii) by
each of the executive officers named in the Summary Compensation Table set forth
under the caption "Executive Compensation" below (the "Named Executives"), and
(iv) by all current Directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK 6 1/2% PREFERRED STOCK 4 1/2% PREFERRED STOCK
---------------------------- ------------------------------- -------------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
BENEFICIALLY COMMON BENEFICIALLY 6 1/2% PREFERRED BENEFICIALLY 4 1/2% PREFERRED
BENEFICIAL OWNER OWNED(1) STOCK(2) OWNED(1)(3) STOCK(3) OWNED(1) STOCK
---------------- ------------ ------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Ing. C. Olivetti & Co.
S.p.A.(4)
Via Jervis 77
Ivrea 10015 Italy............. 7,250,000 15.5% -- -- -- --
FMR Corp.(5)
82 Devonshire Street
Boston, Massachusetts 02109... 5,297,000 11.3% -- -- -- --
Franklin Resources, Inc.(6)
777 Mariners Island Blvd.
San Mateo, California 94403... 5,062,788 10.8% -- -- -- --
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
COMMON STOCK 6 1/2% PREFERRED STOCK 4 1/2% PREFERRED STOCK
---------------------------- ------------------------------- -------------------------------
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
BENEFICIALLY COMMON BENEFICIALLY 6 1/2% PREFERRED BENEFICIALLY 4 1/2% PREFERRED
BENEFICIAL OWNER OWNED(1) STOCK(2) OWNED(1)(3) STOCK(3) OWNED(1) STOCK
---------------- ------------ ------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Boston Partners Asset
Management L.P.(7)
One Financial Center
43rd Floor
Boston, Massachusetts 02111... 4,206,030 9.0% -- -- -- --
Mellon Bank Corp.(8)
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258.......... 2,889,530 6.2% -- -- -- --
Lipper & Company, Inc.(9)
101 Park Avenue, 6th Floor
New York, New York 10178...... -- -- 542,690 18.8% -- --
Microsoft Corporation(10)
Microsoft Way
Redmond, Washington 98052..... -- -- -- -- 90,000 100%
DIRECTORS/NOMINEES
David A. Boucher(11).......... 29,565 * -- -- -- --
Michael W. Brown(12).......... 2,210 * -- -- -- --
Roberto Colaninno(13)......... 7,250,000 15.5%
Sergio Erede(12).............. 2,210 *
Marcia J. Hooper(14).......... 13,065 * -- -- -- --
Joseph J. Kroger(15).......... 14,565 * -- -- -- --
Raymond C. Kurzweil(16)....... 15,210 * -- -- -- --
Axel J. Leblois(19)........... 13,065 * -- -- -- --
Joseph M. Tucci(17)........... 1,123,521 2.4% -- -- -- --
Frederick A. Wang(18)......... 32,028 * -- -- -- --
John P. White(12)............. 2,210 * -- -- -- --
OTHER NAMED EXECUTIVES
Jeremiah J.J. van
Vuuren(19).................. 334,574 * -- -- -- --
Jose Ofman(20)................ 203,233 * -- -- -- --
Franklyn A. Caine(21)......... 493,525 * -- -- -- --
Donald P. Casey(22)........... 30,989 *
All Directors, nominees for
Director and executive
officers as a group (21
persons)(23)................ 10,382,504 21.1% -- -- -- --
</TABLE>
- - ---------------
* Less than 1%
(1) Each person has sole investment and voting power with respect to the shares
indicated as beneficially owned, except as otherwise noted. The inclusion
herein of any shares as beneficially owned does not constitute an admission
of beneficial ownership. The reported beneficial ownership of Common Stock
or preferred stock by each 5% stockholder is based on a Schedule 13G filed
by such holder or on the records of the Company's transfer agent. In
accordance with Securities and Exchange Commission rules, each person
listed is deemed to beneficially own any shares issuable upon the exercise
of stock options or warrants held by him or her that are currently
exercisable or exercisable within 60 days after January 29, 1999; and any
reference in these footnotes to options or warrants refers only to such
options or warrants.
(2) Number of shares deemed outstanding includes 46,696,565 shares outstanding
as of March 29, 1999, plus any shares subject to outstanding stock options
or warrants held by the person or entity in question.
(3) Represents the number of shares of 6 1/2% Preferred Stock deemed
beneficially owned and outstanding as represented by Depositary Shares as
of March 29, 1999.
(4) The corporate entity of Ing. C. Olivetti & S.p.A. has sole voting and
dispositive power over the Wang securities.
3
<PAGE> 6
(5) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., FMR Corp. (through its control of Fidelity),
Edward C. Johnson 3(rd) (Chairman of FMR Corp.), and the various Fidelity
funds in whose name the shares are held each has power to dispose of
4,546,560 of the shares. Neither FMR Corp. nor Edward C. Johnson 3(rd), has
the power to vote or direct the voting of the shares owned directly by the
Fidelity funds, which power resides with the funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the funds' Boards of Trustees. Fidelity Management Trust
Company, a wholly-owned subsidiary of FMR Corp., Edward C. Johnson 3(rd)
and FMR Corp., through its control of Fidelity Management Trust Company,
each has dispositive power over 750,439 of the shares, and power to vote or
to direct the voting of 669,795 shares, and no power to vote or to direct
the voting of 80,644 of shares.
(6) The Wang shares are beneficially owned by one or more open or closed-end
investment companies or other managed accounts which are advised by direct
and indirect investment advisory subsidiaries (the "Advisory Subsidiaries")
of Franklin Resources, Inc. ("FRI"). Pursuant to advisory contracts, the
Advisory Subsidiaries have all investment and voting power with respect to
such shares.
(7) Boston Partners Asset Management, L.P. ("BPAM") and Boston Partners, Inc.
as well as Desmond John Heathwood are joint Reporting Persons. Each of the
Reporting Persons may be deemed to own beneficially 4,206,030 shares of
Common Stock at December 31, 1998. BPAM owns of record 4,206,030 shares of
Common Stock. As sole general partner of BPAM, Boston Partners may be
deemed to own beneficially all of the shares of Common Stock that BPAM may
be deemed to own beneficially. As principal stockholder of Boston Partners,
Mr. Heathwood may be deemed to own beneficially all of the Common Stock
that Boston Partners may be deemed to own beneficially.
(8) Mellon Bank Corporation has sole voting power over 2,409,994 shares and
shared voting power over 4 shares, and sole dispositive power over
2,693,026 shares and shared dispositive power over 196,504 shares. Mellon
Bank Corporation holds shares in conjunction with its subsidiaries.
(9) Lipper Convertibles, L.P. ("Lipper Convertibles") is the owner of record of
542,690 shares of Wang Series B Preferred Stock. As sole general partner of
Lipper Convertibles, Lipper Holdings, LLP ("Lipper Holdings") may be deemed
to beneficially own the Series B Preferred Stock that Lipper Convertibles
directly beneficially owns. As manager of Lipper Holdings, Lipper & Company
Inc. ("Lipper Inc.") may be deemed to beneficially own the Series B
Preferred Stock directly beneficially owned by Lipper Convertibles. As
controlling shareholder of Lipper Inc., Kenneth Lipper ("Lipper") may be
deemed to beneficially own the Series B Preferred Stock directly
beneficially owned by Lipper Convertibles.
(10) The Company has not received any information concerning the ownership of
Company securities held by Microsoft Corporation. Wang believes that the
voting and dispositive rights associated with Microsoft's holdings are
controlled by the management of Microsoft.
(11) Consists of 29,565 shares subject to outstanding stock options.
(12) Consists of 2,210 shares subject to outstanding stock options.
(13) Consists of 7,250,000 shares of Common Stock held by Olivetti of which Mr.
Colaninno is Chief Executive Officer and as to which shares Mr. Colaninno
disclaims beneficial ownership.
(14) Consists of 13,065 shares subject to outstanding stock options.
(15) Consists of 13,065 shares subject to outstanding stock options and 1,500
shares held outright.
(16) Consists of 15,210 shares subject to outstanding stock options.
(17) Consists of 897,500 shares subject to outstanding stock options, 223,506
shares held outright, 15 shares held pursuant to the Company's 401(k) Plan
and 2,500 shares subject to outstanding stock warrants.
(18) Consists of 29,565 shares subject to outstanding stock options, 2,463
shares held outright and 36,366 shares subject to outstanding stock
warrants.
(19) Includes 275,450 shares subject to outstanding stock options and 59,124
shares held outright.
(20) Consists of 150,000 shares subject to outstanding stock options and 53,233
shares held outright.
4
<PAGE> 7
(21) Includes 447,000 shares subject to outstanding stock options, 46,514 shares
held outright, and 11 shares held pursuant to the Company's 401(k) Plan.
(22) Includes 24,142 shares held outright, 14 shares held pursuant to the
Company's 401(k) Plan and 6,833 shares subject to outstanding stock
warrants.
(23) Includes 2,537,279 shares subject to outstanding stock options, 7,799,526
shares held outright 86 shares held pursuant to the Company's 401(k) Plan
and 45,699 shares subject to outstanding stock warrants.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with
members of each class holding office for staggered three-year terms. There are
currently four Class I Directors, whose terms expire at the 2001 Annual Meeting
of Stockholders, three Class II Directors, whose terms expire at this Annual
Meeting of Stockholders, and four Class III Directors, whose terms expire at the
2000 Annual Meeting of Stockholders (in all cases subject to the election and
qualification of their successors or to their earlier death, resignation or
removal).
The persons named in the enclosed proxy will vote to elect Marcia J.
Hooper, Joseph J. Kroger and John P. White as Class II Directors, unless
authority to vote for the election of any or all of the nominees is withheld by
marking the proxy to that effect. Ms. Hooper, Mr. Kroger and Dr. White are
currently Class II Directors of the Company. All of the nominees have indicated
their willingness to serve, if elected, but if any should be unable or unwilling
to stand for election, proxies may be voted for a substitute nominee designated
by the Board of Directors.
DIRECTORS OF THE COMPANY
Set forth below are the names and certain information with respect to each
Director of the Company, including the three nominees for Class II Directors.
Class I Directors (holding terms expiring at the 2001 Annual Meeting):
ROBERTO COLANINNO DIRECTOR SINCE MARCH 1998; AGE 55
Mr. Colaninno has been Chief Executive Officer of Olivetti since September
1996. Mr. Colaninno is also Vice Chairman of Omnitel Pronto Italia, a mobile
telephone service provider, Chairman of the Fingruppo financial holding company,
and Chairman of Oliman, a joint venture between Olivetti and Mannesmann AG of
Germany. Mr. Colaninno also serves as a Director and member of the Chairman's
Committee of Banca Agricola Mantovana, a member of the governing body of
Confindustria, the Italian industrialists' association, and Vice Chairman of
Federlombarda, the federation of industrialists in Lombardy, Italy.
RAYMOND C. KURZWEIL DIRECTOR SINCE OCTOBER 1993; AGE 51
Mr. Kurzweil has founded and sold four computer technology companies,
including Kurzweil Applied Intelligence, Inc., a speech and language technology
company, and Kurzweil Educational Systems, Inc., an educational software
company. He was the principal developer of the first omnifont optical character
recognition technology, the first print-to-speech reading machine for the blind,
the first music synthesizer that could recreate acoustic instruments and the
first commercially-marketed large vocabulary speech recognition software. He is
a director of Medical Manager Corp., a medical software systems company.
JOSEPH M. TUCCI DIRECTOR SINCE OCTOBER 1993; AGE 51
Mr. Tucci joined the Company in August 1990 as Executive Vice President,
Operations, was elected President and Chief Executive Officer in January 1993,
Chairman of the Board in October 1993 and was reaffirmed as President in June
1998.
5
<PAGE> 8
FREDERICK A. WANG DIRECTOR SINCE OCTOBER 1981; AGE 48
Mr. Wang has been President and Chief Executive Officer of The athink
Group, a company involved with internet web publishing since 1997 and was
President and Chief Executive Officer of Archive Technologies Corporation, Inc.,
the predecessor company of The athink Group since 1996. Mr. Wang was a private
business consultant from 1990 to 1996 and served as President of the Company
from 1986 to 1989 and Chief Operating Officer from 1987 to 1989. He had been
employed by the Company from 1972 to 1989 and had also served as Treasurer,
Chief Development Officer and Executive Vice President of Manufacturing.
Class II Directors (nominated for terms expiring at the 2002 Annual Meeting):
MARCIA J. HOOPER DIRECTOR SINCE NOVEMBER 1995; AGE 44
Ms. Hooper has been a Partner of Advent International Corporation, a
private equity management company since 1996. From 1994 through April 1996 she
served as General Partner of Viking Capital Limited Partnership, a venture
capital firm. From January through July 1994 she served as President of
Claybrook Capital. From 1985 to 1993 Ms. Hooper served as a General Partner of
three venture capital funds of Ampersand Ventures. She is a director of
PolyMedica Industries, Inc., a provider of targeted medical products and
services, and Interleaf, Inc., a publication and document distribution software
company.
JOSEPH J. KROGER DIRECTOR SINCE JUNE 1995; AGE 64
Mr. Kroger, formerly Vice Chairman of the Board of Unisys Corporation, has
been a private business consultant since 1993. From 1990 until 1993 he served as
President and Chief Executive Officer of Decision Data Corporation, a computer
services company. He is currently a director of Astea International Corp. a
developer of custom management software.
JOHN P. WHITE DIRECTOR SINCE DECEMBER 1997; AGE 62
Dr. White has been a senior partner at Global Technology Partners, LLC, a
private investment company, and has served as a senior fellow at the Rand
Corporation, a research corporation, since 1997. From June 1995 through July
1997, he served as the U.S. Deputy Secretary of Defense. He was the Director of
the Center for Business and Government at the John F. Kennedy School of
Government, Harvard University, from January 1993 through June 1995. From 1988
to 1992 he was General Manager of the Integration and Systems Product Divisions
and Vice President of Eastman Kodak Company. From October 1993 until June 1995,
Dr. White served as a Director of the Company.
Class III Directors (holding terms expiring at the 2000 Annual Meeting):
DAVID A. BOUCHER DIRECTOR SINCE OCTOBER 1993; AGE 48
Mr. Boucher has been Managing Director and General Partner of Applied
Technology, a venture capital firm specializing in early-stage information
industry companies, since 1993. From September 1992 to June 1994 he was
President and Chief Executive Officer of Ticker Research, Inc., a development
stage medical technology company engaged in research in nuclear magnetic
resonance imaging. From 1981 to 1991 Mr. Boucher was President and Chief
Executive Officer of Interleaf, Inc., a software company. He is a director of
Interleaf, Inc., Pervasive Software, Inc., a provider of ultra light embedded
database software and several privately held companies.
MICHAEL W. BROWN DIRECTOR SINCE APRIL 1996; AGE 53
Mr. Brown, until his retirement in July 1997, served as Chief Financial
Officer of Microsoft Corporation. He joined Microsoft in 1989 as Treasurer and
was appointed Chief Financial Officer in 1994. Prior to joining Microsoft, Mr.
Brown was a managing partner of Deloitte & Touche LLP, a public accounting firm.
Mr. Brown is a director of The Nasdaq Stock Market, Inc., Citrix Systems, Inc.,
a supplier of thin client/server application server products and Administaff,
Inc., a personal employer organization.
6
<PAGE> 9
SERGIO EREDE DIRECTOR SINCE MARCH 1998; AGE 58
Mr. Erede has been an attorney in private practice with the firm of Erede e
Associati of Milan, Italy since 1969 and is counsel to Olivetti. Before entering
private practice, Mr. Erede was manager of the legal department of IBM Italia
S.pA. for four years. Prior to that he worked for one year at each of the law
firms of Sullivan and Cromwell in New York, NY and Hale and Dorr LLP in Boston,
MA. He is a director of Marzotto S.p.A. and Hugo Boss AG, textile concerns,
Editoriale L'Espresso S.p.A., Manuli Rubber Industries S.p.A., Carraro S.p.A.,
and Interpump S.p.A., manufacturers, Gruppo GS S.p.A., a retailer, and food and
restaurant concerns Parmalat Finanzioria S.p.A., Autogrill S.p.A., and SEAT
Pagine Ciolle S.p.A., the publishers of the Italian yellow pages.
AXEL J. LEBLOIS DIRECTOR SINCE JANUARY 1995; AGE 50
Mr. Leblois has been Chairman of World Times, Inc., a publishing firm,
since 1995 and Chief Executive Officer of Executrain Inc, a global computer
training company, since 1997. From 1991 to 1995 he was President and Chief
Executive Officer of Bull HN Information Systems, Inc., a worldwide information
technology company providing integrated computer services and solutions. From
1983 to 1991 Mr. Leblois held various positions with International Data Group, a
worldwide supplier of information technology, including Vice Chairman of the
Executive Committee, and Chairman and Chief Executive Officer of its affiliate,
International Data Corporation. He is a director of Peritus Software Services,
Inc., a company which provides solutions and technology for software
maintenance, and Boston Private Bank.
BOARD AND COMMITTEE MEETINGS
The Company has a standing Finance and Audit Committee of the Board of
Directors, which reviews the Company's financial condition and operating
results, cash position, financing arrangements and financing strategies,
recommends the engagement of the Company's independent auditors and reviews the
arrangements for the scope of the annual audit. In addition, the Finance and
Audit Committee reviews the activities and recommendations of the Company's
audit group, reviews comments made by the independent auditors with respect to
internal controls and management's response, reviews internal accounting
procedures and controls with the Company's finance and accounting staff and
monitors the Company's compliance programs. The members of the Finance and Audit
Committee are David A. Boucher (Chairman), Michael W. Brown, Sergio Erede,
Marcia J. Hooper, Joseph J. Kroger, and John P. White. The Finance and Audit
Committee met six times during Fiscal 1998 and four times during the Stub
Period.
The Company has a standing Organization, Compensation and Nominating
Committee of the Board of Directors, which reviews and approves proposals by
management concerning compensation, bonuses, benefits, stock options and stock
grants under plans for directors, corporate officers and employees of the
Company. This Committee also oversees administration of the Company's
compensation plans as they affect officers, directors and certain key employees,
and advises the Board on management resources and organization, executive
selection and development and succession planning. This Committee also
recommends to the Board of Directors nominees to be acted upon at stockholder
meetings, and reviews the qualifications of, and makes recommendations to the
Board concerning, candidates to fill Board vacancies that may occur during the
year. The Committee considers suggestions from stockholders and other sources
regarding possible candidates for directors. Such suggestions, together with
appropriate biographical information, should be submitted to the Secretary of
the Company. The Committee is also responsible for overseeing Company policies
on issues of public significance, including charitable contributions and
community relations. The members of the Organization, Compensation and
Nominating Committee are Joseph J. Kroger (Chairman), Roberto Colaninno, Marcia
J. Hooper and Axel J. Leblois. The Organization, Compensation and Nominating
Committee met eight times during Fiscal 1998 and four times during the Stub
Period.
The Board of Directors met eleven times during Fiscal 1998 and four times
during the Stub Period. Except as set forth below, each current Director
attended at least 75% of the meetings of the Board and the Committees on which
he or she then served during Fiscal 1998 and the Stub Period. Dr. White attended
71.4% of the meetings of the Board and the Committees on which he served during
Fiscal 1998 (he was
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unable to attend two special teleconference meetings in February and March
1998). Mr. White also attended by invitation of the Board two Board meetings
prior to his election as a director.
COMPENSATION OF DIRECTORS
The director who is employed by the Company or is employed by a stockholder
of the Company is not paid director fees. Directors who are not employed by the
Company or employed by a stockholder of the Company receive an annual fee of
$20,000 plus a fee of $1,000 for each meeting attended. The members of each
Committee receive an annual fee of $1,500, plus a fee of $1,000 for each
Committee meeting attended.
On each of September 30, 1997 and September 30, 1998, under the Company's
1995 Director Stock Option Plan, each of the then current directors of the
Company, other than Mr. Tucci, received an option to purchase 6,500 shares of
Common Stock. These options have an exercise price of $20.367 and $22.48,
respectively, per share. The 1997 grants became exercisable as to 34% of the
shares covered thereby on September 30, 1998, and will become exercisable as to
33% and 33% of the shares covered thereby on September 30, 1999 and September
30, 2000, respectively, provided the optionee continues to serve as a director
of the Company. The 1998 grants will become exercisable as to 34%, 33% and 33%
of the shares covered thereby on September 30, 1999, September 30, 2000 and
September 30, 2001, respectively, provided the optionee continues to serve as a
director of the Company.
In December 1997, under the Company's 1995 Director Stock Option Plan, Dr.
White received an option to purchase 6,500 shares of Common Stock. This option
has an exercise price of $22.77 per share and became exercisable as to 34% of
the shares covered thereby on December 23, 1998 and will become exercisable as
to 33% and 33% of the shares covered thereby on December 23, 1999 and December
23, 2000, respectively, provided the optionee continues to serve as a director
of the Company.
In March 1998, under the Company's 1995 Director Stock Option Plan, Mr.
Erede received an option to purchase 6,500 shares of Common Stock. This option
has an exercise price of $25.18 per share and became exercisable as to 34% of
the shares covered thereby on March 25, 1999 and will become exercisable as to
33% and 33% of the shares covered thereby on March 25, 2000 and March 25, 2001,
respectively, provided the optionee continues to serve as a director of the
Company.
Raymond C. Kurzweil had been retained as a technical advisor by the
Official Committee of Unsecured Creditors in the Company's Chapter 11 proceeding
and, in that capacity, had reviewed the technology and intellectual property of
the Company. Through this review the Company's patent portfolio was identified
as one of the Company's important assets. After joining the Company's Board of
Directors in October 1993, Mr. Kurzweil agreed to continue his work with the
Company's patent portfolio and entered into a technical consulting agreement
with the Company effective October 1993. This agreement provided for
compensation at the rate of $375.00 per hour, not to exceed an average of
$15,000 per month, plus the reimbursement of expenses. The agreement was
approved by the Board of Directors and is subject to the Board's periodic
review. The agreement is terminable upon 30 days' notice by either party. The
agreement was terminated effective June 30, 1998 and the Company's final payment
to Mr. Kurzweil under this agreement was made in July 1998.
In July 1994, the Board of Directors adopted a policy prohibiting
non-employee directors from receiving compensation from the Company other than
in their capacity as directors, absent extraordinary circumstances.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who are beneficial owners of more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% beneficial owners are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms that they file. To
the Company's knowledge, based solely on the review of the copies of reports
furnished to Company, and written representations that no other reports were
required during the Fiscal 1998 or the Stub Period, all Section 16(a) filing
requirements applicable to such persons were satisfied during such periods.
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PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT
OF THE DIRECTOR STOCK OPTION PLAN
On March 24, 1999, the Board of Directors adopted, subject to stockholder
approval, an amendment to and restatement of the Company's 1995 Director Stock
Option Plan, including a change in the name of the Plan to the Director
Compensation and Stock Option Plan (as amended and restated, the "Plan") and an
increase by 300,000 shares of Common Stock in the number of shares available for
issuance under the Plan. The purpose of the Plan is to encourage ownership of
stock of the Company by directors, whose continued services are essential to the
Company's future progress, and to provide them with an incentive to continue as
directors of the Company. The Board of Directors of the Company believes that
the Plan will further align the Director's interests with those of the
shareholders and enhance the Company's ability to attract and retain qualified
directors. A copy of the Plan is attached as Appendix A hereto.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE APPROVAL OF THE
AMENDMENT TO AND RESTATEMENT OF THE PLAN IS IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
SUMMARY OF THE PLAN
The following description of certain features of the Plan is intended to be
a summary only. The summary is qualified by the full text of the Plan.
Subject to adjustment for stock splits, stock dividends and other similar
events, the total number of shares of Common Stock that can be issued under the
Plan is 240,000 shares (prior to giving effect to the proposed amendment). Under
certain circumstances, awards which expire, are forfeited or cancelled without
delivery of shares of Common Stock will be available for future grants under the
Plan. Shares issued under the Plan may be authorized but unissued shares,
treasury shares or shares acquired in the market for the account of the
participant. Only non-employee directors of the Company who are paid fees for
service on the Board of Directors or a committee thereof ("non-employee
directors") are eligible to receive awards under the Plan. The Company currently
has 10 non-employee directors (which number may change in the future). All
options granted under the Plan are non-qualified stock options not entitled to
special tax treatment under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Through March 29, 1999, options to purchase 266,500 shares
had been granted under the Plan and no shares were available to be granted under
the Plan.
The Plan provides for (i) the grant of shares of Common Stock subject to
risk of forfeiture and restrictions on transfer for a specified period
("Restricted Stock"), (ii) the grant of rights to receive shares of Common Stock
upon settlement subject to risk of forfeiture and restrictions on transfer for a
specified period ("Restricted Stock Units"), and (iii) the grant of
non-qualified stock options to purchase Common Stock. Awards of Restricted
Stock, Restricted Stock Units and options may be granted under the Plan to non-
employee directors in accordance with policies established from time to time by
the Board of Directors.
Restricted Stock and Restricted Stock Units
The Plan provides for the payment of annual retainer fees payable to a
director in his or her capacity as a director for service on the Board of
Directors and committees thereof, to be paid to non-employee directors in the
form of awards of Restricted Stock or Restricted Stock Units, in accordance with
policies established from time to time by the Board of Directors.
Under the initial policy of the Board of Directors for the grant of
Restricted Stock and Restricted Stock Units under the Plan, on the date of each
annual meeting of stockholders at which directors are elected, each non-employee
director, in lieu of the payment in cash of such director's retainer fees, shall
be granted an award of shares of Restricted Stock or Restricted Stock Units, at
such director's election, equal to the sum of such fees divided by the fair
market value of the Common Stock as determined in accordance with the terms of
the Plan. Unless otherwise determined by the Board of Directors, (i) an award of
Restricted Stock or Restricted Stock Units shall vest and not be subject to
forfeiture (A) at the close of business on the day preceding the annual meeting
of stockholders in the third year following the year of grant of such award,
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(B) upon a "change in control" of the Company (as defined in the Plan) or (C)
upon termination of the director's service due to death, disability or
retirement at or after age 60, and (ii) an award of Restricted Stock or
Restricted Stock Units shall be forfeited upon the termination of the director's
service if such Units are unvested.
Stock Options
Under the initial policy of the Board of Directors for the grant of options
under the Plan, non-employee directors shall receive (i) on the date of each
annual meeting at which a director is automatically granted Restricted Stock or
Restricted Stock Units pursuant to the Plan, an automatic grant of an option to
purchase a number of shares of Common Stock equal to two times the number of
shares of Restricted Stock and Restricted Stock Units granted to the director on
such date (a "Performance Option"), and (ii) an automatic grant of an option to
purchase 6,500 shares of Common Stock (A) on the date a participant is first
elected or appointed as a director (an "Initial Option") and (B) on March 31 of
each year, if such director attended at least 75% of the total number of Board
of Directors meetings and meetings of Board committees on which he or she then
served, held during the preceding fiscal year (an "Annual Option"), provided
that an Annual Option shall not be granted to a director who was granted an
Initial Option during the preceding six months. The exercise price of each
option granted under the Plan shall equal the fair market value of the Common
Stock on the date of grant as determined in accordance with the terms of the
Plan.
Unless otherwise determined by the Board of Directors, each Performance
Option shall vest and become fully exercisable on the earlier of (i) the day
prior to the date of the annual meeting of stockholders in the seventh year
after the date of grant and (ii) the earliest date, following the date of grant,
on which the Market Price (as defined in the Plan) of the Common Stock equals or
exceeds an amount equal to 1.667 times the exercise price of the option. In the
event of a "change in control" of the Company (as defined in the Plan) or
termination of the participant's service as a director due to his or her death,
disability or retirement at or after age 60, all outstanding Performance Options
will immediately vest and become fully exercisable.
Unless otherwise determined by the Board of Directors, each Initial Option
and Annual Option shall vest and become exercisable as to one-third of the
shares subject to such Option on each of the first three anniversaries of the
date of grant, provided the participant continues to serve as a director on such
dates or no longer serves as director due to termination of his or her service
at or after age 60. In the event of a "change in control" of the Company (as
defined in the Plan) unless otherwise determined by the Board of Directors or
specified in the Option grant instrument or termination of the participant's
service as a director due to his or her death or disability, all outstanding
Initial Options and Annual Options will immediately vest and become fully
exercisable.
Deferred Shares and Deferral Accounts
The Plan provides that the Board of Directors may adopt compensation
policies which permit non-employee directors to elect to be paid fees in respect
of service as a director in the form of rights to receive shares of Common Stock
upon settlement and not subject to risk of forfeiture ("Deferred Shares").
A participant may elect to defer receipt of retainer fees in the form of
Deferred Shares. In that event, a number of Deferred Shares equal to the
aggregate amount of such fees divided by the fair market value of the Common
Stock, as determined in accordance with the terms of the Plan, shall be credited
to such director's deferral account. The Plan also permits a participant to
defer receipt of Common Stock to be received upon the exercise of options
granted under the Plan, if the exercise price of such options is paid by
surrender of shares of Common Stock. Deferral accounts shall be settled, with
respect to securities not subject to risk of forfeiture, at such future time as
the participant shall elect by notice to the Company.
Amendments and Termination
The Board of Directors may at any time amend, suspend, discontinue or
terminate the Plan, provided that, without the consent of a participant, no
action shall materially and adversely affect the rights of such
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participant with respect to any rights to payment of amounts credited to such
participant's account. In addition, amendment or alteration of the Plan shall be
subject to stockholder approval if required by law or the rules of any stock
exchange on which the Common Stock may then be listed.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
Plan and with respect to the sale of Common Stock acquired under the Plan.
Restricted Stock. A participant will not recognize taxable income upon the
grant of a Restricted Stock award unless the participant makes an election under
Section 83(b) of the Code (a "Section 83(b) Election"). If the participant makes
a Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
the award is granted, in an amount equal to the difference between the fair
market value of the Common Stock at the time the award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, then the participant will recognize ordinary compensation income, at the
time that the forfeiture provisions or restrictions on transfer lapse, in an
amount equal to the difference between the fair market value of the Common Stock
at the time of such lapse and the original purchase price paid for the Common
Stock. The participant will have a tax basis in the Common Stock acquired equal
to the sum of the price paid and the amount of ordinary compensation income
recognized.
Upon the disposition of the Common Stock acquired pursuant to a Restricted
Stock award, the participant will recognize a capital gain or loss in an amount
equal to the difference between the sale price of the Common Stock and the
participant's tax basis in the Common Stock. This capital gain or loss will be a
long-term capital gain or loss if the shares are held for more than one year.
For this purpose, the holding period shall begin just after the date on which
the forfeiture provisions or restrictions lapse if a Section 83(b) Election is
not made, or just after the award is granted if a Section 83(b) Election is
made.
Restricted Stock Units and Deferred Shares. A participant will not
recognize taxable income upon the grant of a Restricted Stock Unit or the credit
of Deferred Shares under the Plan. Instead, a participant generally will
recognize as ordinary compensation income the fair market value of any Common
Stock delivered in accordance with the terms of the Restricted Stock Unit or
Deferred Shares.
Upon selling any Common Stock received by a participant under the terms of
a Restricted Stock Unit or Deferred Shares, the participant generally will
recognize a capital gain or loss in an amount equal to the difference between
the sale price of the Common Stock and the participant's tax basis in the Common
Stock. This capital gain or loss will be a long-term capital gain or loss if the
participant has held the Common Stock for more than one year prior to the date
of the sale.
Stock Options. A participant will not recognize taxable income upon the
grant of an option under the Plan. Nevertheless, a participant generally will
recognize ordinary compensation income upon the exercise of the option in an
amount equal to the excess of the fair market value of the Common Stock acquired
through the exercise of the option (the "Option Stock") on the exercise date
over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option Stock for more than one year prior to the date of the sale and will be a
short-term capital gain or loss if the participant has held the Option Stock for
a shorter period.
Deferral of Certain Option Stock. Under certain circumstances, the Plan
permits a participant to exercise a stock option by delivering to the Company
Common Stock having a fair market value equal in amount to the exercise price,
and elect to convert a portion of the shares of Common Stock deliverable upon
exercise of the stock option into Deferred Shares. The use of this method of
exercise allows a participant to exercise a stock option without incurring any
immediate income taxes. The participant's tax basis in any shares of Common
Stock delivered to the Company to exercise an option generally will be carried
over to an equal
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number of shares of Common Stock acquired upon exercising the option. A
participant may elect to receive Deferred Shares for any shares in excess of the
number of shares surrendered to exercise the option.
Tax Consequences to the Company. The grant of an option under the Plan
will have no tax consequences to the Company. The Company generally will be
entitled to a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the Plan.
PROPOSAL TO AMEND THE EMPLOYEES' STOCK INCENTIVE PLAN
The Board of Directors believes that a critical factor in the Company's
growth and profitability is its ability to attract, retain, compensate
competitively and motivate its workforce and align the interests of employees
with the shareholders through the issuance of incentive stock options. To do so,
the Board of Directors believes it is necessary for the Company to have stock
options available for issuance to current employees, including those that obtain
technical certifications and work with customers and clients. On March 24, 1999,
the Board of Directors of the Company adopted, subject to stockholder approval,
an amendment to the Employees' Stock Incentive Plan ("Plan") increasing the
number of shares available under the Plan by 4,630,000 shares, to a total of
13,097,153 shares.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE AMENDMENT TO THE
EMPLOYEES' STOCK INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
SUMMARY OF THE PLAN
The Plan authorizes the Company to grant stock options for the purchase of,
or make restricted stock awards (i.e., grants of shares of Common Stock subject
to certain restrictions) covering, up to an aggregate of 8,467,153 shares of
Common Stock (prior to giving effect of the proposed amendment) plus such number
of shares that were covered by option grants under the Company's prior Stock
Incentive Plan which have expired, been forfeited or terminated unexercised
since October 26, 1994 (the date that the Board adopted the Plan). Any shares
subject to options granted pursuant to the Plan which terminate or expire
unexercised are available for future grants under the Plan. In addition, any
restricted stock awarded under the Plan which is repurchased by the Company will
be available for subsequent option grants or restricted stock awards under the
Plan. The maximum number of shares for which options or restricted stock awards
may be granted to any one employee during any year is 1,000,000 shares. As of
February 28, 1999 approximately 604,078 shares remained available for future
option grants or restricted stock awards under the Plan.
All employees of the Company or a subsidiary of the Company are eligible to
receive stock options or restricted stock awards under the Plan, but options and
awards are granted only to those employees selected or approved by the
Organization, Compensation and Nominating Committee of the Board of Directors
(the "Committee"), which has been charged with administration of the Plan. The
number and identity of individuals receiving stock options varies from year to
year depending on various factors such as the Company's hiring needs during the
year, employees added through acquisitions, significant promotions and
individual and Company performance. During the period June 30, 1997 through
March 1, 1999, more than 60% of awards were made to program managers and
individual contributors including the individuals who have obtained or who have
enrolled in Wang Global Virtual University to obtain MCSE, MCSD or CCIE
certificates. Because of the uncertainty of these factors, and because of the
discretionary nature of the grant of stock options and restricted stock awards,
the Company cannot now determine the number of options or restricted stock
awards to be granted to any particular executive officer, executive officers as
a group, or non-executive officer employees as a group. As of February 28, 1999,
the Company and its subsidiaries had approximately 20,300 employees.
The Plan is administered by the Committee, which is authorized to implement
and interpret the Plan and to determine, subject to the provisions of the Plan
and the Committee's charter, the employees of the Company or its subsidiaries to
whom, and the time or times at which, options and restricted stock awards are
granted; the number of shares subject to each option or restricted stock award
granted; the designation of a stock option as either an incentive stock option
or a non-statutory stock option; the exercise price of a stock
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<PAGE> 15
option (which, in the case of non-statutory stock options, may be less than,
equal to or greater than the fair market value of the Common Stock on the date
of grant); the time period over which a stock option becomes exercisable
(options granted to date generally vest ratably over a three-year or four-year
period); the purchase price (if any) to be paid for the shares subject to a
restricted stock award (which may be less than, equal to or greater than the
fair market value of the Common Stock on the date of grant); the restrictions
imposed on a restricted stock award (which would generally include a repurchase
right in favor of the Company in the event of the termination of the recipient's
employment and restrictions on transfer); and the period of time over which such
restrictions lapse; and whether a change in control of the Company would cause
the acceleration of the vesting of the options.
The Committee or the Board of Directors may amend the Plan from time to
time.
This summary of the Plan is qualified in all respects by reference to the
full text of the Plan, copies of which are available upon request to the
Secretary of the Company.
As of February 28, 1999 restricted stock awards in the amount of 635,690
shares of Common Stock had been granted and options to purchase a total of
9,547,535 shares of Common Stock had been granted (and not forfeited) under the
Plan. Stock options, including LTI Options, have been granted to Messrs. Tucci,
van Vuuren, Ofman, Caine, and Casey for 1,003,500, 387,750, 300,000, 506,000 and
502,750 shares of Common Stock, respectively, at exercise prices ranging from
$12.125 to $18.94 per share; restricted stock awards of 230,000, 54,000, 50,000,
44,000 and 14,000 shares have been awarded to Messrs. Tucci, van Vuuren, Ofman,
Caine, and Casey, respectively; and stock options for a total of 2,296,250
shares of Common Stock, at a weighted average exercise price of $15.65 per
share, have been granted to all current executive officers as a group.
On February 28, 1999 the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $23.875 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
Employees' Stock Incentive Plan and with respect to the sale of Common Stock
acquired under the Employees' Stock Incentive Plan.
Incentive Stock Options. In general, a participant will not recognize
taxable income upon the grant or exercise of an incentive stock option. Instead,
a participant will recognize taxable income with respect to an incentive stock
option only upon the sale of Common Stock acquired through the exercise of the
option ("ISO Stock"). The exercise of an incentive stock option, however, may
subject the participant to the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
twelve months prior to the date of sale, and a short-term gain if held for less
than twelve months.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of the
exercise price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
twelve months prior to the date of sale.
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Nonstatutory Stock Options. As in the case of an incentive stock option, a
participant will not recognize taxable income upon the grant of a nonstatutory
stock option. Unlike the case of an incentive stock option, however, a
participant who exercises a nonstatutory stock option generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the option ("NSO
Stock") on the Exercise Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
twelve months prior to the date of the sale.
Restricted Stock Awards. A participant will not recognize taxable income
upon the grant of a restricted stock Award, unless the participant makes an
election under Section 83(b) of the Code (a "Section 83(b) Election"). If the
participant makes a Section 83(b) Election within 30 days of the date of the
grant, then the participant will recognize ordinary income, for the year in
which the Award is granted, in an amount equal to the difference between the
fair market value of the Common Stock at the time the Award is granted and the
purchase price paid for the Common Stock. If a Section 83(b) Election is not
made, the participant will recognize ordinary income, at the time that the
forfeiture provisions or restrictions on transfer lapse, in an amount equal to
the difference between the fair market value of the Common Stock at the time of
such lapse and the original purchase price paid for the Common Stock. The
participant will have a basis in the Common Stock acquired equal to the sum of
the price paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss in an amount
equal to the difference between the sale price of the Common Stock and the
participant's basis in the Common Stock. The gain or loss will be a long-term
gain or loss if the shares are held for more than twelve months. For this
purpose, the holding period shall begin just after the date on which the
forfeiture provisions or restrictions lapse if a Section 83(b) Election is not
made, or just after the Award is granted if a Section 83(b) Election is made.
Tax Consequences to the Company. The grant of an Award under the Plan will
have no tax consequences to the Company. Moreover, in general, neither the
exercise of an incentive stock option nor the sale of any Common Stock acquired
under the Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the Plan, including as a result of the exercise of a nonstatutory stock option,
a Disqualifying Disposition, or a Section 83(b) Election. Any such deduction
will be subject to the limitations of Section 162(m) of the Code. The Company
will have a withholding obligation with respect to any ordinary compensation
income recognized under the Plan (other than income recognized as a result of a
Disqualifying Disposition) by participants who are employees or are otherwise
subject to withholding.
PROPOSAL TO AMEND THE 1995 EMPLOYEES' STOCK PURCHASE PLAN
The 1995 Employees' Stock Purchase Plan (the "1995 Purchase Plan") provides
a means for employees of the Company to acquire equity in the Company on
favorable terms, and thereby helps the Company in attracting and retaining
competent personnel. On March 24, 1999, the Board of Directors of the Company
adopted, subject to stockholder approval, an amendment to the 1995 Purchase Plan
that increased the number of shares of Common Stock available for purchase under
the 1995 Purchase Plan by 200,000 shares to a total of 1,009,807.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE AMENDMENT OF THE
1995 PURCHASE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS
AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
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SUMMARY OF THE PLAN
The 1995 Purchase Plan provides for the issuance of up to 809,607 shares of
Common Stock. Pursuant to the terms of the 1995 Purchase Plan and the rules
adopted by the Committee (which has been charged with administration of the
Purchase Plan), shares will be offered under the 1995 Purchase Plan in a series
of six-month offerings, the first of which commenced on May 1, 1995; subsequent
offerings commence on each November 1 and May 1 until all of the shares covered
by the 1995 Purchase Plan have been issued or the 1995 Purchase Plan has been
otherwise terminated. All employees of the Company, and of those subsidiaries of
the Company designated from time to time by the Committee as participating
subsidiaries, who have been employed by the Company (or such a subsidiary) for
at least four consecutive months (excluding those employees whose inclusion in
the Purchase Plan would cause the Purchase Plan to fail to meet applicable
requirements of the Code, including without limitation Section 423(b)(3) of the
Code. As of February 28, 1999, approximately 20,000 employees were eligible to
participate. Approximately 298,847 shares have been purchased under the 1995
Purchase Plan through February 28, 1999. As of February 28, 1999, 510,760 shares
remained available for future issuance under the 1995 Purchase Plan.
The price at which a participating employee may purchase shares of Common
Stock in an offering is 85% of the fair market value of the Common Stock on the
day the offering commences or on the day that the offering terminates, whichever
is lower ("Purchase Price"). An employee may elect to have up to 10% of his or
her "compensation" (as defined in the rules governing the 1995 Purchase Plan)
withheld for the purpose of purchasing shares in an offering under the 1995
Purchase Plan. The maximum number of shares of Common Stock that may be
purchased by a participating employee in each plan period is calculated by
dividing ten percent (10%) of the employees compensation by the lower of
eighty-five (85%) of the fair market value of the Common Stock on the first
business day or 85% of the fair market value of the Common Stock on the last
business day of the plan period. Unless the participant elects to withdraw from
the offering, each participant who continues to be employed by the Company on
the date such offering terminates is deemed to have exercised the option and
purchased on such date such number of shares (subject to the maximum number
covered by his or her option) as may be purchased with the amount of his or her
payroll deductions at the Purchase Price. If employees subscribe to purchase
more than the number of shares of Common Stock available during any offering,
the available shares are allocated on a pro rata basis to subscribing employees.
The Board of Directors of the Company may at any time terminate or amend the
1995 Purchase Plan.
This summary of the 1995 Purchase Plan is qualified in all respects by
reference to the full text of the 1995 Purchase Plan, copies of which are
available upon request to the Secretary of the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to participation in the 1995
Purchase Plan and with respect to the sale of Common Stock acquired under the
1995 Purchase Plan. The 1995 Purchase Plan is intended to qualify as an
"Employee Stock Purchase Plan" within the meaning of Section 423 of the Code.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the 1995 Purchase Plan or upon
purchasing shares of Common Stock at the end of an offering. Instead, if a
participant sells Common Stock acquired under the 1995 Purchase Plan at a sale
price that exceeds the price at which the participants purchased the Common
Stock, then the participant will recognize taxable income in an amount equal to
the excess of the sale price of the Common Stock over the price at which the
participants purchased the Common Stock. A portion of that taxable income will
be ordinary income, and a portion may be capital gain.
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the date on which the Offering
commenced (the "Grant Date"), then the participant will be taxed as follows. If
the sale price of the Common Stock is higher than the price at which the
participant purchased the Common Stock, then the participant will recognize
ordinary compensation income in an amount equal to the lesser of (i) fifteen
percent (15%) of the fair market value of the Common Stock on the Grant Date and
15
<PAGE> 18
(ii) the excess of the sale price of the Common Stock over the price at which
the participant purchased the Common Stock. Any further income will be long-term
capital gain.
If the sale price of the Common Stock is less than the price at which the
participant purchased the Common Stock, then the participant will recognize
long-term capital loss in an amount equal to the excess of the price at which
the participant purchased the Common Stock over the sale price of the Common
Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common Stock for more than twelve months prior to the date of the
sale, and short-term capital gain or loss if the participant has held the Common
Stock for a shorter period.
Tax Consequences to the Company. The offering of Common Stock under the
1995 Purchase Plan will have no tax consequences to the Company. Moreover, in
general, neither the purchase nor the sale of Common Stock acquired under the
1995 Purchase Plan will have any tax consequences to the Company except that the
Company will be entitled to a business expense deduction with respect to any
ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
PROPOSAL TO APPROVE AN
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has determined that it is advisable and in the best
interests of the stockholders of the Company to amend and restate the Company's
Certificate of Incorporation to (i) change the name of the Company from "Wang
Laboratories, Inc." to "Wang Global Corporation", (ii) increase the aggregate
number of shares of Common Stock that the Company is authorized to issue from
100 million to 200 million, and (iii) eliminate certain obsolete provisions
related to restrictions on the transfer of Common Stock. Shareholders may accept
or reject the various proposed changes to the Certificate of Incorporation
separately. A copy of the Company's Restated Certificate of Incorporation is
attached as Appendix B hereto. A copy of the Company's current Certificate of
Incorporation can be obtained from the Company's headquarters in Billerica,
Massachusetts.
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE APPROVAL OF AN
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE IN FAVOR OF THIS
PROPOSAL.
Change Name to Wang Global Corporation. The Board of Directors recommends
that the Company's name be changed from "Wang Laboratories, Inc." to "Wang
Global Corporation". The Board of Directors believes the new name reflects the
Company's increased global scope and focus of its operations which has resulted
from its acquisition of Olsy.
Increase Number of Authorized Shares of Common Stock. The Board of
Directors recommends that the number of authorized shares of Common Stock of the
Company be increased from 100,000,000 shares to 200,000,000 shares.
The Company is currently authorized to issue 105,000,000 shares of stock,
consisting of 100,000,000 shares of Common Stock, par value $0.01 per share, and
5,000,000 shares of preferred stock, par value of $0.01 per share (the
"Preferred Stock"). As of March 29, 1999, 46,696,565 shares of Common Stock were
outstanding, 6,959,603 shares of Common Stock were reserved for issuance under
the Company's stock option and stock benefit plans and arrangements, 4,056,793
shares of Common Stock were reserved for issuance upon
16
<PAGE> 19
conversion of outstanding 6 1/2% Preferred Stock and 4 1/2% Preferred Stock,
7,500,000 shares of Common Stock were reserved for issuance under the Company's
outstanding warrants, 16,666,667 shares of Common Stock were reserved for
issuance under the Company's Inter-company Convertible Instruments and 1,500,000
shares of Common Stock were reserved for issuance (subject to stockholder
approval) in connection with the Olsy Acquisition. An indeterminate number of
shares of Common Stock is required for the conversion of the Company's Series C
Junior Participating Preferred Stock pursuant to the Company's Rights Plan. The
additional Common Stock to be authorized by adoption of the amendment would have
rights identical to the currently outstanding Common Stock of the Company.
Holders of Common Stock have no preemptive rights with respect to any shares
which may be issued in the future. Adoption of the proposed amendment and
issuance of the Common Stock would not affect the rights of the holders of
currently outstanding Common Stock of the Company, except for effects incidental
to increasing the number of shares of the Company's Common Stock outstanding.
Although at present the Board of Directors has no specific plans to issue
the additional shares of Common Stock that would be authorized under the
amendment (other than the shares of Common Stock reserved for issuance, as
described above), it desires to have such shares available to provide additional
flexibility for business and financial purposes in the future. Subject to the
requirements and limitations of the Nasdaq National Market, the additional
shares may be used, without further stockholder approval, for various purposes
including, without limitation, acquisitions, mergers or similar transactions,
financings, stock dividends, establishing strategic relationships or providing
equity incentives to employees, consultants, officers or directors.
Eliminate Obsolete Provisions. The Certificate of Incorporation contains
certain obsolete provisions related to restrictions on the transfer of Common
Stock which were implemented in order to preserve certain net operating loss
carryovers, capital loss carryovers and tax credit carryovers to which the
Company was entitled pursuant to the Internal Revenue Code of 1986, as amended.
These restrictions on transfer, by their terms, ceased to apply on December 15,
1995. The Amendment and Restated Certificate of Incorporation would eliminate
the provisions related to such restrictions on transfer of Common Stock.
If the stockholders approve the amendments described above and the
restatement of the Certificate of Incorporation, the Company will file, shortly
following such stockholder approval, an Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware.
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment and restatement of the Certificate of
Incorporation.
PROPOSAL TO ISSUE ADDITIONAL SHARES OF COMMON STOCK TO OLIVETTI
The Board of Directors has determined that it is advisable and in the best
interests of the stockholders of the Company to approve the issuance of
1,500,000 shares of Common Stock to Olivetti in connection with the acquisition
by the Company of Olsy on March 17, 1998 (the "Additional Issuance").
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE APPROVAL OF THE
ADDITIONAL ISSUANCE IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS
AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
BACKGROUND OF THE ACQUISITION
In late 1996, Wang approached Olivetti through Olivetti's financial advisor
Lehman Brothers to discuss a possible transaction involving the Services and
Solutions business of Olivetti ("Olsy"). The Company was interested in Olsy due
to the business' strong focus on network/desktop services, solutions for
financial institutions and its international presence. The parties executed a
preliminary confidentiality agreement on December 11, 1996.
In February 1997, Wang retained Greenhill & Co. as a financial advisor to
assist in evaluating the possibility of a transaction with Olivetti for the
purchase of Olsy. On February 18, 1997, Wang and Olivetti entered into a second
confidentiality agreement.
17
<PAGE> 20
In March 1997, Wang received preliminary financial and business data from
Lehman Brothers regarding the Olsy business. In April 1997, the Company started
business and preliminary valuation discussions with officials from Olivetti. In
connection with its review of the potential acquisition of Olsy, Wang engaged
the firm of Boston Consulting Group, with offices in Milan, Italy to conduct
preliminary customer and service/product assessments of the Olsy business.
In May 1997, senior officers of Wang met with Olivetti representatives to
review Wang's initial findings and to discuss the issue of valuation, including
valuation range. The parties were unable to come to a resolution of the
pre-diligence valuation and collection of valuation data by Wang continued
through June 1997.
In July 1997, representatives of Olivetti and Wang met to discuss the
pre-diligence valuation of Olsy. At this meeting the parties agreed to a
pre-diligence valuation range and certain purchase price adjustment mechanisms
to be applied to such price in the event due diligence revealed any new
information regarding the business.
Discussions commenced in late summer of 1997 between the two parties and
their respective advisors regarding the underlying terms of the transaction.
Through September and October representatives of both Olivetti and Wang met in
Milan, Italy and Boston, Massachusetts to identify and document the principles
of the proposed transaction. On November 12, 1997, Wang commenced a full due
diligence program.
Worldwide due diligence on Olsy continued through the months of December
1997 and January 1998 concurrently with meetings to discuss the terms and
conditions of the Stock Purchase Agreement, Stockholders Agreement and other
relevant documents related to the transaction. The final issues were discussed
and resolved in the month of January through a number of final negotiating
sessions between Wang and Olivetti in Boston.
In February 1998, the Company commenced filing the various anti-trust
filings required under United States and international laws.
On February 28, 1998, the Company executed the Stock Purchase Agreement
with the understanding the final closing would occur within the month of March.
A joint public announcement was made of the acquisition. The final closing of
the transaction was completed on March 17, 1998.
THE ACQUISITION
On March 17, 1998, the Company completed the purchase of Olsy, the
wholly-owned information technology solutions and service subsidiary of
Olivetti, except for Olivetti Corporation of Japan which was completed April 7,
1998 (collectively, the "Acquisition"). The Company also acquired a 19.9%
interest in Olivetti Ricerca, the Italian consortium supplying research and
development services to both the IT and telecom sectors. Olsy's revenues for the
calendar year ended December 31, 1997 were approximately $2.4 billion.
In consideration for Olsy and pursuant to a Stock Purchase Agreement dated
February 28, 1998, as amended on March 17, 1998, by and among Olivetti, the
Company, Wang Nederland BV, Olivetti Sistemas E Servicios Limitada and Olivetti
do Brasil S.A. (the "Stock Purchase Agreement"), pursuant to which the Company
paid Olivetti $68.6 million in cash; issued 7,250,000 shares of Common Stock
(and agreed to issue an additional 1,500,000 shares of Common Stock if approved
by the stockholders of the Company (the "Additional Issuance")) with a total
value of $197.2 million at the time of closing; issued 5,000,000 stock
appreciation rights ("SARs") which give Olivetti value for the increase in the
market price of the Company's Common Stock above $30.00 per share at any time
from March 2001 to March 2005 and are redeemable in cash or Common Stock at the
Company's election; and agreed to pay an additional amount (an "earnout") of up
to $56.0 million payable in the year 2000, subject to meeting mutually-agreed
performance targets for the calendar years 1998 and 1999. The purchase price for
Olsy is subject to certain purchase price adjustments to be determined by the
parties.
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<PAGE> 21
Under the rules of the Nasdaq National Market, the Company must obtain
stockholder approval prior to the issuance of Common Stock, or securities
convertible into or exercisable for Common Stock if (a) the issuance of such
securities is in connection with the acquisition of the stock or assets of
another company and (b) either (i) the Common Stock to be issued in the
transaction will have upon its issuance voting power equal to or in excess of
20% of the voting power of the issuer's Common Stock outstanding before such
issuance or (ii) the number of shares of Common Stock to be issued is or will be
equal to or in excess of 20% of the number of shares of Common Stock outstanding
before such issuance. Accordingly, prior to the Additional Issuance, the Company
must obtain approval from its stockholders, because the shares of Common Stock
paid at the closing, together with the Additional Issuance will represent more
than 20% of the voting power of its Common Stock or more than 20% of the number
of shares of Common Stock outstanding prior to such Additional Issuance.
If the Additional Issuance is not approved by the Company stockholders on
or prior to June 30, 1999, the Company is obligated to pay to Olivetti an amount
in cash equal to the Fair Market Value of the Common Stock on June 30, 1999
multiplied by 1,500,000. "Fair Market Value" means the average of the daily
Current Market Prices (average of the reported closing bid and ask prices on
such day) of a share of Common Stock during the ten (10) consecutive trading
days immediately prior to June 30, 1999.
The purchase was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board No. 16, "Business Combinations"
("APB 16"). The Acquisition was a taxable transaction.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol ("WANG"). The high and low sales prices as of February 27, 1998 (the
day preceding the initial announcement of the Acquisition) were $28.375 and
$26.9375, respectively.
Under Delaware law, a ratification by stockholders of a prior transaction
may preclude stockholders from making certain challenges to the transaction,
such as a claim that effecting the transaction involved a breach of the
directors' duty of care. Although the stockholders of the Company are being
asked to approve the Additional Issuance, and not the Acquisition, it is
possible that stockholder approval of the Additional Issuance may preclude or
limit certain stockholder challenges to the Acquisition.
STOCKHOLDERS ARE NOT BEING ASKED TO APPROVE THE ACQUISITION. A FAILURE OF
THE COMPANY'S STOCKHOLDERS TO APPROVE THE ADDITIONAL ISSUANCE WILL NOT HAVE ANY
EFFECT ON THE ACQUISITION.
WANG
Wang is a leading global network and desktop integration services and
solutions company. With annual revenues of approximately $1.3 billion (prior to
the Acquisition), the Company provides a comprehensive range of information
technology ("IT") services and solutions including network and desktop design
and integration, security and management, help desk, maintenance, resale and
installation of IT and communications equipment, warranty support, procurement,
electronic commerce and customer contact solutions for financial services
institutions. The Company's customers include banking and other financial
institutions, insurance companies, governments and their affiliates and
commercial enterprises.
The executive offices of Wang are located at 290 Concord Road, Billerica,
Massachusetts 01821.
Reasons for the Acquisition
The Company believes that the combination of Olsy and the Company will
contribute to the attainment of certain strategic goals. By virtue of the
Acquisition, the Company has expanded its presence in key European and Asian
markets through the addition of Olsy's strong local operations and in the
financial services market though the addition of Olsy's solutions business. The
merger of the two businesses' operations and expertise has resulted in a new
company, Wang Global, capable of providing clients with global IT solutions and
services. The Acquisition created an IT services company that ranks among the
leaders in desktop services in Europe and the world. The combined company is
implementing its networked technology solutions and life cycle services strategy
on a global scale, leveraging the long-term business relationships of
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<PAGE> 22
both the Company and Olsy, including Olsy's customers in financial services and
other vertical markets. Customers are also benefiting from the combined
organization's relationships with major software and hardware providers,
including present strategic partners Cisco Systems, Dell and Microsoft.
OLSY
Business. Olivetti Solutions ("Olsy"), an integrated business unit of the
Olivetti Group, including the combined systems and services business of Olivetti
Solutions, S.p.A. and its subsidiaries together with Olivetti Corporation of
Japan and Olsy do Brasil S.A. Olsy is a provider of IT solutions and services to
the Italian, European and global market. Olsy's primary geographical markets
outside Italy are Great Britain, Netherlands, France, Belgium, North America and
Japan. Olsy delivers solutions and services based on open computing standards,
distributed client server architectures and network infrastructures to
customers, principally in the banking, public authority, utility and retail
sectors. The solutions range from the development of the initial computing
environment to systems integration and include analysis, design, validation,
procurement and production through to delivery and roll out of complete
solutions. The services provided by Olsy include hardware, software and network
maintenance and support, outsourcing of distributed desktop computing
environments and consultancy all of which are provided under contractual
arrangements with customers (see Appendix C attached hereto).
Competition is vigorous in all parts of the worldwide market for network
computing services and solutions. Olsy's competitors were numerous and vary
extensively in size and resources. Some had substantially greater resources,
stronger reference accounts, larger research and engineering staff and larger
marketing organizations than did Olsy. Olsy's competitors included IBM, Hewlett
Packard, Seimens Nixdorf, and Bull.
Olsy's customers include commercial customers, businesses, institutions and
governments of varying sizes around the world. The Company's sales, marketing
and professional services groups focus on customers with network and desktop
productivity needs in selected markets. No customer accounted for more than 10%
of Olsy's consolidated revenues in any of the periods reported.
Olsy has a research and development program that is primarily focused on
continuing support of software technology for the banking industry. Olsy's
research and development expenses for the 9-months ended September 30, 1997 were
Lire 33 billion. In fiscal 1996, Olsy spent Lire 90 billion on research and
development in support of its continuing operations.
Properties. At February 28, 1998, Olsy owned and leased a total of 6.2
million square feet of building space around the world, approximately 350,000
square feet of which was subleased to other third parties.
Legal Proceedings. Olsy is a defendant in a number of routine lawsuits
incidental to the conduct of its business. Although it is impossible to predict
the results of specific matters, the Company believes that its aggregate
liability, if any, for all litigation related to Olsy, in excess of insurance
coverage and financial statement provisions, will not be material to the
Company's consolidated financial position or its results of operations.
The executive offices of Olsy are located at Via G. Jervis 77, 10015 Ivrea
Italy.
Specific Incorporation by Reference
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to the
Company's 1998 Annual Report on Form 10-K for the six-month period ended
December 31, 1998.
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<PAGE> 23
WANG
SELECTED FINANCIAL DATA
Wang Laboratories, Inc. and Subsidiaries Five-Year Comparison of Selected
Financial Data (Dollars in millions except per share data)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
SIX MONTHS --------------
ENDED NINE MONTHS THREE MONTHS
DECEMBER 31, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED
1998 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 SEPT. 30, 1993
------------ ------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $1,816.0 $1,887.0 $1,260.4 $1,013.9 $901.9 $644.4 $210.9
Income (loss) from
continuing operations
before reorganization
expenses and
discontinued
operations............. (39.8) (251.6) (6.7) 63.5 (14.2) 8.6 11.9
Reorganization
expenses............... -- -- -- -- -- -- (30.8)
Income (loss) from
discontinued
operations............. -- -- 76.6 (69.0) (53.9) -- --
Fresh-start reporting
adjustment............. -- -- -- -- -- -- 193.6
Gain on debt discharge... -- -- -- -- -- -- 329.3
-------- -------- -------- -------- ------ ------ ------
Net income (loss)........ (39.8) (251.8) 69.9 (5.5) (68.1) 8.6 514.0
Dividends and accretion
on preferred stock..... (7.0) (14.1) (14.1) (22.6) (8.7) (4.2) --
-------- -------- -------- -------- ------ ------ ------
Net income (loss)
applicable to common
stockholders........... $ (46.0) $ (265.7) $ 55.8 $ (28.1) $(76.8) $ 4.4 $514.0
======== ======== ======== ======== ====== ====== ======
Net income (loss) per
share:
Basic:
Continuing
operations......... $ (1.01) $ (6.54) $ (0.56) $ 1.13 $(0.70) $ 0.13
Discontinued
operations......... -- -- 2.06 (1.91) (1.54) --
-------- -------- -------- -------- ------ ------ ------
Net income
(loss)........... $ (1.01) (6.54) 1.50 (0.78) (2.34) 0.13 *
======== ======== ======== ======== ====== ====== ======
Diluted:
Continuing
operations..... $ (1.01) $ (6.54) $ (0.56) $ 1.07 $(0.70) $ 0.13
Discontinued
operations......... -- -- 2.06 (1.81) (1.54) --
-------- -------- -------- -------- ------ ------ ------
Net income
(loss)........... $ (1.01) $ (6.54) $ 1.50 $ (0.74) $(2.34) $ 0.13 $ *
======== ======== ======== ======== ====== ====== ======
Average number of
employees.............. 20,200 13,300 9,300 6,200 5,200 5,900 6,700
Number of employees...... 20,300 20,000 9,300 7,200 6,200 5,300
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -----------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total assets............ $2,369.8 $2,249.4 $1,034.8 $ 856.6 $852.5 $677.1
Depreciable assets,
net................... $ 236.0 $ 214.1 $ 123.0 $ 137.3 $134.4 $ 79.6
Working capital......... $ 100.6 $ 50.1 $ 126.1 $ 86.7 $ 34.1 $ 95.1
Long-term debt,
excluding liabilities
subject to
compromise............ $ 250.7 $ 116.9 $ -- $ -- $ 23.0 $ 2.0
Series A preferred
stock................. $ 86.5 $ 86.2 $ 85.5 $ 84.8 $ 84.1 $ --
Exchangeable preferred
stock................. $ -- $ -- $ -- $ -- $ 61.5 $ 53.2
Stockholders' equity.... $ 348.2 $ 382.5 $ 422.8 $ 343.1 $220.8 $272.3
</TABLE>
Certain prior years' amounts have been reclassified to conform to the
presentation for fiscal 1998. Employee data excludes discontinued operations and
businesses held for sale.
* Per share data is not presented for the period ended September 30, 1993, the
confirmation date of the Company's Reorganization Plan, due to the general
lack of comparability as a result of the revised capital structure of the
Company.
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<PAGE> 24
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(INCLUDING PER SHARE DATA)
WANG LABORATORIES, INC.
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following pro forma information has been prepared assuming that the
acquisition occurred at the beginning of the fiscal year ended June 30, 1997.
The pro forma information is based on the historical financial statements of the
Company and Olsy, giving effect to the transaction under the purchase method of
accounting and the assumptions and adjustments described in the Company's Form
8-K/A, Amendment No. 1 to Current Report Filed March 31, 1998. The pro forma
information for the nine months ended March 31, 1998 includes the unaudited
historical results of Wang and Olsy for the nine months then ended. The pro
forma information for the fiscal year ended June 30, 1997 includes the
historical results of Wang plus the unaudited historical results of Olsy for the
four quarters ended September 30, 1997. Accordingly, the unaudited results of
operations for the Olsy quarter ended September 30, 1997 are included in both
the nine month and fiscal year periods. Revenues and loss from continuing
operations for that quarter were $509.2 million and $32.2 million, respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Revenues......................................... $2,694.4 $3,921.7
Income (loss) from continuing operations before
extraordinary item............................. $ (117.8) $ (208.2)
Loss on debt discharge........................... $ (--) $ (19.8)
Income (loss) from continuing operations......... $ (117.8) $ (228.0)
Net income (loss) applicable to common
stockholders................................... $ (128.2) $ (242.1)
Net income (loss) per share from continuing
operations
Basic.......................................... $ (2.72) $ (5.26)
Diluted........................................ $ (2.72) $ (5.26)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C>
Total assets.......................................... $2,611.9
Depreciable assets, net............................... $ 302.0
Working capital deficit............................... $ (91.0)
Long-term debt........................................ $ 44.4
Series A preferred stock.............................. $ 86.0
Stockholders' equity.................................. $ 605.3
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1998(1) JUNE 30, 1998
-------------------- -------------
<S> <C> <C>
Wang Historical(2)
Net Income (loss) per share................... $(0.43) $(7.29)
Book value per share as of period end(4)...... $ 4.56 $ 6.04
Pro Forma Combined(2)(3)
Net Income (loss) per share................... $(0.43) $(9.39)
Book value per share as of period end(4)...... $ 4.56 $ 6.04
</TABLE>
- - ---------------
(1) The Company has changed its fiscal year end to December 31.
(2) Neither Wang nor Olsy has declared cash dividends for the periods
presented.
(3) As described in Note 1 to its financial statements, Olsy represented
a carve out business of the Olivetti Group, and was not separately
capitalized through shares owned by the Olivetti Group. Accordingly,
per share data can not be presented for Olsy.
(4) Assumes conversion of Series B preferred stock to 5,412,000 shares
of common stock.
Financial Information: See Appendix C attached hereto (Reproduced Form
8-K/A)
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<PAGE> 25
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to market risk from changes in interest rates and
foreign exchange rates. The Company does not use derivative instruments for
trading purposes. The Company monitors foreign exchange and interest rate risks
and manages such risks on specific transactions. The risk management process
uses analytical techniques including market value, sensitivity analysis, and
value at risk estimates. The Company does not believe that the potential
exposure is significant in light of the size of the Company and its business. In
addition, foreign exchange rates may move in the Company's favor. Recent
experience has demonstrated that gains on certain days are offset by losses on
other days. While the Company does not expect to incur material losses as a
result of this market risk, there can be no assurance that losses will not
result.
OLSY
Pro Forma Financial Data: See "Wang -- Pro Forma Combined Selected
Financial Data".
Financial Information: See Appendix C attached hereto (Reproduced Form
8-K/A)
Selected Financial Data: Olivetti Solutions (an integrated unit of the
Olivetti Group) Comparison of Selected Financial Data (Lire in billions)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPT. 30, 1997 DEC. 31, 1996
-------------- -------------
<S> <C> <C>
Revenues......................................... 2,938 4,495
Loss from continuing operations before
extraordinary item............................. (113) (356)
Loss on debt discharge........................... -- (30)
Net loss......................................... (113) (386)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1997 1996
--------- --------
<S> <C> <C>
Total assets..................................... 3,429 3,751
Depreciable assets, net.......................... 364 359
Working capital (deficit)........................ 337 (61)
Long-term debt, excluding liabilities subject to
compromise..................................... 76 89
Stockholders' equity (deficit)................... 232 (187)
</TABLE>
The exchange ratio as of September 30, 1997 was 1,759 Lire/US$ and was
1,684 Lire/US$ for the nine months then ended. The exchange ratio as of December
31, 1996 was 1,511 Lire/US$ and was 1,544 Lire/US$ for the year then ended.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS:
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED) AND COMMENTARY ON THE QUARTER ENDED DECEMBER 31,
1996 (UNAUDITED).
OVERVIEW
Olivetti Solutions ("Olsy" or in this "Overview" Section, the "Company"),
an integrated business unit of the Olivetti Group, includes the combined systems
and services businesses of Olivetti Solutions S.p.A. ("Olsy
23
<PAGE> 26
S.p.A.") and its legally owned companies, O. Group Technology S.p.A., O.R.E.& L
s.r.l., the systems and services business of Olivetti do Brasil, 40% interest in
Olivetti Espana and 80% interest in Olivetti Corporation of Japan and their
predecessor operations.
Prior to 1996, the business of the Company was conducted by Olivetti S.p.A.
and several other Olivetti Group companies located in Italy and in various other
countries, some of which conducted other operations through several business
lines. Beginning in 1995, the Olivetti Group began a series of transactions to
formally separate the business of the Company from the non-Olsy business and to
consolidate the shareholdings of the various companies into Olivetti Solutions
S.p.A. These transactions included the retention of certain Non-Olsy business
assets and liabilities, the disposition of non-core assets, liabilities and
operations and the forgiveness of approximately Lire 515 billion owed to other
Olivetti Group companies. As a result of the changes in legal structure and
share ownership, several previously combined entities were consolidated in 1997.
The financial statements of the Company have been derived by extracting the
assets and liabilities and results of operations of the Company from the
consolidated assets, liabilities and results of operations of the Olivetti
Group. Accordingly, the combined consolidated financial statements contain
necessary allocations of assets, liabilities, revenues and expenses attributable
to the Company as deemed reasonable by management to present the Company on a
stand alone basis. However, the financial position and results of operations of
the Company may differ from the results that may have been achieved had the
Company operated as an independent entity.
In connection with its acquisition by Wang Laboratories, Inc ("Wang"), Olsy
prepared financial statements in accordance with U.S. Generally Accepted
Accounting Principles for the year ended December 31, 1996 and the nine months
ended September 30, 1997. For purposes of this analysis, the nine months ended
September 30, 1997 are compared to the same unaudited nine month period in the
prior year. The discussion and analysis also includes commentary on the
unaudited three months ended December 31, 1996.
For the nine months ended September 30, 1997, the Company reported revenues
of Lire 2,938 billion, a 5.4% decrease compared to the same period in the prior
year. The decrease is attributable to price pressure in the traditional service
business, a decision to move away from lower margin activities and market
uncertainty surrounding the future of Olsy. Revenues for the quarter ended
December 31, 1996 were Lire 1,387 billion and represented 30.8% of revenues for
the calendar year 1996.
The operating loss for the nine months ended September 30, 1997 of Lire 68
billion includes non-recurring charges of Lire 25 billion and non-recurring
income of Lire 68 billion. The non recurring charges relate principally to
severance and exit costs while non recurring income arose from dispositions of
real estate and non-core businesses. The Lire 25 billion non-recurring charges
are recorded as selling, general and administrative expense while the
non-recurring income is included as other revenues. The operating loss for the
nine months ended September 30, 1996 of Lire 162 billion includes Lire 23
billion of restructure expense for headcount reduction and abandoned space
costs. Excluding the non-recurring charge, the operating loss for the nine
months ended September 30, 1996 was Lire 139 billion.
The Company recorded an operating loss of Lire 116 billion during the
quarter ended December 31, 1996. This included restructuring charges of Lire 59
billion for workforce reductions and facilities disposals. The results of the
quarter also includes a loss on the early extinguishment of debt of Lire 30
billion for lease settlement costs.
Excluding these non-recurring items, the operating loss reported for the
nine months ended September 30, 1997 was Lire 111 billion, a decrease of Lire 27
billion from that recorded for the same period in the prior year. This reflects
the impact of the restructuring initiative adopted in the prior year. On the
same basis the operating loss for the quarter ended December 31, 1996 would have
been Lire 27 billion.
Losses before taxes and minority interests for the nine month periods ended
September 30, 1997 and 1996 were Lire 103 billion and Lire 216 billion
respectively.
The loss before taxes and minority interests for the quarter ended December
31, 1996 was Lire 138 billion.
24
<PAGE> 27
Revenues
Total revenues for the nine months ended September 30, 1997 were Lire 2,938
billion, a decline of Lire 170 billion from the same period in the prior year.
Revenues from services for the nine month period ended September 30, 1997
were Lire 1,280 billion, a reduction of Lire 408 billion, or 24.2%, from the
same period in the prior year, while revenues from products were Lire 1,590
billion an increase of Lire 184 billion, or 13.1%. The reduction in services
revenues was caused primarily by reductions in solutions integration projects of
Lire 50 billion, traditional services of Lire 36 billion and a change in the mix
of the network integration business between services and products.
During the quarter ended December 31, 1996, revenues from services were
Lire 575 billion while revenues from products amounted to Lire 812 billion.
Gross Margins
Gross margins on services for the nine month period ended September 30,
1997 were 22.3%, compared to 19.2% for the same period in the prior year. The
improvement is a result of operating efficiencies in the field service
organization, the favorable effects of restructuring initiatives, and the loss
of some lower margin business.
Gross margins on product sales for the nine month period ended September
30, 1997 were 17.7%, compared with 15.8% for the same period in the prior year.
An improved procurement process, an increase in higher margin networking product
sales and a reduction in traditional PC product sales where margins are
generally lower, contributed to this improvement.
Gross margins on services during the quarter ended December 31, 1996 were
26.8%, reflecting the concentration of higher margin solutions integration
projects. Product gross margins were 20.7% during the same quarter as a result
of the favorable mix of specialized banking devices which earn a higher margin.
Selling, General and Administration ("S,G & A") Expenses
S, G &A expenses, excluding research and development, for the nine month
period ended September 30, 1997 were Lire 669 billion or 22.8% of net revenues
compared to Lire 599 billion or 19.4% of net revenues for the same period in the
prior year. The nine month period ended September 30, 1997 includes Lire 25
billion of non-recurring charges described above. Excluding these non-recurring
charges, S,G &A increased by Lire 45 billion. This increase is primarily due to
additional marketing and documentation costs associated with the creation of
Olivetti Solutions and the brand name Olsy. S,G &A expense during the quarter
ended December 31, 1996 amounted to Lire 330 billion.
Research and Development ("R&D") Expenses
R&D expenses for the nine month period ended September 30, 1997 were Lire
33 billion, compared to Lire 70 billion for the same period in the prior year.
This reduction was a consequence of the completion of several initiatives in
1996 and the more focussed approach to the market adopted by the Company during
1997. Research and development expense for the quarter ended December 31, 1996
amounted to Lire 20 billion.
Interest Expense
Interest expense incurred during the nine month period ended September 30,
1997 was Lire 35 billion, compared to Lire 54 billion for the same period of
1996. This was achieved by improved working capital management and other cash
management initiatives.
During the quarter ended December 31, 1996 the Company incurred interest
expense of Lire 22 billion. This is consistent with the higher working capital
requirements experienced in the quarter which also has the greatest volume of
business.
25
<PAGE> 28
Income tax
The provision for income taxes recorded during the nine month period ended
September 30, 1997 was Lire 15 billion compared to Lire 22 billion in the same
prior year period. The provision for the quarter ended December 31, 1997 was
Lire 7 billion recorded in jurisdictions where there was taxable income.
Liquidity and Sources of Capital
Cash and equivalents were Lire 192 billion at September 30, 1997, a
reduction of Lire 147 billion from December 31, 1996.
Cash provided by operations was Lire 327 billion during the nine months
ended September 30, 1997. This was primarily the result of continued focus on
asset management which reduced accounts receivable by Lire 343 billion.
Cash used in investing activities was Lire 275 billion in the nine months
ended September 30, 1997, and includes Lire 50 billion for net capital additions
and Lire 206 billion advanced to related parties.
At September 30, 1997, the Company had unused lines of credit, primarily
for short-term borrowings, of Lire 254 billion. The Company had Lire 404 billion
of total debt outstanding at September 30, 1997, of which Lire 269 billion was
guaranteed by other Olivetti Group companies at a total weighted average
interest rate of 5.82%. Included in the balances outstanding at September 30,
1997 was Lire 199 billion to factoring or other financial institutions.
The Company had amounts due to other Olivetti Group companies of Lire 533
billion at September 30, 1997. The weighted average interest on these amounts
was 8.29%.
Net currency transaction losses were Lire 5 billion for the nine months
ended September 30, 1997 and Lire 32 billion for the year ended December 31,
1996.
Quantitative and Qualitative Disclosures About Market Risks
Olsy is exposed to market risk from changes in interest rates and foreign
exchange rates. Olsy does not use these derivative instruments for trading
purposes. Subsequent to its acquisition by Wang, Olsy initiated a risk
management control process to monitor the foreign exchange and interest rate
risks. The risk management process uses analytical techniques including market
value, sensitivity analysis, and value at risk estimates. Olsy does not believe
that the potential exposure is significant in light of the size of Olsy and its
business. In addition, the foreign exchange rate can move the Olsy's favor.
Recent experience has demonstrated that gains on certain days are offset by
losses on other days. Therefore, Olsy does not expect to incur material losses.
Prior to December 31, 1996, the Company participated in certain Olivetti
Group centralized foreign currency and risk management functions. As part of
these activities, derivative financial instruments were utilized to manage risks
generally associated with foreign currency and interest rate volatility. The
statement of income for 1996 reflects both specific and allocated benefits and
costs from these functions.
INTEREST OF CERTAIN PERSONS IN THE VOTES
Roberto Colaninno is a director of the Company and is also an Officer of
Olivetti.
26
<PAGE> 29
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the compensation for each of the last three fiscal years and the Stub
Period of the Company's Chief Executive Officer and the Company's four other
most highly compensated executive officers during Fiscal 1998 and during the
Stub Period (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION(1) AWARDS
--------------------- ----------------------------
RESTRICTED SECURITIES
FISCAL STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (#)(2) OPTIONS(#)(3) COMPENSATION($)
- - --------------------------- ------ --------- -------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Tucci................. 1998s(4) 375,000 787,500(5) -- -- 32,082(6)
Chairman of the Board, President 1998 750,000 356,250(7) -- -- 70,100
and Chief Executive Officer 1997 652,030 4,693,750 230,000 465,000 443,783
1996 551,250 400,000 -- 148,500 49,773
Jeremiah J.J. van Vuuren(8)..... 1998s(4) 240,146 356,792(9) 29,000 -- 42,530(10)
President and Chief Operating 1998 396,988 106,875(7) -- 40,000 76,770
Officer, International 1997 371,963 196,247 25,000 120,000 41,261
1996 263,075 210,000 -- 87,750 34,265
Jose Ofman...................... 1998s(4) 187,500 180,000(11) -- -- 109,541(12)
President and Chief Operating 1998 375,000 106,875(7) -- -- 138,016
Officer, Americas International 1997 102,403(13) -- 50,000 300,000 17,607
Franklyn A. Caine............... 1998s(4) 192,500 245,000(14) 29,000 -- 8,280(15)
Executive Vice President and 1998 350,000 83,125(7) -- 50,000 21,560
Chief Financial Officer 1997 331,618 565,000 15,000 75,000 96,797
1996 325,000 198,000 -- 81,000 30,885
Donald P. Casey................. 1998s(4) 175,000 180,000(16) 14,000 -- 12,543(17)
Chief Technology Officer 1998 350,000 99,750(7) -- 45,000 30,128
1997 350,000 178,834 -- 45,000 25,665
1996 350,000 178,834 -- 87,750 35,476
</TABLE>
- - ---------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted, in accordance with the rules of the SEC, as the aggregate
amount of such perquisites and other personal benefits constituted less
than the lesser of $50,000 or 10% of the total annual salary and bonus for
each executive officer in each period covered.
(2) During the Stub Period, restricted stock awards of 29,000, 29,000 and
14,000 shares were granted to Messrs. van Vuuren, Caine and Casey,
respectively. The restricted stock vests according to the following: if the
average of the closing prices of the Company's Common Stock for a period of
forty (40) consecutive trading days ending on or prior to July 1, 2001 (the
"First Period") is $33.00 or more, then 34% of the shares vest on the later
of July 1, 2000 or the last trading date of the First Period; and 66% of
the shares vest on July 1, 2001. All restrictions terminate in any event on
July 1, 2005. Based on the closing price of the Common Stock on December
31, 1998 ($27.75), the restricted stock award to Mr. van Vuuren had a value
of $804,750, the restricted stock award to Mr. Caine had a value of
$804,750, and the restricted stock award to Mr. Casey had a value of
$388,500. In 1997, Restricted stock awards of 230,000, 25,000, 50,000 and
15,000 shares were granted to Messrs. Tucci, van Vuuren, Ofman and Caine,
respectively. The restricted stock issued to Mr. Tucci vested 50% on March
26, 1998 and 50% on March 26, 1999. The restricted stock issued to Mr.
Ofman vested 34% on March 26, 1999, and will vest 33% on each of March 26,
2000 and 2001. The restricted stock issued to each of Messrs. Caine and van
Vuuren vested 100% on March 26, 1999. Based on the closing price of the
Common Stock on June 30, 1998, the restricted stock award to Mr. Tucci had
a value of $5,850,625, the restricted stock award to Mr. Ofman had a value
of $1,271,875, the restricted stock award to Mr. van Vuuren had a value of
$635,937.50 and the restricted stock award to Mr. Caine, had a value of
$381,562.50.
(3) Consists of long-term incentive options granted under the Company's
Employees' Stock Incentive Plan or an individual stock incentive plan in
the case of Mr. Ofman.
(4) All compensation, except Bonuses, is for the six-month Stub Period and has
not been annualized.
27
<PAGE> 30
(5) Calendar 1998 bonus consists of $787,500 paid under the Company's executive
bonus plan. Fiscal 1998 bonus consists of $356,250 in Common Stock issued
under the Interim STIP. Fiscal 1997 bonus includes a $4,000,000 special
retention bonus and $693,750 paid under the Company's executive bonus
program. Fiscal 1996 bonus consists of $400,000 paid under the Company's
executive bonus program.
(6) All other compensation for the Stub Period consists of (i) $26,800 in
contributions by the Company under its retirement savings plans and (ii)
$5,282 in premiums paid by the Company on a group term life insurance
policy for the benefit of Mr. Tucci. All other compensation for Fiscal 1998
consists of (i) $60,000 in contributions by the Company under its
retirement savings plans and (ii) $10,100 in premiums paid by the Company
on a group term life insurance policy for the benefit of Mr. Tucci. All
other compensation for Fiscal 1997 consists of (i) $47,014 in contributions
by the Company under its retirement savings plans, (ii) $9,256 in premiums
paid by the Company on a group term life insurance policy for the benefit
of Mr. Tucci and (iii) $387,513 relating to the waiver by the Company of
both the principal and accrued interest under Mr. Tucci's 3% promissory
note. All other compensation for Fiscal 1996 consists of (i) $33,900 in
contributions by the Company under its retirement savings plans, (ii)
$8,402 in premiums paid by the Company on a group term life insurance
policy for the benefit of Mr. Tucci, and (iii) $7,471 consisting of imputed
income as a result of the 3% promissory note from Mr. Tucci.
(7) A six month short-term incentive bonus plan for executive covering the
period July 1, 1997 through December 31, 1997 (the "Interim STIP") was
approved by the Company's Organization, Compensation and Nominating
Committee. The Interim STIP required that all senior executives of the
Company receive and accept bonus earned by them for the period July 1997
through December 1997 to be paid in shares of Common Stock valued at the
closing price of the Common Stock on The Nasdaq Stock Market as of June 30,
1997 which was $21.3125. See "Report of Organization, Compensation and
Nominating Committee on Executive Compensation."
(8) All compensation paid to Mr. van Vuuren is reported in US Dollars although
it is paid in UKL. The currency conversion rate used was $1.6595 per UKL,
$1.666 per UKL, $1.665 per UKL, and $1.5475 per UKL, for the Stub Period,
Fiscal 1998, 1997 and 1996, respectively. The conversion rates used were
those rates published by Reuters News Service on the last day of June of
each year and, for the Stub Period, on the last day of December 1998.
(9) Calendar 1998 bonus consists of $356,792 paid under the Company's executive
bonus plan. Fiscal 1998 bonus consists of $106,875 in Common Stock issued
under the Interim STIP. Fiscal 1997 bonus consists of $196,247 paid under
the Company's executive bonus program. Fiscal 1996 bonus consists of
$210,000 paid under the Company's executive bonus program.
(10) All other compensation for the Stub Period consists of (i) $26,907 in
contributions by the Company under its retirement savings plans and (ii)
$15,623 in a car allowance. All other compensation for Fiscal 1998 consists
of (i) $26,907 in contributions by the Company under its retirement savings
plans, (ii) $18,076 in premiums paid by the Company on a group term life
insurance policy for the benefit of Mr. van Vuuren and (iii) $31,787 in a
car allowance. All other compensation for Fiscal 1997 consists of (i)
$23,351 in contributions by the Company under its retirement savings plans
and (ii) $17,910 in premiums paid by the Company on a group term life
insurance policy for the benefit of Mr. van Vuuren. All other compensation
for Fiscal 1996 consists of (i) $19,474 in contributions by the Company
under its retirement savings plans and (ii) $14,791 in premiums paid by the
Company on a group term life insurance life insurance policy for the
benefit of Mr. van Vuuren.
(11) Calendar 1998 bonus consists of $180,000 paid under the Company's executive
bonus plan. Fiscal 1998 bonus consists of $106,875 in Common Stock issued
under the Interim STIP.
(12) All other compensation for the Stub Period consists of (i) $4,520 in
contributions by the Company under its retirement savings plans, (ii)
$7,473 in premiums paid by the Company on a group term life insurance
policy for the benefit of Mr. Ofman and (iii) $97,548 in relocation costs.
All other compensation for Fiscal 1998 consists of (i) $12,000 in
contributions by the Company under its retirement savings plans, (ii)
$14,946 in premiums paid by the Company on a group term life insurance
policy for the benefit of Mr. Ofman and (iii) $111,070 in relocation costs.
All other compensation for Fiscal 1997 consists of (i) $3,736 in premiums
paid by the Company on a group term life insurance policy for the benefit
of Mr. Ofman and (iii) $13,871 in relocation costs.
(13) Mr. Ofman joined the Company on March 26, 1997, and therefore, did not
receive compensation for all of Fiscal 1997.
28
<PAGE> 31
(14) Calendar 1998 bonus consists of $245,000 paid under the Company's executive
bonus plan. Fiscal 1998 bonus consists of $83,125 in Common Stock issued
under the Interim STIP. Fiscal 1997 bonus consists of a special retention
bonus of $400,000 and $165,000 paid under the Company's executive bonus
program. Fiscal 1996 bonus consists of $198,000 paid under the Company's
executive bonus program.
(15) All other compensation for the Stub Period consists of $8,280 in
contributions by the Company under its retirement savings plans. All other
compensation for Fiscal 1998 consists of $21,560 in contributions by the
Company under its retirement savings plans. All other compensation for
Fiscal 1997 consists of (i) $20,271 in contributions by the Company under
its retirement savings plans and (ii) $76,526 in relocation costs. All
other compensation for Fiscal 1996 consists of (i) $18,225 in contributions
by the Company under its retirement savings plans, (ii) $6,367 in premiums
paid by the Company to Mr. Caine in lieu of payments on a group term life
insurance policy for the benefit of Mr. Caine and (iii) $6,293 in
relocation costs.
(16) Calendar 1998 bonus consists of $180,000 paid under the Company's executive
bonus plan. Fiscal 1998 bonus consists of $99,750 in Common Stock issued
under Interim STIP. Fiscal 1997 bonus consists of $178,834 paid under the
Company's executive bonus program. Fiscal 1996 bonus consists of $178,834
paid under the Company's executive bonus program.
(17) All other compensation for the Stub Period consists of (i) $8,420 in
contributions by the Company under its retirement savings plans and (ii)
$4,123 in premiums paid by the Company on a group term life insurance
policy for the benefit of Mr. Casey. All other compensation for Fiscal 1998
consists of (i) $22,400 in contributions by the Company under its
retirement savings plans and (ii) $7,728 in premiums paid by the Company on
a group term life insurance policy for the benefit of Mr. Casey. All other
compensation for Fiscal 1997 consists of (i) $16,996 in contributions by
the Company under its retirement savings plans and (ii) $8,669 in premiums
paid by the Company on a group term life insurance policy for the benefit
of Mr. Casey. All other compensation for Fiscal 1996 consists of (i)
$21,612 in contributions by the Company under its retirement savings plans,
(ii) $6,586 in premiums paid by the Company on a group term life insurance
life insurance policy for the benefit of Mr. Casey and (iii) $7,278
consisting of imputed income as a result of the 3% promissory note from Mr.
Casey.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options during Fiscal 1998 to each of the Named Executives. No options
were granted to the Named Executives during the Stub Period.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED EXERCISE OPTION TERM(2)
UNDERLYING TO EMPLOYEES PRICE EXPIRATION ----------------------
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($)(1) DATE 5%($) 10%($)
- - ---- ------------------ ---------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph M. Tucci............. 1998 -- -- -- -- -- --
Jeremiah J.J. van Vuuren.... 1998 40,000(3) 1.8 21.875 11/30/04 297,584 675,116
Jose Ofman.................. 1998 -- -- -- -- -- --
Franklyn A. Caine........... 1998 50,000(3) 2.3 21.875 11/30/04 371,980 843,895
Donald P. Casey............. 1998 45,000(3) 2.1 21.875 11/30/04 334,782 759,505
</TABLE>
- - ---------------
(1) The exercise price per share of each option is equal to the fair market
value (the closing price of the Company's common stock on the day before the
day of grant) per share of Common Stock on the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise of the option or the sale of the underlying shares. The actual
gains, if any, on the stock option exercises will depend on the future
performance of the Common Stock, the op-
29
<PAGE> 32
tionholder's continued employment through the option period, and the date on
which the options are exercised and the underlying shares are sold.
(3) Each option (i) became exercisable as to 25% of the underlying shares on
December 1, 1998, and 25% of the underlying shares will become exercisable
on December 1, 1999, December 1, 2000 and December 30, 2001 and (ii)
generally terminates 30 days after the termination of the optionee's
employment with the Company (but in no event after the expiration date).
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning option
exercises during the Stub Period (1998s) and Fiscal 1998 by each of the Named
Executives and the number and value of unexercised options held by each of the
Named Executives on December 31, 1998 and June 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED(1)($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - ---- -------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Joseph M. Tucci............ 1998s -- -- 897,500/106,000 12,306,395/984,230
1998 -- -- 831,829/171,671 9,675,505/1,294,526
Jeremiah J. J. van
Vuuren................... 1998s -- -- 275,450/61,800 3,503,150/464,688
1998 -- -- 265,450/71,800 2,500,390/687,557
Jose Ofman................. 1998s -- -- 75,000/225,000 712,500/2,137,500
1998 -- -- 75,000/225,000 539,063/1,617,188
Franklyn A. Caine.......... 1998s -- -- 447,000/59,000 7,138,323/413,178
1998 -- -- 400,180/105,820 5,766,888/614,487
Donald P. Casey............ 1998s -- -- 244,150/48,600 3,247,403/329,110
1998 110,000 2,047,625 232,900/59,850 2,344,734/554,795
</TABLE>
- - ---------------
(1) Based on the fair market value of the Common Stock on the date of exercise
less the option exercise price.
(2) Based on the fair market value (the closing price of the Company's Common
Stock) of the Common Stock on June 30, 1998 ($25.4375) and December 31, 1998
($27.75), respectively, less the option exercise price.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
In February 1997, the Company entered into an amended and restated
employment agreement ("Restated Agreement") with Mr. Tucci. The Restated
Agreement provides for an annual base salary of $750,000 and an annual
performance bonus targeted at 100% of the base salary, and provide for a minimum
bonus payment of $500,000 for Fiscal 1997. The Restated Agreement also provided
for a special retention payment of $4,000,000 on or about March 24, 1997. The
Restated Agreement provided for Mr. Tucci to be granted a restricted stock award
of 230,000 shares of Common Stock and an LTI Option grant of 365,000 shares of
Common Stock in 1997. The Restated Agreement forgives all amounts due to the
Company under that certain Non-Negotiable Secured Promissory Note dated as of
June 21, 1994 delivered by Mr. Tucci to the Company as amended, in the original
principal amount of $355,071 and releases to Mr. Tucci all shares of the
Company's Common Stock held as collateral for such loan. Finally, the Restated
Agreement provides for the payment of a severance benefit of $4,500,000, payable
in a lump sum equal to $1,500,000 and the balance over a 12-month period,
payable under certain enumerated circumstances (including employment termination
by the Company, an adverse change in job responsibilities, an adverse change in
compensation or the resignation of the executive following a significant
relocation).
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<PAGE> 33
The Company entered into an employment agreement with Mr. van Vuuren in May
1993 pursuant to which the Company agreed to employ him as a Senior Vice
President of the Company and General Manager of the Company's European
Operations. The agreement, as amended in March 1997 and July 1998, specifies Mr.
van Vuuren's position as President and Chief Operating Officer, International
Operations. Under the terms of the agreement, as amended, Mr. van Vuuren's base
salary for Fiscal 1997 was $325,000 plus a supplemental amount of $50,000
subject to deferral at the option of Mr. van Vuuren. Mr. van Vuuren is also
eligible to participate in a yearly bonus plan targeted at 60% of his base
salary based on his performance against goals specified in the bonus plan. He
will also receive payments in the amount of $400,000 each, if and when the
market price of the Company's Common Stock averages $34.00, $39.00 and $44.00
per share respectively over twenty consecutive trading days. The agreement
provides that, if he is dismissed for any reason, other than for gross
misconduct or violation of the Company's Employee Code of Conduct, Mr. van
Vuuren will receive severance compensation equal to 18 months of base and
supplemental salary to be paid over an 18-month period. Severance payments would
be offset by compensation received from a new employer during such 18-month
period. In March 1997, Mr. van Vuuren received a restricted stock grant for
25,000 shares of Common Stock and an LTI Option grant in the amount of 60,000
shares of Common Stock in 1997. In July 1998 he received a restricted stock
grant for 29,000 shares of Common Stock.
In March 1997, the Company entered into an employment agreement with Mr.
Ofman pursuant to which the Company agreed to employ him as President and Chief
Operating Officer, Americas of the Company, as amended in July 1998. Mr. Ofman's
agreement extends through March 2000. Under the agreement, the Company agreed to
pay Mr. Ofman an annual base salary of $375,000. The agreement also provided for
annual performance-based bonuses to be determined by the Board of Directors
targeted at 60% of annual base salary for achieving 100% of his performance
goals and an over-achievement opportunity of an additional 40% of his annual
base salary for exceeding such performance targets, at the discretion of the
Board of Directors. He will also receive payments in the amount of $400,000
each, if and when the market price of the Company's Common Stock averages
$34.00, $39.00 and $44.00 per share, respectively, over twenty consecutive
trading days. Under the agreement, Mr. Ofman received a restricted stock award
of 50,000 shares of Common Stock and an option grant of 300,000 shares of Common
Stock in 1997. Under his employment agreement Mr. Ofman will receive severance
compensation equal to a lump sum payment equal to six (6) months of his salary
and target bonus plus commencing one month after termination or resignation and
ending eighteen (18) months thereafter, thirty-six (36) semi-monthly payments
equal to one-twenty-fourth ( 1/24) of his annual salary plus target bonus at
100% performance if Mr. Ofman's employment is involuntarily terminated other
than for cause or if Mr. Ofman experiences an adverse change in job
responsibilities. Severance payments would be offset by the compensation Mr.
Ofman received from a new employer during such 18-month period.
In June 1994, the Company entered into an employment agreement with Mr.
Caine pursuant to which the Company agreed to employ him as Executive Vice
President and Chief Financial Officer of the Company. Mr. Caine's agreement, as
amended in November 1995, May 1996, March 1997 and July 1998, extends through
June 30, 2001. Under the agreement, the Company agreed to pay Mr. Caine an
annual base salary and bonus as authorized from time to time by Wang's Chief
Executive Officer and the Organization, Compensation and Nominating Committee of
the Board of Directors. Under his employment agreement Mr. Caine will receive
severance compensation in an amount equal to six months salary and target bonus
payable in a lump sum and eighteen (18) monthly payments equal to one-twelfth
( 1/12) of his annual salary plus target bonus at 100% performance, if Mr.
Caine's employment is involuntarily terminated other than for cause or if Mr.
Caine experiences an adverse change in job responsibilities. Severance payments
would be offset by the compensation Mr. Caine received from a new employer
during such 18-month period. In March 1997, Mr. Caine received a restricted
stock award of 15,000 shares of Common Stock, an LTI Option grant of 25,000
shares of Common Stock and a special retention bonus payment from the Company in
the amount of $400,000 in 1997. In July 1998 he received a restricted stock
grant for 29,000 shares of Common Stock.
In March 1993, the Company entered into an employment agreement with Mr.
Casey. The agreement, as amended in April 1995, July 1996, and July 1998 extends
through June 30, 2001 and provided for an annual base salary and bonus as
authorized from time to time by Wang's Chief Executive Officer and the
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<PAGE> 34
Organization, Compensation and Nominating Committee of the Board of Directors.
Under his employment agreement Mr. Casey will receive severance compensation in
an amount equal to six (6) months salary and target bonus payable in a lump sum
and twenty-four (24) semi-monthly payments equal to one twenty-fourth ( 1/24) of
his annual salary plus target bonus at 100% performance, if Mr. Casey's
employment is involuntarily terminated other than for cause or if Mr. Casey
experiences an adverse change in job responsibilities. Severance payments would
be offset by the compensation Mr. Casey received from a new employer during such
18-month period. In July 1998, Mr. Casey received a restricted stock grant for
14,000 shares of Common Stock.
The Company is a party to contingent severance compensation agreements
("Severance Agreements") with nine executive officers (including Messrs. Tucci,
van Vuuren, Ofman, Caine and Casey) which would become operative following a
"change in control" of the Company, as defined in the Severance Agreements. The
Company believes that these agreements will better ensure the retention of those
officers and enable them to devote their full attention and energies to the
Company's business without the distractions that might arise in the
circumstances addressed in the agreements. The Severance Agreements continue in
effect while the executive is employed by the Company for a period of three
years, automatically renew for additional one year terms and remain in effect
for 36 months after the month in which a change in control occurs. If the
executive's employment is terminated following a change in control, the
executive would become entitled to various benefits under the Severance
Agreement, including (in lieu of a payment under any other severance plan or
agreement) a lump sum severance payment equal to 2.99 times the average annual
compensation received by the executive for the two previous years, unless the
executive's employment was terminated (i) because of death or disability, (ii)
by the Company for cause, or (iii) by the executive without "good reason," as
defined in the Severance Agreements.
The Severance Agreements for each of Messrs. Tucci, Caine and Casey provide
that in the event the total payments to the executive under the agreement are
subject in whole or in part to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company will pay the executive an additional amount in the form of a gross-up
payment such that the net amount retained by the executive after payment of the
Excise Tax on the total payments and any federal, state and local income taxes
on the gross-up payment equals the total payments the executive would have
received absent the Excise Tax. The Severance Agreement for Mr. van Vuuren
provides that the lump sum payment would be subject to reduction to the extent
that any payment (whether under the Severance Agreement or otherwise) to Mr. van
Vuuren was subject to the Excise Tax imposed under Section 4999 of the Code if
such reduction would result in a greater after-tax payment to Mr. van Vuuren.
CERTAIN TRANSACTIONS
Since April 1995, the Company and Microsoft Corporation ("Microsoft") have
maintained a worldwide technical, service and marketing alliance pursuant to
which the Company acts as an authorized provider of end-user support services
for Microsoft products. On March 23, 1998, the Company and Microsoft announced
an expansion of their strategic alliance. The Company will significantly extend
its services capacity by training and certifying 2,500 professionals as
Microsoft Certified Systems Engineers and Microsoft Certified Solution
Developers. In addition, the Company will open two Centers of Excellence, one in
Billerica and one in Italy. Under the terms of the agreement, Microsoft will
fund the costs associated with the program. These costs are expected to
approximate $25 million over the next three years. The funding will be repaid in
equal installments over five years, with the first payment due in 2001. Since
April 1996, Michael W. Brown, the Chief Financial Officer of Microsoft until
July 1997, has been a director of the Company.
In connection with the Company's acquisition of Olsy (see "Agreements Among
Stockholders -- Olivetti Agreements"), Wang assumed obligations and liabilities
associated with the going concern. These obligations included employee
liabilities as well as contract commitments and other business relationships. A
complete discussion of the terms and conditions of the Acquisition is more fully
set forth in the Stock Purchase Agreement filed as an Appendix to the Company's
Form 8-K filed on March 17, 1998.
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<PAGE> 35
As part of the Reorganization Plan, the previous obligations of the Company
to indemnify its former directors, officers and employees pursuant to its
corporate charter, by-laws and policy of providing employee indemnification, and
applicable state law and agreements in respect of claims based on acts or
omissions related to such persons' service with, for or on behalf of the Company
have been retained and remain unaffected by the Chapter 11 case. Consequently,
the Company is obliged to indemnify each current or former director or executive
officer in the various legal proceedings relating to the Company's predecessor
Massachusetts corporation. On May 12, 1998, the Court issued an order (1)
authorizing the final distribution of the remaining shares to holders; and (2)
closing the Chapter 11 case.
AGREEMENTS AMONG STOCKHOLDERS - OLIVETTI AGREEMENTS
On March 17, 1998, the Company completed the purchase of Olsy, the
wholly-owned information technology solutions and service subsidiary of Olivetti
(the "Acquisition"). In connection with the Acquisition, the Company entered
into a Stock Purchase Agreement by and among Olivetti, the Company, Wang
Nederland BV, Olivetti Sistemas E Servicios Limitada and Olivetti do Brasil S.A.
(the "Stock Purchase Agreement"), pursuant to which the Company paid Olivetti
$68.6 million in cash; issued 7,250,000 shares of unregistered Common Stock (and
agreed to issue an additional 1,500,000 shares of unregistered Common Stock if
approved by the stockholders of the Company (the "Additional Issuance")) with a
value of $197.2 million at the time of closing; issued 5,000,000 stock
appreciation rights ("SARs") which give Olivetti value for the increase in the
market price of the Company's Common Stock above $30.00 per share at any time
from March 2001 to March 2005 and are redeemable in cash or Common Stock at the
Company's election; and agreed to pay an additional amount (an "earnout") of up
to $56.0 million payable in the year 2000, subject to meeting mutually-agreed
performance targets for the calendar years 1998 and 1999 (see "Proposal To Issue
Additional Shares of Common Stock to Olivetti"). The purchase price for Olsy is
subject to certain purchase price adjustments to be determined by the parties.
Pursuant to the Stock Purchase Agreement, the Company entered into a
Stockholders Agreement with Olivetti (the "Stockholders Agreement"). The
Stockholders Agreement sets forth agreements among the parties relating to the
ownership of and the voting and transferability of the Common Stock and other
matters. In the Stockholders Agreement, the Company agreed to increase its Board
of Directors by two (2) members and to nominate Mr. Colaninno and Mr. Erede as
Class I and Class III directors, respectively (the "Olivetti Directors"), and to
appoint one such Olivetti Director to each of the Company's standing Committees
(including the Finance and Audit Committee and the Organization, Compensation
and Nominating Committee). The Company also agreed to recommend future Olivetti
nominees for one or two director positions, depending on the ownership interest
of Olivetti in the Company, for as long as Olivetti holds at least 33% of the
original number of shares of Common Stock held by it as a result of the
Acquisition.
In addition, the Stockholders Agreement prohibits Olivetti from directly or
indirectly transferring its shares of Common Stock, except to majority-owned
Olivetti affiliates that agree to be bound by the terms of the agreement, until
the later of three (3) years or an Early Termination Event. "Early Termination
Event" is defined to mean (i) failure of the Company to cause an Olivetti
nominee to be appointed to the Board or a Committee; (ii) a breach of the
Stockholders Agreement by the Company; or (iii) the sale, lease, transfer or
other disposition of all or substantially all of the assets of the Company. The
Stockholders Agreement also provides that Olivetti is entitled to certain demand
and participation ("piggyback") registration rights with respect to the shares
of Common Stock issued to Olivetti as part of the purchase price of Olsy.
Pursuant to the Agreement, after the earlier of (i) an Early Termination Event
or (ii) the third anniversary following the Acquisition, Olivetti or its
transferee is entitled to one demand registration with respect to its shares of
the Company's Common Stock, subject to certain registration priorities and
postponement rights of the Company. In addition, Olivetti would be entitled to
piggyback registration in connection with any registration of securities by the
Company (whether or not for its own account) on a form which may be used for
registration of the Common Stock held by Olivetti. Olivetti's priority rights,
however, would not extend to a primary registration on behalf of the Company
relating to mergers, acquisitions, exchange offers, subscription offers, stock
option plans or similar benefit plans.
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REPORT OF ORGANIZATION, COMPENSATION AND NOMINATING COMMITTEE ON EXECUTIVE
COMPENSATION
The Company's executive compensation program is administered by the
Organization, Compensation and Nominating Committee of the Board of Directors
(the "Committee"), which was established in October 1993. The Committee is
comprised entirely of non-employee directors.
The Committee seeks to achieve two broad goals in determining executive
compensation and establishing executive compensation programs. First, the
Committee seeks to implement compensation programs which are designed to align
the interest of the Company's executive officers with those of the Company's
stockholders by providing incentives for, and rewarding, the attainment of
Company financial and operational objectives. Second, the Committee seeks to
compensate its executives in a manner that enables the Company to attract and
retain executives whose services are critical to the success of the Company. The
Committee implements its goals through a combination of base salary, variable
short-term compensation, stock options, long-term incentive plans and health and
welfare benefit plans.
In establishing total compensation for executive officers, the Committee
considers the compensation profiles of executives at other companies that have a
business and/or financial situation similar to that of the Company, the cost to
replace the executive, the particular executive's level of achievement and
responsibility with the Company, the importance of the executive to the
Company's success, unique characteristics of the Company and its business and
the executive's historic compensation levels. Many of the executive officers
(including each of the Named Executives) of the Company are parties to
employment agreements that establish a minimum annual base salary and target
annual bonus during the term of the agreement. The Committee believes that such
employment agreements are necessary to retain and motivate those key executives
whose continued services are critical to the Company's future success and are
consistent with similar agreements in the industry generally. The Committee
believes that the compensation levels established for the executives are
appropriate, based on the factors described above.
For the six-month period from July 1, 1997 through December 31, 1997 (the
"Interim Period"), the Committee adopted a pro-rata six-month short term
incentive bonus plan for executives, in lieu of the annual plan which would have
applied in part to the Interim Period (the "Interim STIP"). The Interim STIP was
established in anticipation of the Company changing its fiscal year end from
June 30 to December 31, a change which was announced on August 5, 1998. The
Committee determined that it was in the best interest of the Company for all
executive compensation plans to be measured on a twelve month calendar basis
beginning January 1, 1998. In designing the Interim STIP, the Committee tied
individual payouts to achievement of specific financial measures. The targets
included Company revenue, earnings before income taxes, depreciation and
amortization, selling, general and administrative costs and percentage gross
margin. In addition, in order to further align the interests of the Company's
executive officers with the interests of the Company's stockholders, the
Committee required that the CEO and all executives directly reporting to the CEO
(including each of the Named Executives), accept their bonuses under the Interim
STIP in the form of shares of the Company's Common Stock. Thus, the cash bonus
to which each of such executives were entitled was exchanged for shares of
Common Stock calculated by dividing the amount of the bonus by the closing price
of the Common Stock on June 30, 1997 ($21.3125). The Committee considered this
exchange to be critical to its goal of tying the variable short-term
compensation of executive officers to the risks and opportunities inherent in
the performance of the Company measured by the value of its Common Stock in the
market.
For the calendar year 1998, the Committee's philosophy was to base between
twenty-five percent (25%) and fifty percent (50%) of the cash compensation paid
to the executive officers on the attainment of financial and individual goals,
thus aligning the objectives and rewards of Company executives with those of the
stockholders of the Company. Under the Company's 1998 Management Incentive Plan,
ninety percent (90%) of this incentive compensation was based on financial
measures and ten percent (10%) was based on individual objectives. The financial
targets varied among executives based upon their respective areas of operational
responsibility. Each executive was paid a percentage of his or her target bonus
based upon the degree to which established objectives were attained. The
financial objectives included revenue, cashflow from operations, and EBITDA
targets. The actual bonuses paid to the executive officers ranged from 60% to
105% of their target bonus. The $787,500 bonus paid to Mr. Tucci represented
105% of his target bonus.
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The Committee uses stock options as an important element of the
compensation package of the executive officers, including the Named Executives,
because they are designed to align the interest of the Company's executives with
those of the Company's stockholders. Those options granted during Fiscal 1998
vest over four years, and therefore, mature fully only after the executive has
remained with the Company for a significant period of time. The size of the
stock option grants to executive officers depend upon a number of factors,
including new hires of executives, the executive's contribution to the Company,
the executive's current stock and stock option holdings and such other factors
as the Committee deems relevant. In Fiscal 1998, three out of the five Named
Executives received grants of stock options under the Company's stock option
plan. Messrs. van Vuuren, Casey and Caine received an option for 40,000, 45,000
and 50,000 shares of Common Stock, respectively. These grants represented 1.8%,
2.1% and 2.3% of the total options granted to employees during the fiscal year.
The Committee uses grants of restricted Common Stock to more closely align
the interests of the executive officers with the interests of the Company and
the Company's stockholders. The restricted stock granted during the Stub Period
is designed to vest based on the performance of the Company's Common Stock in
the market as measured over a prolonged period. The increase in the Company's
Common Stock price and the condition that the executives continue with the
Company are requirements for the vesting of the restricted stock. In the Stub
Period, three out of five of the Named Executives received grants of restricted
stock. Messrs. van Vuuren, Caine and Casey received grants in the amounts of
29,000, 29,000 and 14,000 shares, respectively.
Under Section 162(m) of the Code, certain executive compensation in excess
of $1 million paid to the five most highly-paid executives of the Company is not
deductible by the Company for federal income tax purposes unless the
compensation is awarded under a performance-based plan approved by the
stockholders of the Company. The Committee intends to continue to structure the
award of stock options to executive officers so that they comply with the
performance-based requirements of Section 162(m), and may in the future decide
to submit other executive compensation plans for stockholder approval.
Organization, Compensation and
Nominating Committee
Joseph J. Kroger, Chairman
Roberto Colaninno
Marcia J. Hooper
Axel J. Leblois
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company from December 16, 1993 (the date the Common Stock of
the reorganized Company commenced public trading) through December 31, 1998 with
the cumulative total return during this period of (i) Standard & Poor's 500
Composite Index and (ii) the High Technology Composite Index. This graph assumes
the investment of $100 on December 16, 1993 in the Company's Common Stock, the
Standard & Poor's 500 Composite Index and the High Technology Composite Index
and assumes dividends are reinvested.
WANG LABORATORIES, INC.
Stock Performance Graph
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
12/16/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 12/31/98
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WANG LABORATORIES, INC. 100.00 75.83 108.26 124.79 140.91 168.18 183.47
- - -------------------------------------------------------------------------------------------------------------------
S&P 500 COMPOSITE INDEX 100.00 95.88 117.57 144.74 191.03 244.71 265.30
- - -------------------------------------------------------------------------------------------------------------------
HITECH COMPOSITE INDEX 100.00 100.47 158.11 185.02 286.48 383.45 506.19
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 39
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP as the
Company's independent auditors for the current fiscal year. Ernst & Young LLP
has served as the independent auditors for the Company (or its predecessor
Massachusetts corporation) since 1980.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
stockholders.
OTHER MATTERS
MATTERS TO BE CONSIDERED AT THE MEETING
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters. Stockholders should be aware that the Company's By-laws (a copy
of which is available upon request to the Secretary of the Company) contain
provisions requiring certain advance notice from a stockholder who wishes to
bring business before the Annual Meeting.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's Directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Kissel-Blake Inc. has been engaged by the
Company to solicit proxies on behalf of the Company. For these services, the
Company will pay Kissel-Blake a fee of $6,000 plus reimbursement of
out-of-pocket expenses. Brokers, custodians and fiduciaries will be requested to
forward proxy soliciting material to the owners of stock held in their names,
and the Company will reimburse them for their out-of-pocket expenses in this
connection.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company at its principal office
not later than March 10, 2000 for inclusion in the Proxy Statement for that
meeting.
To be considered for presentation at the 2000 Annual Meeting of
Stockholders, although not included in the Proxy Statement, proposals of
stockholders must be received by the Company at its principal office no later
than the close of business on the tenth day following the day on which notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs.
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<PAGE> 40
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with Securities and Exchange
Commission are incorporated herein by reference: the Company's Annual Report on
Form 10-K for the year ended June 30, 1998, as amended, the Company's Quarterly
Report on 10-Q for the three-months ended September 30, 1998 filed on November
16, 1998, as amended, the Company's Annual Report on Form 10-K for the six-month
period ended December 31, 1998 filed on March 31, the Company's Current Report
on Form 8-K filed on August 5, 1998; and the description of the Common Stock
contained in the Company's Registration Statement on Form 8-A filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including any
amendment or report filed for the purpose of updating such description.
Certain financial information from the Forms 10-K and management's
discussions and analyses information has been included in the Annual Report to
Stockholders which is being mailed to stockholders simultaneously with this
Proxy Statement.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the mailing date of this Proxy Statement and
prior to May 26, 1999, the date of the Annual Meeting, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Proxy Statement or in
a document incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this Proxy Statement to the extent that a
statement contained herein or in any subsequently-filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed, as
modified or superseded, to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. The Company will provide without charge
to each person to whom this Proxy Statement is delivered, on the written or oral
request of any such person, by first class mail or other equally prompt means
within one business day of receipt of such request, a copy of any or all the
foregoing documents incorporated herein by reference (other than any exhibits to
such documents which are not specifically incorporated herein by reference).
Requests should be directed to Wang Laboratories, Inc., Attn: Legal Department,
290 Concord Road, Billerica, Massachusetts 01821, telephone no, (978) 625-5000.
By Order of the Board of Directors,
ALBERT A. NOTINI,
Secretary
April 26, 1999
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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<PAGE> 41
APPENDIX A
WANG LABORATORIES, INC.
DIRECTOR COMPENSATION AND STOCK OPTION PLAN
<PAGE> 42
WANG LABORATORIES, INC.
DIRECTOR COMPENSATION AND STOCK OPTION PLAN
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Purpose..................................................... A-1
2. Definitions................................................. A-1
3. Administration.............................................. A-3
4. Shares Available Under the Plan............................. A-4
5. Eligibility................................................. A-4
6. Grants of Restricted Stock and/or Restricted Stock Units.... A-4
7. Grants of Options........................................... A-6
8. Deferral of Fees in Deferred Shares; Other Deferrals........ A-7
9. Terms of Deferral Accounts.................................. A-8
10. Settlement of Deferral Accounts............................. A-9
11. Amendment and Termination................................... A-9
12. General Provisions.......................................... A-10
</TABLE>
A-i
<PAGE> 43
WANG LABORATORIES, INC.
DIRECTOR COMPENSATION AND STOCK OPTION PLAN
1. PURPOSE. The purpose of this Director Compensation and Stock Option
Plan (the "Plan") is to provide Wang Laboratories, Inc. (the "Company") with an
additional means to attract, retain and compensate non-employee directors and to
enable such persons to increase their proprietary interest in the Company. In
furtherance of this purpose, the Plan authorizes the use of 300,000 shares of
stock, plus any shares which have not been and will not be issued under the 1993
Director Stock Option Plan and the 1995 Director Stock Option Plan for the grant
of Restricted Stock or Restricted Stock Units, the grant of Options, and the
grant of Deferred Shares in lieu of retainer fees.
2. DEFINITIONS. In addition to the terms defined in Section 1 above, the
following capitalized terms used in the Plan have the respective meanings set
forth in this Section:
(a) "Administrator" means the administrative committee specified in
Section 3(b) to whom the Board has delegated the authority to take action
under the Plan.
(b) "Award" means a share of Restricted Stock, Restricted Stock Unit,
Option, or Deferred Share granted under the Plan.
(c) "Beneficiary" means any person (which may include trusts and is
not limited to one person) who has been designated by the Participant in
his or her most recent written beneficiary designation filed with the
Company to receive the benefits specified under the Plan in the event of
the Participant's death. If no Beneficiary has been designated who survives
the Participant's death, then Beneficiary means any person(s) entitled by
will or, in the absence thereof, the laws of descent and distribution to
receive such benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means the occurrence of any of the following
events after the effective date of the Plan:
(i) Any "person," as such term is used in Section 13(d) and 14(d)
of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any subsidiary owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
(ii) During any period of two consecutive years (not including any
period prior to the adoption of the Plan), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect any transaction described in
subsections (i), (iii) or (iv) of this definition) whose election by the
Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who were either directors at the beginning of the period or whose
election or nomination for election was previously so approved
(collectively, the "Disinterested Directors"), cease for any reason to
constitute at least a majority thereof;
(iii) The stockholders of the Company have approved a merger or
consolidation of the Company with any other company and all other
required governmental approvals of such merger or consolidation have
been obtained, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or
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consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person (as defined above) becomes
the beneficial owner (as defined above) of more than 50% of the combined
voting power of the Company's then outstanding securities; or
(iv) The stockholders of the Company have approved a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets, and all other required governmental approvals of such
transaction have been obtained.
(f) "Deferral Account" means the account established and maintained by
the Company for Restricted Stock Units or Deferred Shares credited under
Sections 6 or 8. A Deferral Account may include one or more subaccounts,
including a Restricted Stock Unit Account for forfeitable Restricted Stock
Units under Section 6 and a Deferred Share Account for nonforfeitable
Deferred Shares. The Deferral Account and subaccounts, and Restricted Stock
Units and Deferred Shares credited thereto, will be maintained solely as
bookkeeping entries by the Company to evidence unfunded obligations of the
Company.
(g) "Deferred Share" means an Award which represents the right to
receive one share of Stock upon settlement, which Award is non-forfeitable.
In addition to Deferred Shares acquired under Section 8, Restricted Stock
Units as to which the Participant has elected further deferral upon lapse
of the risk of forfeiture will automatically become Deferred Shares upon
the lapse of the risk of forfeiture.
(h) "Disability" means a Participant's termination of service as a
director of the Company due to a physical or mental incapacity of long
duration which renders the Participant unable to perform the duties of a
director of the Company.
(i) "Effective Date" means May 26, 1999, the date the Plan became
effective.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule thereunder
shall include any successor provisions or rules.
(k) "Fair Market Value" means, with respect to Stock as of a given
date, unless otherwise specified by the Board, as follows: If the Stock is
listed or admitted to trading on a national securities exchange or the
Nasdaq National Market for at least 45 consecutive trading days prior to
the date, the average of the daily market prices (i.e., the closing price,
regular way, on the trading day in question, or if no sale takes place on
such day the average of the closing bid and asked prices on such day) of
the Stock for the 30 consecutive trading days before the given date;
provided that the market prices of the Stock during such 30-day period
shall be appropriately adjusted to take into account the effect of any
Common Stock dividend or subdivision, combination or reclassification of
the Stock that occurs during such period.
(l) "Market Price" means, with respect to Stock at a given date, if
the Stock is listed or admitted to trading on a national securities
exchange or the Nasdaq National Market for at least 45 consecutive trading
days prior to the date, the average of the daily market prices (i.e., the
closing price, regular way, on the trading day in question, or if no sale
takes place on such day the average of the closing bid and asked prices on
such day) of the Stock for the 40 consecutive trading days before the given
date; provided that the market prices of the Stock during such 40-day
period shall be appropriately adjusted to take into account the effect of
any Stock dividend or subdivision, combination or reclassification of the
Stock that occurs during such period.
(m) "Option" means the right, granted to a Participant under Section
7, to purchase a specified number of shares of Stock at the specified
exercise price for a specified period of time under the Plan. All Options
will be non-qualified stock options.
(n) "Other Director Compensation" means fees payable to a director in
his or her capacity as such, other than Retainer Fees, for attending
meetings and other service on the Board and Board committees or otherwise.
(o) "Participant" means any person who, while a director, has been
granted an Award which remains outstanding.
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(p) "Plan Year" means, with respect to a Participant, the period
commencing at the time of the Participant's election as a director at an
annual meeting of stockholders (or the election of a class of directors if
the Company then has a classified Board of Directors), or the director's
initial appointment to the Board if not at an annual meeting of
stockholders, and continuing until the close of business of the day
preceding the next annual meeting of stockholders.
(q) "Qualifying Separation" means a termination of the Participant's
service as a director due to the failure of the Participant to be
renominated or reelected as a director or any other discontinuance of
Participant's service as a director if (in each case) the Participant has
offered and remains willing to continue to serve as a director at the time
the discontinuance is announced and the discontinuance is not due to the
Participant's act of fraud or intentional misrepresentation, or
embezzlement, misappropriation or conversion of assets or opportunities of
the Company.
(r) "Restricted Stock" means shares of Stock granted under Section 6,
subject to a risk of forfeiture and restrictions on transfer for a
specified period.
(s) "Restricted Stock Unit" means an Award granted under Section 6
which represents the right to receive one share of Stock upon settlement,
subject to a risk of forfeiture and restrictions on transfer for a
specified period.
(t) "Retainer Fees" means annual Board retainer fees and Committee
retainer fees, if any, payable to a director in his or her capacity as such
for service on the Board and Board committees. Unless otherwise indicated,
Retainer Fees mean the aggregate cash value of Retainer Fees, whether such
Retainer Fees are payable in cash or in property or on a current or
deferred basis.
(u) "Retirement" means a Participant's termination of service as a
director of the Company at or after age 60.
(v) "Stock" means Common Stock or any other equity securities of the
Company substituted or resubstituted for Stock under Section 12(b).
3. ADMINISTRATION.
(a) Authority. Both the Board and the Administrator (subject to the
ability of the Board to restrict the Administrator) shall administer the
Plan in accordance with its terms, and shall have all powers necessary to
accomplish such purpose, including the power and authority to construe and
interpret the Plan, to define the terms used herein, to prescribe, amend
and rescind rules and regulations, agreements, forms, and notices relating
to the administration of the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. The
Administrator may perform any function of the Board under the Plan, except
for grants of Awards under Sections 6 and 7, adoption of material
amendments to the Plan under Section 11, or other functions from time to
time specifically reserved by the Board to itself. Any actions of the Board
or the Administrator with respect to the Plan shall be conclusive and
binding upon all persons interested in the Plan, except that any action of
the Administrator will not be binding on the Board. The Board and
Administrator may each appoint agents and delegate thereto powers and
duties under the Plan, except as otherwise limited by the Plan.
(b) Administrator. The Administrator shall be the Organization,
Compensation and Nominating Committee of the Board of Directors or such
other committee as may designated by the Board. No member of the
Administrator shall be entitled to act on or decide any matter relating
solely to himself or herself or any of his or her rights or benefits under
the Plan. No bond or other security need be required of the Administrator
or any member thereof in any jurisdiction.
(c) Limitation of Liability. Each member of the Board and the
Administrator shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer or other
employee of the Company or any subsidiary, the Company's independent
certified public accountants, or any legal counsel, executive compensation
consultant, or other professional retained by the Company to assist in the
administration of the Plan. To the maximum extent permitted by law, no
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member of the Board or the Administrator, nor any person to whom
ministerial duties under the Plan have been delegated, shall be liable to
any person for any action taken or omitted in connection with the
interpretation and administration of the Plan.
4. SHARES AVAILABLE UNDER THE PLAN. The total number of shares of Stock
reserved and available for delivery under the Plan is 300,000, plus any shares
reserved for awards under the 1993 Director Stock Option Plan and 1995 Director
Stock Option Plan which have not been and will not be issued under each of those
plans, in each case subject to adjustment as provided in Section 12(b). Shares
that may be delivered under the Plan shall be authorized but unissued shares,
treasury shares or shares acquired in the market for the account of the
Participant. For purposes of the Plan, if an Option expires for any reason
without having been exercised in full or Restricted Stock, Restricted Stock
Units, or Deferred Shares are forfeited or cancelled without delivery of shares,
the shares subject to the unexercised portion of such Option or to the forfeited
or cancelled Restricted Stock, Restricted Stock Units, or Deferred Shares will
again be available for delivery under the Plan.
5. ELIGIBILITY. Each non-employee director of the Company who is paid
fees for service on the Board or a Board committee may participate in the Plan,
subject to the terms hereof. No person other than those specified in this
Section 5 will be eligible to participate in the Plan. If Participants are
permitted to participate in the Plan on an elective basis, the Administrator
will notify each person of such eligibility to participate not later than 15
days (or such other period as may be determined by the Administrator) prior to
any deadline for filing an election form.
6. GRANTS OF RESTRICTED STOCK AND/OR RESTRICTED STOCK UNITS. Restricted
Stock and/or Restricted Stock Units shall be granted to non-employee directors
in accordance with policies established from time to time by the Board
specifying the classes of directors to be granted such Awards, the number of
shares of Restricted Stock or Restricted Stock Units to be granted, and the time
or times at which such Awards shall be granted. The foregoing notwithstanding,
in addition to Restricted Stock or Restricted Stock Units granted with a
corresponding reduction in the amount of cash Retainer Fees or Other Director
Compensation, the maximum number of shares of Restricted Stock and Restricted
Stock Units that may be granted to a single director in a given year without
such a corresponding reduction shall be 50% of the number that could have been
granted with such a corresponding reduction.
(a) Initial Policy -- Grant of Restricted Stock/Restricted Stock
Units. The initial policy with respect to Awards under this Section 6,
effective as of the Effective Date and continuing until modified or revoked
by the Board, shall be as follows:
(i) Annual Grant in Lieu of Cash Retainer Fees. At the date of
each annual meeting of stockholders at which a director is elected or
reelected as a member of the Board or at which members of another class
of directors are elected or reelected (if the Company then has a
classified Board), such director, if he or she is a non-employee
director eligible to participate at that date, shall be granted the
number of shares of Restricted Stock and/or Restricted Stock Units
determined by dividing the director's Retainer Fees for that year by the
Fair Market Value of a share of Stock. This grant of Restricted Stock
and/or Restricted Stock Units shall be in lieu of payment of any
Retainer Fees to such director for the Plan Year which commences at the
date of grant.
(ii) Form of Grant; Delayed Grant of Restricted Stock. The
eligible director will be granted Restricted Stock, except if and to the
extent that he or she has elected, by filing an appropriate election
form with the Company prior to such annual meeting of stockholders, to
be granted Restricted Stock Units rather than Restricted Stock. Unless
otherwise determined by the Administrator (and subject to compliance
with applicable requirements of the Delaware General Corporation Law),
if shares of Restricted Stock are to be granted, the actual shares of
Stock shall not be issued until five days after the effective date of
the grant; the Participant's service to the Company for such five-day
period shall be deemed to have a value not less than the aggregate par
value of the shares so issued, and shall constitute lawful consideration
for the issuance of such shares.
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(iii) Newly Elected or Appointed Directors. Any person who is
first elected or appointed as a director at a date other than an annual
meeting of stockholders will be compensated in cash or otherwise in
accordance with the regular compensation policy for non-employee
directors, and will not be granted Restricted Stock or Restricted Stock
Units under the policy set forth in this Section 6(a).
(b) Terms of Restricted Stock and Restricted Stock Units Granted Under
Section 6. Restricted Stock and Restricted Stock Units granted under this
Section 6 shall be subject to the following terms and conditions:
(i) Vesting and Forfeiture. The Board may establish terms
regarding the times at which Restricted Stock and Restricted Stock Units
shall become vested and non- forfeitable. Unless otherwise determined by
the Board, an Award granted under this Section 6 and not previously
forfeited shall become vested and non-forfeitable as to all of the
shares of Restricted Stock or Restricted Stock Units at the close of
business on the day preceding the annual meeting of stockholders in the
third year following the year of grant of such Award; provided, however,
that an Award of Restricted Stock or Restricted Stock Units not
previously vested or forfeited shall vest and become non-forfeitable
immediately upon (A) a Change in Control (unless otherwise determined by
the Board and so specified in the Restricted Stock instrument), (B)
termination of the Participant's service as a director due to death,
Disability or Retirement, or (C) a Qualifying Separation of the
Participant at or after the date of the annual meeting of stockholders
in the year following the year of grant; and, provided further, that a
pro rata portion of the Award of Restricted Stock or Restricted Stock
Units not previously vested or forfeited shall vest and become non-
forfeitable upon a Qualifying Separation of the Participant prior to the
date of the annual meeting in the year following the year of grant
determined by multiplying the number of shares of Restricted Stock or
Restricted Stock Units by a fraction the numerator of which is the
number of days between the date of grant and the date of the Qualifying
Separation and the denominator of which is 365. Unless otherwise
determined by the Board, an Award of Restricted Stock or Restricted
Stock Units (or portion thereof) not vested at or before the date of
termination of Participant's service as a director will cease to vest
and will be forfeited upon the termination of the Participant's service.
(ii) Dividends on Restricted Stock. Unless otherwise determined by
the Board, dividends on Restricted Stock declared and paid prior to the
vesting and lapse of the risk of forfeiture on such Restricted Stock
shall be automatically reinvested in additional shares of Restricted
Stock, which shall be subject to the same terms, including risk of
forfeiture, as the Restricted Stock on which the dividend was paid.
(iii) Dividend Equivalents on Restricted Stock Units. Dividend
equivalents will be credited on Restricted Stock Units in accordance
with Section 9(a). Unless otherwise determined by the Board, Restricted
Stock Units credited as a result of dividend equivalents under Section
9(a) shall be subject to the same terms, including risk of forfeiture,
as the Restricted Stock Units with respect to which the dividend
equivalents were credited.
(iv) Awards Nontransferable. Restricted Stock and Restricted Stock
Units shall be nontransferable by the Participant at any time that the
Award remains subject to a risk of forfeiture.
(v) Certificates Evidencing Restricted Stock; Settlement. Unless
otherwise determined by the Administrator, the Company will retain
possession of certificates evidencing Restricted Stock. The Company may
place an appropriate legend on such certificates, reflecting the
restrictions imposed under the Plan. The Participant will, upon request,
execute and deliver to the Company a stock power authorizing the
transfer of such certificates to the Company in the event of forfeiture.
Upon the lapse of the risk of forfeiture and other restrictions on the
Restricted Stock, the Company will promptly deliver such shares in
certificate form to a Participant (or his or her Beneficiary) or to a
nominee for the account of the Participant (or his or her Beneficiary),
or in such other manner as the Administrator may determine. Any share
certificates so delivered shall be free of legends (other than those
required under the federal and state securities laws, if any).
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(vi) Settlement of Restricted Stock Units. Restricted Stock Units
will be settled promptly following the lapse of the risk of forfeiture
and other restrictions, unless such settlement is deferred by the
Participant. A Participant may elect to defer settlement of Restricted
Stock Units in accordance with Section 9(b). Settlement of Restricted
Stock Units will be made in the manner provided in Section 10(a).
7. GRANTS OF OPTIONS. Options shall be granted to non-employee directors
in accordance with policies established from time to time by the Board
specifying the classes of directors to be granted such Options, the number of
shares to be subject to each Option, and the time or times at which Options
shall be granted. The foregoing notwithstanding, the maximum number of shares
that may be subject to Options granted to a single director in a given year
shall not exceed the greater of 10,000 or three times the number of shares of
Restricted Stock or Restricted Stock Units that could be granted to such
director under Section 6 for that year, in each case subject to adjustment in
accordance with Section 12(b).
(a) Initial Policy -- Grant of Options. The initial policy with
respect to Options granted under this Section 7, effective as of the
Effective Date and continuing until modified or revoked by the Board, shall
be as follows:
(i) Performance Options. At the date of each annual meeting of
stockholders at which a director is automatically granted Restricted
Stock or Restricted Stock Units under Section 6(a), such director shall
be automatically granted an Option (designated a "Performance Option")
to purchase a number of shares equal to two times the number of shares
of Restricted Stock and Restricted Stock Units granted at that date to
the director.
(ii) Initial and Annual Options. At the close of business on the
date a person is first elected or appointed as a director, such
director, if he or she is then eligible under Section 5, shall be
automatically granted an Option (designated an "Initial Option") to
purchase 6,500 shares, subject to adjustment as provided in Section
12(b). At the close of business on March 31 of each year (beginning
March 31, 1999), each director who is then eligible under Section 5 and
who attended in the fiscal year ending the prior December 31 at least
75% of the aggregate of (A) the number of Board of Directors meetings
held in such fiscal year at times during which he or she served and (B)
the number of meetings held in such fiscal year by committees of the
Board of Directors on which he or she served, shall be automatically
granted an Option (designated an "Annual Option") to purchase 6,500
shares, subject to adjustment as provided in Section 12(b); provided,
however, that no Annual Option will be granted to a director if within
the six months prior thereto he or she was granted an Initial Option
under the Plan.
(b) Terms of Options Granted Under Section 7. Each Option granted
under this Section 7 shall be subject to the following terms and
conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option will be equal to 100% of the Fair Market
Value of Stock on the date of grant of the Option.
(ii) Option Term. Each Option shall expire at the earlier of (A)
ten years after the date of grant or (B) the date as the Option may no
longer be exercised and cannot, by its terms, thereafter become
exercisable, or otherwise terminates under Section 7(b)(iii).
(iii) Vesting and Exercisability. The Board may establish terms
regarding the times at which Options granted under this Section 7 shall
become vested and exercisable.
(A) Unless otherwise determined by the Board, a Performance
Option granted under this Section 7 and not previously forfeited
shall vest and become exercisable by a Participant in full at the
earlier of (A) the day prior to the annual meeting of stockholders in
the seventh year after the year of grant or (B) the earliest date,
following the date of grant, on which the Market Price equals or
exceeds an amount (rounded to the next higher whole dollar) equal to
1.667 times the exercise price of the option or such higher amount as
determined by the Board; provided, however, that a Performance Option
not previously vested or forfeited shall vest and
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become exercisable immediately upon a Change in Control (unless
otherwise determined by the Board and so specified in the Option
grant instrument); and, provided further, that a portion of the
Performance Option not previously vested or forfeited shall vest and
become exercisable immediately upon (A) termination of the
Participant's service as a director due to death, Disability or
Retirement, or (B) a Qualifying Separation of the Participant, with
such portion determined by multiplying the number of shares subject
to the Performance Option by a fraction the numerator of which is the
number of months (rounded to the next full month) between the date of
grant and the date of the termination of service and the denominator
of which is 84. In the event of termination of a Participant's
service as a director, any portion of a Performance Option that is
vested and exercisable after such termination will remain exercisable
until the earlier of ten years after the date of grant or the one
year following the death of the Participant.
(B) Unless otherwise determined by the Board, an Initial or
Annual Option granted under this Section 7 and not previously
forfeited shall vest and become exercisable by a Participant as to
one-third of the shares subject to such Option on each of the first
three anniversaries of the date of grant; provided, however, that an
Initial or Annual Option not previously vested or forfeited shall
vest and become exercisable immediately upon a Change in Control
(unless otherwise determined by the Board and so specified in the
Option grant instrument) or termination of the Participant's service
as a director due to death or Disability. In the event of termination
of a Participant's service as a director, any portion of an Initial
or Annual Option that is vested and exercisable after such
termination, including portions that become vested and exercisable
after Retirement (as provided in Section 7(b)(iii)(C)), shall
terminate at the earliest of one year following termination due to
Disability, one year following death, immediately upon termination
due to any act of fraud or intentional misrepresentation, or
embezzlement, misappropriation or conversion of assets or
opportunities of the Company (an "Adverse Termination"), 30 days
following any termination other than due to death, Disability,
Retirement, or an Adverse Termination, or the date ten years after
the date of grant.
(C) Unless otherwise determined by the Board, a Performance,
Initial, or Annual Option (or portion thereof) not vested at or
before the date of termination of Participant's service as a director
will cease to vest and will be forfeited upon the termination of the
Participant's service; provided, however, that in the event of a
Participant's Retirement, the Participant's Initial and Annual
Option(s) shall continue to vest and become exercisable in accordance
with Section 7(b)(iii)(B), except that such Option(s) will
immediately vest and become exercisable upon a Change in Control
(unless otherwise determined by the Board and so specified in the
Option grant instrument) or the death of the Participant.
(iv) Payment. The exercise price of an Option shall be paid to the
Company either in cash or by the surrender of Stock, or any combination
thereof, or in such other form or manner as may be established by the
Administrator, unless otherwise determined by the Board.
8. DEFERRAL OF FEES IN DEFERRED SHARES; OTHER DEFERRALS. The Board may
adopt compensation policies which permit a director of the Company who is
eligible under Section 5 to elect, in accordance with Section 8(a), to be paid
Retainer Fees and Other Director Compensation in the form of Deferred Shares
under Section 8(b).
(a) Elections. A director shall elect to participate and the terms of
such participation by filing an election with the Company prior to the
beginning of a Plan Year or at such other date as may be specified by the
Administrator, provided that any date so specified shall ensure effective
deferral of taxation and otherwise comply with applicable laws. The
Administrator will provide a form of election which will permit a director
to make appropriate elections with respect to all relevant matters under
this Section 8. The Administrator will also adopt appropriate rules
covering the effect and irrevocability of Participant elections.
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(b) Deferral of Retainer Fees and Other Director Compensation in the
Form of Deferred Shares. If a Participant has elected to defer receipt of
a specified amount of Retainer Fees or Other Director Compensation in the
form of Deferred Shares, a number of Deferred Shares shall be credited to
the Participant's Deferral Account, as of the date such Retainer Fees or
Other Director Compensation otherwise would have been payable to the
Participant but for such election to defer, equal to (i) such amount
otherwise payable divided by (ii) the Fair Market Value of a share of Stock
at that date. Deferred Shares credited under this Section 8(b) shall be
subject to the terms and conditions of Deferred Shares specified in Section
9. The right and interest of each Participant in Deferred Shares credited
to the Participant's Deferral Account under this Section 8(b) at all times
will be nonforfeitable.
(c) Deferral of Certain Option Shares. Upon any exercise of an Option
or an option granted under any other plan or program of the Company by a
non-employee director, if the exercise price of such option is paid by
surrender of shares of Stock to the Company, the director may elect to
defer receipt of all or a portion of the shares deliverable upon exercise
of the option in excess of the number surrendered in payment of the
exercise price. In such case, the number of shares deferred shall be
credited as Deferred Shares to the Participant's Deferral Account.
9. TERMS OF DEFERRAL ACCOUNTS.
(a) Dividend Equivalents on Restricted Stock Units and Deferred
Shares. Dividend equivalents will be credited on Restricted Stock Units,
in the form of additional Restricted Stock Units, and on Deferred Shares,
in the form of additional Deferred Shares, as follows:
(i) Cash and Non-Share Dividends. If the Company declares and pays
a dividend on Stock in the form of cash or property other than shares of
Stock, then a number of additional Restricted Stock Units or Deferred
Shares shall be credited to a Participant's Deferral Account as of the
payment date for such dividend equal to (i) the number of Restricted
Stock Units and Deferred Shares, respectively, credited to the Account
as of the record date for such dividend, multiplied by (ii) the amount
of cash plus the Fair Market Value of any property other than shares
actually paid as a dividend on each share at such payment date, divided
by (iii) the Fair Market Value of a share of Stock at such payment date.
(ii) Share Dividends and Splits. If the Company declares and pays
a dividend on Stock in the form of additional shares of Stock, or there
occurs a forward split of Stock, then a number of additional Restricted
Stock Units or Deferred Shares shall be credited to the Participant's
Deferral Account as of the payment date for such dividend or forward
Stock split equal to (i) the number of Restricted Stock Units and
Deferred Shares, respectively, credited the Account as of the record
date for such dividend or split multiplied by (ii) the number of
additional Shares actually paid as a dividend or issued in such split in
respect of each Share.
(b) Elections as to Settlement. A Participant's Deferral Account will
be settled, with respect to Restricted Stock Units credited thereto and not
forfeited, at the later of the date the risk of forfeiture of such
Restricted Stock Units lapses or such time or times as may have been
validly elected by the Participant under this Section 9(b), subject to
accelerated settlement under Section 10. In addition, a Participant's
Deferral Account will be settled, with respect to Deferred Shares credited
thereto, at such time or times as may have been validly elected by the
Participant under this Section 9(b), subject to accelerated settlement
under Section 10. To make an election as to the time of settlement of a
Deferral Account (including to defer settlement of Restricted Stock Units),
the Participant, while still a director of the Company, shall file an
election with the Administrator specifying the time or times at which the
Participant's Deferral Account will be settled at specified future dates
(including following the Participant's termination of service as a director
of the Company), and whether distribution will be in a single lump sum or
in a number of annual installments not exceeding ten.
(i) Election Forms. Elections under the Plan shall be made in
writing on such form or forms as may be specified from time to time by
the Administrator.
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(ii) Modifying Elections. A Participant may modify a prior
election as to the time at which a Participant's Deferral Account will
be settled at any time prior to the earlier of one year prior to the
date of settlement or the date the Participant ceases to serve as a
director of the Company, subject to such requirements as may be
specified by the Administrator. Such modification shall be made by
filing a new election with the Administrator. The foregoing
notwithstanding, the Administrator may disapprove or limit elections
under this Section 9(b) in order to ensure that the Participant will not
be deemed to have constructively received compensation in respect of the
Participant's Deferral Account prior to settlement.
(c) Statements. The Administrator will furnish statements to each
Participant reflecting the amounts credited to a Participant's Deferral
Account, transactions therein, and other related information from time to
time, in the Administrator's discretion.
(d) Fractional Shares. The amount of Restricted Stock Units and
Deferred Shares credited to a Deferral Account shall include fractional
shares calculated to at least three decimal places.
10. SETTLEMENT OF DEFERRAL ACCOUNTS. The Company will settle a
Participant's Deferral Account by making one or more distributions to the
Participant (or his or her Beneficiary, following Participant's death) at the
time or times, in a lump sum or installments, as specified in accordance with
Section 9(b); provided, however, that a Deferral Account will be settled on an
accelerated basis in accordance with Sections 10(b), (c), and (d).
(a) Form of Distribution. Distributions in respect of a Participant's
Deferral Account shall be made only in shares of Stock, together with cash
in lieu of any fractional share remaining at a time that less than one
whole Deferred Share is credited to such Deferral Account. Shares may be
delivered in certificate form to a Participant (or his or her Beneficiary)
or to a nominee for the account of the Participant (or his or her
Beneficiary), or in such other manner as the Administrator may determine.
(b) Death. If a Participant ceases to serve as a director due to
death or dies prior to distribution of all amounts from his or her Deferral
Account, the Company shall make a single lump-sum distribution in
settlement of unforfeited Restricted Stock Units and Deferred Shares to the
Participant's Beneficiary. Any such distribution shall be made as soon as
practicable following notification to the Company of the Participant's
death.
(c) Financial Emergency and Other Payments. Other provisions of the
Plan notwithstanding, if, upon the written application of a Participant,
the Board determines that the Participant has a financial emergency of such
a substantial nature and beyond the Participant's control that settlement
of Deferred Shares under the Plan is warranted, the Board may direct the
delivery of shares to the Participant in settlement of all or a portion of
the Deferred Share balance in the Participant's Deferral Account and the
time and manner of such payment.
(d) Change in Control. In the event of a Change in Control,
distributions in settlement of any Deferral Account (including a Deferral
Account with respect to which one or more installment payments have
previously been made) shall be made promptly but in no event more than 15
business days following such Change in Control.
11. AMENDMENT AND TERMINATION. The Board may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at
any time without the consent of Participants, stockholders, or any other person;
provided, however, that, without the consent of a Participant, no such action
shall materially and adversely affect the rights of such Participant with
respect to any rights to payment of amounts credited to such Participant's
Deferral Account; and provided further, that any amendment or alteration to the
Plan shall be subject to the approval of the Company's stockholders not later
than the annual meeting next following such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to stockholders for approval.
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12. GENERAL PROVISIONS.
(a) Limits on Transferability. Awards and all other rights under the
Plan will not be transferable by a Participant except by will or the laws
of descent and distribution, or to a Beneficiary in the event of a
Participant's death, and will not otherwise be subject to alienation,
anticipation, encumbrance, garnishment, attachment, levy, execution or
other legal or equitable process, nor subject to the debts, contracts,
liabilities or engagements, or torts of any Participant or his or her
Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge,
garnish, attach or take any other action subject to legal or equitable
process or encumber or dispose of any interest in the Plan shall be void.
The foregoing notwithstanding, the Administrator may permit a Participant
to transfer Options, Deferred Shares, and related rights to one or more
trusts, partnerships, or family members during the lifetime of the
Participant solely for estate planning purposes, but only if and to the
extent then consistent with the registration of any offer and sale of
shares related thereto on Form S-8, Form S-3, or such other registration
form of the Securities and Exchange Commission as may then be filed and
effective with respect to the Plan. The Company may rely upon the
Beneficiary designation last filed in accordance with this Section 12(a).
(b) Adjustments. In the event that any large, special and
non-recurring dividend or other distribution (whether in the form of cash,
Stock, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase,
share exchange, liquidation, dissolution or other similar corporate
transaction or event affects the Stock such that an adjustment is
determined by the Board to be appropriate in order to prevent dilution or
enlargement of a Participant's rights under the Plan, then the Board shall,
in such manner as it may deem equitable, adjust any or all of (i) the
number and kind of shares of Stock reserved and available for delivery
under the Plan and to be subject to Awards thereafter granted or credited,
(ii) the number of shares subject to Awards automatically granted under any
existing Board policy under Section 6 or 7 of the Plan, (iii) the number
and kind of shares of Stock deliverable upon exercise of outstanding
Options, and the exercise price per share thereof (provided that no
fractional shares will be delivered upon exercise of any Option), (iv) the
number and kind of shares of Stock to be delivered upon settlement of
outstanding Restricted Stock Units and Deferred Shares (taking into account
any Restricted Stock Units and Deferred Shares credited as dividend
equivalents under Section 9(a)), and (v) the number and kind of shares
outstanding as Restricted Stock.
(c) Receipt and Release. Payments to any Participant or Beneficiary
in accordance with the provisions of the Plan shall, to the extent thereof,
be in full satisfaction of all claims for the compensation deferred and
relating to the Deferral Account to which the payments relate against the
Company, the Board, or the Administrator, and the Administrator may require
such Participant or Beneficiary, as a condition to such payments, to
execute a receipt and release to such effect. In the case of any payment
under the Plan of less than all amounts then credited to a Deferral Account
in the form of Deferred Shares, the amounts paid shall be deemed to relate
to the Deferred Shares credited to the Account at the earliest time.
(d) Unfunded Status of Plan; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for deferred compensation and Participants
shall rely solely on the unsecured promise of the Company for payment
hereunder. With respect to any payment not yet made to a Participant under
the Plan, nothing contained in the Plan shall give a Participant any rights
that are greater than those of a general unsecured creditor of the Company;
provided, however, that the Board may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Board otherwise determines with the consent
of each affected Participant.
(e) Compliance. The Company shall have no obligation to deliver
shares under the Plan until all legal and contractual obligations of the
Company relating to establishment of the Plan and such delivery shall have
been complied with in full. In addition, the Company shall impose such
restrictions on Stock delivered to a Participant hereunder and any other
interest constituting a security as it may deem advisable in order to
comply with the Securities Act of 1933, as amended, the requirements of any
stock
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exchange or automated quotation system upon which the Stock is then listed
or quoted, any state securities laws applicable to such a transfer, any
provision of the Company's Certificate of Incorporation or Bylaws, or any
other law, regulation, or binding contract to which the Company is a party.
(f) Other Participant Rights. No Participant shall have any of the
rights or privileges of a stockholder of the Company under the Plan,
including as a result of the grant of an Option or crediting of Restricted
Stock Units or Deferred Shares to a Deferral Account, or the creation of
any Trust and deposit of Stock therein, except at such time as such Option
may have been duly exercised or Stock may be actually delivered in
settlement of a Deferral Account, except that a Participant granted
Restricted Stock shall have rights of a stockholder except to the extent
that those rights are limited by the terms of the Plan and the agreement
relating to the Restricted Stock. No provision of the Plan, document
relating to the Plan, or transaction hereunder shall confer upon any
Participant any right to continue to serve as a director of the Company or
in any other capacity with the Company or a subsidiary or to be nominated
for reelection as a director, or interfere in any way with the right of the
Company to increase or decrease the amount of any compensation payable to
such Participant. Subject to the limitations set forth in Section 12(a)
hereof, the Plan shall inure to the benefit of, and be binding upon, the
parties hereto and their successors and assigns.
(g) Continued Service as an Employee. If a Participant ceases to
serve as a director and, immediately thereafter, is employed by the Company
or any subsidiary, then such Participant will not be deemed to have ceased
to serve as a director at that time, and his or her continued employment by
the Company or any subsidiary will be deemed to be continued service as a
director or chair or a member of a Board committee; PROVIDED, HOWEVER,
that, for purposes of Section 5, such former director will not be deemed to
be a non-employee director eligible for further grants of Awards.
(h) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(i) Limitation. A Participant and his or her Beneficiary shall assume
all risk in connection with any decrease in value of Awards, and neither
the Company, the Board nor the Administrator shall be liable or responsible
therefor.
(j) Construction. The captions and numbers preceding the sections of
the Plan are included solely as a matter of convenience of reference and
are not to be taken as limiting or extending the meaning of any of the
terms and provisions of the Plan. Whenever appropriate, words used in the
singular shall include the plural or the plural may be read as the
singular.
(k) Severability. In the event that any provision of the Plan shall
be declared illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining provisions of the Plan but shall
be fully severable, and the Plan shall be construed and enforced as if said
illegal or invalid provision had never been inserted herein.
(l) Nonexclusivity of the Plan. The adoption of the Plan by the Board
shall not be construed as creating any limitation on the power of the Board
to adopt such other compensatory arrangements for directors as it may deem
desirable.
(m) Stockholder Approval. The Plan is conditioned upon stockholder
approval of the plan at the Company's 1998 Annual Meeting of Stockholders,
by a vote sufficient to meet the requirements of the Nasdaq National Market
and any other laws, regulations, and obligations of the Company applicable
to the Plan. The Plan shall be null and void if the Plan is not so approved
by the Company's stockholders. Other provisions of the Plan
notwithstanding, no shares will be issued in respect of any Award until
such time as the Company's stockholders have approved the Plan.
As adopted by the Board of Directors
of the
Company on March 24, 1999
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APPENDIX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WANG LABORATORIES, INC.
Wang Laboratories, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with the
Secretary of the State of Delaware on December 16, 1993 under the name of Wang
Laboratories Delaware, Inc.
2. At a duly called meeting of the Board of Directors of the Corporation at
which a quorum was present at all times, a resolution was duly adopted, pursuant
to Sections 242 and 245 of the General Corporation Law of the State of Delaware,
setting forth an Amended and Restated Certificate of Incorporation of the
Corporation, declaring said Amended and Restated Certificate of Incorporation
advisable and directing that said Amended and Restated Certificate of
Incorporation be considered at the next annual meeting of the stockholders. The
stockholders of the Corporation duly approved said proposed Amended and Restated
Certificate of Incorporation at such annual meeting of stockholders in
accordance with Sections 222, 242 and 245 of the General Corporation Law of the
State of Delaware. The resolution setting forth the Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, as
amended, be and hereby is further amended and restated in its
entirety so that the same shall read as follows:
FIRST: The name of the Corporation is Wang Global Corporation
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue is 205,000,000 shares consisting of
200,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), and 5,000,000 shares of preferred stock, par value $0.01 per share
(the "Preferred Stock").
Shares of the Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series each of which class or series
shall have such distinctive designation or title as shall be fixed by the
Board of Directors of the Corporation (the "Board of Directors") in a
resolution or resolutions adopted prior to the issuance of any shares
thereof. Each such class or series of Preferred Stock shall have such
voting powers, full or limited, and such preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated in such resolution
or resolutions providing for the issue of such class or series of Preferred
Stock as may be adopted from time to time by the Board of Directors prior
to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
Notwithstanding the foregoing, the Corporation shall not issue any
non-voting equity securities.
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The designation of the Corporation's 4 1/2% Series A Cumulative
Convertible Preferred Stock is attached as Appendix A hereto. The
designation of the Corporation's 6 1/2% Series B Cumulative Convertible
Preferred Stock is attached as Appendix B hereto. The designation of the
Corporation's Series C Junior Participating Preferred Stock is attached as
Appendix C hereto.
FIFTH: The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting of not less
than one nor more than 12 directors, the exact number of directors to be
determined from time to time by resolution adopted by the affirmative vote
of a majority of the directors then in office. The directors shall be
divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. The
term of the initial Class I directors shall terminate on the date of the
1994 annual meeting of stockholders; the term of the initial Class II
directors shall terminate on the date of the 1995 meeting of stockholders
and the term of the initial Class III directors shall terminate on the date
of the 1996 annual meeting of Stockholders. At each annual meeting of
stockholders beginning in 1994, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional directors of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. Any vacancy on the Board of Directors, howsoever resulting, may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill a
vacancy shall hold office for a term that shall coincide with the term of
the class to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation or the
resolution or resolutions adopted by the Board of Directors pursuant to
Article FOURTH applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly
provided by such terms.
SIXTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the By-laws of the Corporation, and may not be taken by a
written consent of the stockholders pursuant to the GCL.
SEVENTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders
to make, alter, amend, change, add to or repeal the By-laws of the
Corporation.
(3) Election of directors need not be by written ballot unless the
By-Laws so provide.
(4) Except to the extent that the GCL prohibits the elimination or
limitation of liability of directors for breaches of fiduciary duty, no
director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director. Any repeal or modification of this Article
SEVENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing
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<PAGE> 56
at the time of such repeal or modification with respect to acts or
omissions occurring prior to such repeal or modification. The provisions
of this Article SEVENTH shall not adversely affect the rights and
protection afforded to a director of the Corporation by Wang
Laboratories, Inc., a Massachusetts corporation and the predecessor to
this Corporation.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to
the provisions of the GCL, this Certificate of Incorporation and any
By-laws adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders or the directors shall invalidate
any prior act of the directors which would have been valid if such
By-laws had not been adopted.
EIGHTH: The Corporation shall indemnify its directors and officers to
the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure
to the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to
indemnify any director or officer (or his or her heirs, executors or
personal or legal representatives) in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the
Corporation. The right to indemnification conferred by this Article EIGHTH
shall include the right to be paid by the Corporation the expenses incurred
in defending or otherwise participating in any proceeding in advance of its
final disposition. The provisions of this Article EIGHTH shall not
adversely affect the rights and protection afforded to a director of the
Corporation by Wang Laboratories, Inc., a Massachusetts corporation and the
predecessor to this Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar
to those conferred in this Article EIGHTH to directors and officers of the
Corporation.
The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-laws, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article EIGHTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification
and to the advancement of expenses of a director of officer of the
Corporation existing at the time of such repeal or modification with
respect to any acts or omissions occurring prior to such repeal or
modification.
NINTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-laws of the Corporation.
TENTH: Notwithstanding any other provision contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of sixty-six and two-thirds percent (66 2/3%) of the voting power
of the shares of the Corporation entitled to vote thereon shall be
required to amend, alter, change or repeal, or to adopt any provision
inconsistent with the purpose and intent of, Articles FIFTH, SEVENTH
(subsections (4) and (5)), EIGHTH and TENTH of this Certificate of
Incorporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
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<PAGE> 57
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its Senior Vice President, Law and Human Resources, General Counsel
and Secretary this day of , 1999.
WANG LABORATORIES, INC.
By:
--------------------------------
Albert A. Notini
Senior Vice President, Law and
Human Resources, General Counsel
and Secretary
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<PAGE> 58
APPENDIX A
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, $.01 par value (the "Preferred Stock"), of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights,
preferences and limitations thereof as follows:
4 1/2% Series A Cumulative Convertible Preferred Stock:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "4 1/2% Series A
Cumulative Convertible Preferred Stock" (the "Series A Preferred Stock") and the
number of shares constituting the Series A Preferred Stock shall be 90,000.
SECTION 2. DIVIDENDS.
Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
A Preferred Stock with respect to dividends (including without limitation the
11% Exchangeable Preferred Stock), the holders of shares of Series A Preferred
Stock, in preference to the holders of Common Stock, par value $.01 per share
(the "Common Stock"), of the Corporation, and of any other junior stock, shall
be entitled to receive, out of funds legally available therefor, cash dividends
of $45.00 per share per annum (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares), when, as and if declared by the Board of Directors of
the Corporation. Such dividends shall accrue (without interest) and shall be
cumulative from the date of issuance of each share of Series A Preferred Stock,
whether or not declared. Accrued but unpaid dividends shall bear interest at the
rate of 4.5% per annum, compounded quarterly. Subject to the immediately
following sentence, such dividends shall be payable in arrears on March 31, June
30, September 30 and December 31 in each year, commencing June 30, 1995 (except
that if such date is a Saturday, Sunday or legal holiday, then each dividend
shall be payable on the next day that is not a Saturday, Sunday or legal
holiday) (each such date being referred to herein as a "Quarterly Dividend
Payment Date") to holders of record as they appear on the stock transfer books
of the Corporation on such record dates, not more than 60 nor less than 10 days
preceding the Quarterly Dividend Payment Date, as are fixed by the Board of
Directors. Notwithstanding the foregoing, no dividends shall be paid or payable
prior to the first Quarterly Dividend Payment Date (the "Initial Payment Date")
following the latter of (i) the date on which no shares of the 11% Exchangeable
Preferred Stock are outstanding or (ii) the date on which such dividends may be
paid pursuant to the (A) terms of the 11% Exchangeable Preferred Stock (if any
of such shares remain outstanding) and (B) the terms of that certain Credit
Agreement between the Corporation, BT Commercial Corporation as Agent and
Bankers Trust Company as Issuing Bank dated as of January 30, 1995 or any
successor agreement. Subject to the immediately preceding sentence, dividends on
account of arrears for any past dividend period may be declared and paid at any
time, without reference to any Quarterly Dividend Payment Date. The amount of
dividends payable for the initial dividend period and any period shorter than a
full quarterly dividend period shall be computed on the basis of a 360-day year.
For purposes hereof, the term "legal holiday" shall mean any day on which
banking institutions are obligated or authorized to close in New York, New York
or in Boston, Massachusetts.
Dividends paid on shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accumulated and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
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SECTION 3. VOTING RIGHTS
The holders of shares of Series A Preferred Stock shall have the following
voting rights:
(a) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
one (1) vote on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare of pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event. In the event the Corporation shall at any
time declare or pay any dividend on the Series A Preferred Stock payable in
shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Series A Preferred Stock) into a greater or lesser number of shares of
Series A Preferred Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
amount by a faction, the numerator of which is the number of share of
Series A Preferred Stock that were outstanding immediately prior to such
event and the denominator of which is the number of shares of Series A
Preferred Stock outstanding immediately after such event.
(b) Except as otherwise provided herein, in the Certificate of
Incorporation of by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(c) (i) If at any time dividends on any Series A Preferred Stock shall
be in arrears in an amount equal to or greater than six quarterly dividends
thereon, the holders of the Series A Preferred Stock, voting as a separate
series from all other series of Preferred Stock and classes of capital
stock, shall be entitled to elect two members of the Board of Directors in
addition to any Directors elected by any other series, class or classes of
securities and the authorized number of Directors will automatically be
increased by two. Promptly thereafter, the Board of Directors of this
Corporation shall, as soon as may be practicable, call a special meeting of
holders of Series A Preferred Stock for the purpose of electing such
members of the Board of Directors or alternatively, the holders of Series A
Preferred Stock may effect the election of two such directors by unanimous
written consent without a meeting. Any special meeting hereunder shall in
any event be held within 45 days of the occurrence of such arrearage.
(ii) During any period when the holders of Series A Preferred
Stock, voting as a separate series, shall be entitled and shall have
exercised their right to elect two Directors, then and during such time
as such right continues (A) the then authorized number for Directors
shall be increased by two, and the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled to elect the additional
Directors so provided for, and (B) each such additional Director shall
not be member of any existing class of the Board of Directors, but shall
serve until the next annual meeting of stockholders of the election of
Directors, or until his successor shall be elected and shall qualify, or
until his right to hold such office terminates pursuant to the
provisions of this Section 3(c).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of
Series A Preferred Stock shall be entitled to elect two Directors, there
is no such Director in office by reason of resignation, death or
removal, then, promptly
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thereafter, the Board of Directors shall call a special meeting of the
holders of Series A Preferred Stock for the purpose of filling such
vacancy and such vacancy shall be filled at such special meeting or
alternatively, the holders of Series A Preferred Stock may effect the
election of any director hereunder by unanimously written consent
without a meeting. Any meeting hereunder shall in any event by held
within 45 days of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Preferred Stock
outstanding are paid, the term of office of any Director elected
pursuant to this Section 3 (c), or his successor, shall automatically
terminate, and the authorized number of Directors shall automatically
decrease by two, the rights of the holders of the shares of the Series A
Preferred Stock to vote as provided in this Section 3 (c) shall cease,
subject to renewal from time to time upon the same terms and conditions,
and the holders of shares of the Series A Preferred Stock shall have
only the limited voting rights elsewhere herein set forth.
(vi) Notwithstanding any other provision of this Section 3 (a),
dividends not paid prior to the Initial Payment Date shall not be
considered to be in arrears until 90 days after the Initial Payment
Date.
(d) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to
affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the foregoing, the
authorization of any shares of capital stock with preference or priority
over the Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding
up of the Corporation shall be deemed to affect adversely the Series A
Preferred Stock, and the authorization of any shares of capital stock on a
parity with Series A Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding
up of the Corporation shall not be deemed to affect adversely the Series A
Preferred Stock. The number of authorized shares of Series A Preferred
Stock may be increased or decreased (but not below the number of shares
then outstanding) by the directors of the Corporation pursuant to Section
151 of the General Corporation Law of Delaware or by the affirmative vote
of the holders of a majority of the then outstanding shares of the Common
Stock, Series A Preferred Stock and all other classes or series of stock of
the Corporation entitled to vote thereon, voting as a single class,
irrespective of the provisions of Section 242 (b) (2) of the General
Corporation Law of Delaware.
(e) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
SECTION 4. OPTIONAL CONVERSION.
The holders of the Series A Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, at any time and from time to time
following at least 61 days' prior written notice from the holder of record
thereof to the Corporation ("Written Notice"), and without the payment of
additional consideration by the holder thereof, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$1,000 by the Conversion Price (as hereinafter defined) in effect at the
time of conversion. The "Conversion Price" shall initially be $23.00. Such
initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 8 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the
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close of business on the fifth full preceding the date fixed for
redemption, unless the redemption price is not paid when due, in which case
the Conversion Rights for such shares shall continue until such price is
paid in full. In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of business on the first
full day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series A Preferred Stock.
(b) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation
shall pay cash equal to such fraction multiplied by the then effective
Conversion Price.
(c) (i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), following the delivery of
the Written Notice. Such Written Notice shall state the number of shares
elected to be converted and such holder's name or the names of the nominees
in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or his or its attorney
duly authorized in writing. The later of (i) date of receipt of such
certificates or (ii) 61 days after receipt of the Written Notice by the
transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) (or if later, a date specified in the Written Notice) shall
be the conversion date ("Conversion Date"). The Corporation shall, as soon
as practicable after the Conversion Date, issue and deliver at such office
to such holder of Series A Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purposed of effecting the
conversion of the Series A Preferred Stock, such number of its duly
authorized shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding Series A
Preferred Stock. Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared but unpaid dividends on the Series
A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall not be deemed to be
outstanding after the Conversion Date and all rights with respect to
such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date,
except only the right of the holders thereof to receive shares of Common
Stock in exchange therefor and payment of any dividends declared but
unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to
time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly.
(v) The holders of the Series A Preferred Stock shall pay any and
all issue and other taxes that may be payable in respect of any issuance
or delivery of shares of Common Stock upon conversion of shares of
Series A Preferred Stock pursuant to this Section 4.
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(d) If the Corporation shall at any time or from time to time after
the date on which a share of Series A Preferred Stock was first issued (the
"Original Issue Date") effect a subdivision of the outstanding Common
Stock, the Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased. If the Corporation shall at
any time or form time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustments under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) In the event the Corporation at any time, or from time to time
after the Original Issue Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price for the Series A
Preferred Stock then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Conversion
Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal of the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(f) In the event the Corporation at any time or from time to time
after the Original Issue Date for the Series A Preferred Stock shall make
or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and
in each such event provision shall be made so that the holders of the
Series A Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had the Series
A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to
all adjustments called for during such period under this paragraph with
respect to the rights of the holders of the Series A Preferred Stock; and
provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities
in an amount equal to the amount of such securities as they would have
received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(g) If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock
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dividend provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the holder
of each such share of Series A Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number
of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(h) Subject to Section 5 hereof, in case of any consolidation or
merger of the Corporation with or into another corporation or the sale of
all or substantially all of the assets of the Corporation to another
corporation, each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be
convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and
interest thereafter of the holders of the Series A Preferred Stock, to the
end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon the
conversion of the Series A Preferred Stock.
(i) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to by observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this Section 4 and in the taking of all such
action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(j) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and furnish to each holder of Series A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a
similar certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price then in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which then would be
received upon the conversion of Series A Preferred Stock.
(k) In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or substantially all of
the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their
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last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating:
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding
up.
(1) In the event that the Corporation shall have accrued, but unpaid,
dividends on the Series A Preferred Stock outstanding immediately prior to,
and in the event of, a conversion of any shares of Series A Preferred Stock
as provided in this Section 4 or Section 5 below, the Corporation shall
cause such dividends to be converted into Common Stock in accordance with,
and pursuant to the terms specified in, Section 4 or Section 5 below, as
the case may be, hereof, except that the Conversion Price (as that term is
defined in Section 4 (a) ) for such purpose shall be the then Value of the
Common Stock as calculated pursuant to Section 8 (e) below.
SECTION 5. MANDATORY CONVERSION.
(a) Immediately prior to the consummation of any Sale of the Corporation
(as hereinafter defined), (i) all outstanding shares of Series A Preferred Stock
shall automatically be converted into shares of Common Stock, at the then
effective conversion rate. "Sale of the Corporation" means (i) any consolidation
or merger of the Corporation with or into any other corporation, other entity or
person in which the holders of the Corporation's outstanding Common Stock
immediately prior to the effective date of such transaction do not hold at least
fifty percent (50%) of the outstanding voting securities of the surviving entity
of (ii) a sale of all or substantially all of the assets of the Corporation to
any corporation, other entity or person, in each case where the value per share
of the Corporation's Common Stock equals or exceeds the then applicable
Conversion Price, as determined in good faith by the Board of Directors by
dividing (x) the value of the Corporation immediately prior to the closing or
effective date of such transaction (taking into account the consideration paid
in connection with such transaction by (y) the total number of shares of Common
Stock then outstanding, including shares of Common Stock then issuable upon the
conversion of the Series A Preferred Stock and exercise or conversion of any
outstanding options, warrants or convertible securities that will be exercised
or converted in connection with the transaction. The date that any Sale of the
Corporation is consummated is hereby referred to as the "Mandatory Conversion
Date."
(b) All holders of record of shares of Series A Preferred Stock shall be
given written notice of the Mandatory Conversion Date and the place designated
for mandatory conversion of all such shares of Series A Preferred Stock pursuant
to this Section 5. Such notice need not be given in advance of the occurrence of
the Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Series A Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock (or other securities or property into which the Common Stock has
been converted) to which such holder is entitled pursuant to this Section 5. On
the Mandatory Conversion Date, all rights with respect to the Series A Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series A Preferred Stock has been converted (or other securities or
property into which the Common Stock has been converted). If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by
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written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate of certificates for Series
A Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions here of (or other securities or property into
which the Common Stock has been converted) and cash as provided in Section 4 (b)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock which
are required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the Mandatory Conversion Date, be deemed to have
been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
SECTION 6. REACQUIRED SHARES.
Any shares of Series A Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized by unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of Incorporation,
or in any other Certificate of Designations creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
SECTION 7. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
any other class or series of stock of the Corporation ranking on liquidation
prior and in preference to the Series A Preferred Stock (including without
limitation the 11% Exchangeable Preferred Stock") (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the holders
of Common Stock or any other class or series of stock ranking on liquidation
junior to the Series A Preferred Stock (such Common Stock and other stock being
collectively referred to as "Junior Stock") by reason of their ownership
thereof, an amount equal to the $1,000 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any dividends accrued or
declared by unpaid thereon.
(b) After the payment of all preferential amounts required to be paid to
the holders of Senior Preferred Stock, Series A Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation on a parity
with the Series A Preferred Stock, upon the dissolution, liquidation or winding
up of the Corporation, the holders of shares of Junior Stock then outstanding
shall be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders.
(c) A consolidation or merger of the Corporation with or into another
corporation or entity, or a sale of all or substantially all of the assets of
the Corporation, shall not be regarded as a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 7.
SECTION 8. MANDATORY REDEMPTION.
(a) The Corporation will on October 1, 2003 redeem all shares of Series A
Preferred Stock, or within 180 days of any written request of the holders
thereof received by the Corporation at any time on or after the later of (i) the
seventh anniversary of the Original Issue Date or (ii) the date on which no
shares of 11% Exchangeable Preferred Stock are outstanding (each such date being
referred to hereinafter as a "Mandatory
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Redemption Date"), redeem all shares of Series A Preferred Stock held by any
such requesting holder, in each case at a price equal to $1,000 per share,
subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares,
together with accrued and unpaid dividends thereon (the "Mandatory Redemption
Price"). At its election, the Corporation may pay all or any portion of the
Mandatory Redemption Price in cash or in Common Stock of the Corporation valued
at its Market Value (as defined below).
(b) If the funds of the Corporation legally available for redemption of
Series A Preferred Stock on any Mandatory Redemption Date are insufficient to
redeem the number of shares of Series A Preferred Stock required under this
Section 8 to be redeemed on such date, and the Corporation has not otherwise
elected to pay some or all of the Mandatory Redemption Price in shares of its
Common Stock, those funds which are legally available will be used to pay the
Mandatory Redemption Price on the maximum possible number of such shares of
Series A Preferred Stock ratably on the basis of the number of shares of Series
A Preferred Stock then outstanding prior to such redemption and the Mandatory
Redemption Price for the balance of such shares shall be paid with shares of the
Corporation's Common Stock.
(c) The Corporation shall provide notice of any redemption of Series A
Preferred Stock pursuant to this Section 8 specifying the time and place of
redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made. Upon mailing any such notice of redemption, the
Corporation will become obligated to redeem at the time of redemption specified
therein all Series A Preferred Stock specified therein (other than such shares
of Series A Preferred Stock as are duly converted pursuant to Section 4 prior to
the close of business on the fifth full day preceding the Mandatory Redemption
Date).
(d) No share of Series A Preferred Stock shall be entitled to any dividends
declared after its Mandatory Redemption Date, and on such Mandatory Redemption
Date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, except the right to receive
the Mandatory Redemption Price of such share, without interest, upon
presentation and surrender of the certificate representing such share, and such
share will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(e) "Market Value" per share of Common Stock on any date means the average
of the daily closing prices per share of Common Stock for the 30 consecutive
Trading Days immediately prior to such date. The closing price for each day
shall be the last sale price, regular way or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Stock is not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted sale price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automatic
Quotations System or such other system then in use or, if on any such date the
Common Stock is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors. If the Common Stock is
not publicly held or so listed or publicly traded, "Market Value" shall mean the
fair market value per share as determined in good faith by the Board of
Directors of the Corporation.
(f) "Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, any day other than a Saturday,
Sunday or a day on which banking institutions in New York, New York and Boston,
Massachusetts are authorized or obligated by law or executive order to close.
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APPENDIX B
RESOLVED, that, pursuant to the authority expressly vested in the Board of
Directors of this Corporation (the "Board of Directors") in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock, par
value $0.01 per share, of the Corporation be and it hereby is, created and
classified, and that the designation and number of shares thereof, the voting
powers, preferences and relative participating, optional or other special rights
thereof, and the qualifications, limitations or restrictions thereof are as
follows:
SECTION 1. DESIGNATION AND NUMBER OF SHARES.
The designation of such series of Preferred Stock shall be 6 1/2% Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock") and the
number of shares constituting the Series B Preferred Stock shall be 143,750.
SECTION 2. DEFINITIONS.
For purposes of the Series B Preferred Stock, the following terms shall
have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or a day
which banking institutions are obligated or authorized to be closed in New York,
New York or in Boston, Massachusetts.
"Common Stock" shall mean the common stock of the Corporation, par value
$0.01 per share.
"Constituent Person" shall have the meaning set forth in paragraph (E) of
Section 7 hereof.
"Conversion Price" shall mean the conversion price per share of Common
Stock for which the Series B Preferred Stock is convertible, as such Conversion
Price may be adjusted pursuant to Section 7. The initial conversion price will
be $26.5625.
"Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Corporation or any other
issuer for any day shall mean the last reported sales price, regular way on such
day, or, if no sale takes place on such day, the average of the reported closing
bid and asked prices on such day, regular way, in either case as reported on the
principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any national
securities exchange, on the Nasdaq National Market System of the National
Association of Securities Dealers, or, if such security is not quoted on such
Nasdaq National Market, the average of the closing bid and asked prices on such
day in the over-the-counter market as reported by Nasdaq or, if bid and asked
prices for such security on such day shall not have been reported through
Nasdaq, the average of the bid and asked prices on such day as furnished by any
New York Stock Exchange member firm regularly making a market in such security
selected for such purpose by the Board of Directors.
"Dividend Payment Date" shall mean May 1, August 1, November 1, and
February 1 in each year, commencing on May 1, 1996; provided, however, that if
any Dividend Payment Date falls on any day other than a Business Day, the
dividend payment due on such Dividend Payment Date shall be paid on the Business
Day immediately following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on May
1, August 1, November 1 and February 1 of each year and ending on and including
the day preceding the first day of the next succeeding Dividend Period, (other
than the initial Dividend Period, which shall commence on the earliest date of
original issue of any shares of Series B Preferred Stock and end on and include
April 30, 1996.)
"Fair Market Value" shall mean the average of the daily Current Market
Prices of a share of Common Stock during the ten (10) consecutive Trading Days
immediately prior to the earlier of the day in question and the day before the
"ex" date with respect to the issuance or distribution requiring such
computation. The term "'ex' date," when used with respect to any issuance or
distribution, means the first day on which the Common Stock trades regular way,
without the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determined that day's Current Market
Price.
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"Junior Dividend Stock" shall mean the Common Stock and any other class or
series of stock of the Corporation over which the Series B Preferred Stock has
preference or priority as to the payment of dividends.
"Junior Liquidating Stock" shall mean the Common Stock or any other class
or series of stock of the Corporation over which the Series B Preferred Stock
has preference or priority as to the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
"Liquidation Preference" shall have the meaning set forth in paragraph (A)
of Section 4 hereof.
"non-electing share" shall have the meaning set forth in paragraph (E) of
Section 7 hereof.
"Parity Dividend Stock" shall mean any class or series of stock of the
Corporation ranking on a parity as to the payment of dividends with the Series B
Preferred Stock.
"Parity Liquidating Stock" shall mean any class or series of stock of the
Corporation ranking on a parity as to the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation with the Series B
Preferred Stock.
"Person" shall mean any individual, firm, partnership, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Redemption Date" shall have the meaning set forth in paragraph (C) of
Section 5 hereof.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of February 27, 1996 between the Corporation and Lehman
Brothers Inc., BT Securities Corporation and Salomon Brothers, Inc.
"Securities" shall have the meaning set forth in paragraph (D)(iii) of
Section 7 hereof.
"Senior Dividend Stock" shall mean any class or series of stock of the
Corporation of the Corporation (including without limitation the Corporation's
4 1/2% Series A Cumulative Convertible Preferred Stock) which has preference or
priority over the Series B Preferred Stock as to the payment of dividends.
"Senior Liquidating Stock" shall mean any class or series of stock
(including without limitation the Corporation's 4 1/2% Series A Cumulative
Convertible Preferred Stock) which has preference or priority over the Series B
Preferred Stock as to the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Series B Preferred Stock" shall have the meaning set forth in Section 1
hereof.
"set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of capital stock of the
Corporation; provided, however, that if any funds for any class or series of
Junior Dividend Stock or any class or series of Parity Dividend Stock are placed
in a separate account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Series B
Preferred Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Stated Value" shall have the meaning set forth in paragraph (A) of Section
4 hereof.
"Trading Day" shall mean any day on which the securities in question are
traded on the principal national securities exchange on which such securities
are listed or admitted, or if not listed or admitted for trading on any national
securities exchange, on the Nasdaq National Market System of the National
Association of Securities Dealers, or if such securities are not quoted on such
Nasdaq National Market, in the applicable securities market in which the
securities are traded.
"Transaction" shall have the meaning set forth in paragraph (E) of Section
7 hereof.
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<PAGE> 69
"Transfer Agent" means American Stock Transfer & Trust Company or such
other agent or agents of the Corporation as may be designated by the Board of
Directors as the transfer agent for the Series B Preferred Stock.
SECTION 3. DIVIDENDS.
(1) Subject to the rights of the holders of Senior Dividend Stock, the
holders of shares of the Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of assets legally
available for that purpose, dividends payable in cash at the rate per annum of
$65 per share of Series B Preferred Stock. Dividends on shares of Series B
Preferred Stock shall be cumulative from the date of issuance of such shares,
whether or not in any Dividend Period or Periods there shall be assets of the
Corporation legally available for the payment of such dividends, and shall be
payable quarterly, when, as and if declared by the Board of Directors, in
arrears on Dividend Payment Dates, commencing on May 1, 1996. Each such dividend
shall be payable in arrears to the holders of record of shares of the Series B
Preferred Stock, as they appear on the stock records of the Corporation at the
close of business on such record dates, which shall not be more than 60 days nor
less than 10 days preceding the payment dates thereof, as shall be fixed by the
Board of Directors or a duly authorized committee thereof. Accrued and unpaid
dividends for any past Dividend Periods may be declared and paid at any time,
without reference to any Dividend Payment Date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(2) The amount of dividends payable for each full Dividend Period for the
Series B Preferred Stock shall be computed by dividing the annual dividend rate
by four. The amount of dividends payable for the initial Dividend Period, or any
other period shorter or longer than a full Dividend Period, on the Series B
Preferred Stock shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of shares of Series B Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of cumulative dividends, as herein provided, on the Series B Preferred Stock. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series B Preferred Stock that may be in
arrears.
(3) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on any Parity Dividend Stock for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series B Preferred Stock for all Dividends Periods
terminating on or prior to the date of payment of the dividend on such class or
series of Parity Dividend Stock. When dividends are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all dividends
declared upon shares of the Series B Preferred Stock and all dividends declared
upon any other Parity Dividend Stock shall be declared ratably in proportion to
the respective amounts of dividends accumulated and unpaid on the Series B
Preferred Stock and accumulated and unpaid on such Parity Dividend Stock.
(4) So long as any shares of the Series B Preferred Stock are outstanding,
no dividends (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase share of, Junior
Dividend Stock) shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Dividend Stock, nor shall any Junior
Dividend Stock or any Parity Dividend Stock be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of shares of
Common Stock made for purposes of an employee incentive or benefit plan of the
Corporation or any subsidiary) for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Dividend Stock), unless in each case the full
cumulative dividends on all outstanding shares of the Series B Preferred Stock
and any Parity Dividend Stock shall have been paid or set apart for payment for
all past Dividend Periods with respect to the Series B Preferred Stock and all
past dividend periods with respect to such Parity Dividend Stock, provided,
however, that, notwithstanding the foregoing, the Corporation may redeem,
purchase or otherwise acquire Common Stock (i) in amounts sufficient to allow
employees to obtain cash to meet tax obligations arising upon exercise of stock
options to
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<PAGE> 70
purchase Common Stock or upon the termination of restrictions on restricted
Common Stock and (ii) as the payment of the exercise price under stock options
to purchase Common Stock.
SECTION 4. PAYMENTS UPON LIQUIDATION.
(1) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, subject to the rights of the holders of any
Senior Liquidating Stock and before any payment of distribution of the assets of
the Corporation (whether capital or surplus) shall be made to or set apart for
the holders of any Junior Liquidating Stock, the holders of the shares of Series
B Preferred Stock shall be entitled to receive, out of the assets of the
Corporation legally available for distribution to its stockholders, One Thousand
Dollars ($1,000) per share of Series B Preferred Stock (the "Stated Value") plus
an amount equal to all dividends (whether or not declared) accrued and unpaid
thereon to the date of final distribution to such holders (the "Liquidation
Preference"); but such holders shall not be entitled to any further payment. If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation, or proceeds thereof, distributable among the holders of the
shares of Series B Preferred Stock shall be insufficient to pay in full the
Liquidation Preference and the liquidation preference on all Parity Liquidating
Stock, then such assets, or the proceeds thereof, shall be distributed ratably
among the holders of shares of Series B Preferred Stock and any such Parity
Liquidating Stock in accordance with the respective amounts that would be
payable on such shares of Series B Preferred Stock and any such Parity
Liquidating Stock if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the Corporation
with or into or more corporations, or (ii) a sale or transfer of all or
substantially all of the Corporation's assets, shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Corporation.
(2) Subject to the rights of the holders of shares of any Senior Dividend
Stock, Senior Liquidating Stock, Parity Dividend Stock or Parity Liquidating
Stock, after payment shall have been made to the holders of the Series B
Preferred Stock, as and to the fullest extent provided in this Section 4, any
other series or class or classes of Junior Liquidating Stock shall, subject to
the respective terms and provisions (if any) applying thereof, be entitled to
receive any and all assets remaining to be paid or distributed, and the holders
of the Series B Preferred Stock shall not be entitled to share therein.
No interest shall accrue on any payment upon liquidation after the due date
thereof.
SECTION 5. REDEMPTION AT THE OPTION OF THE CORPORATION.
(1) The shares of Series B Preferred Stock will be redeemable at the option
of the Corporation by resolution of its Board of Directors, in whole, or, from
time to time, in part, at any time on or after March 1, 1999, at the following
redemption prices per share, if redeemed during the twelve-month period
beginning March 1 of the year indicated below, plus, in each case, all dividends
accrued and unpaid on the shares of Series B Preferred Stock up to the date
fixed for the redemption, upon giving notice as provided herein below:
<TABLE>
<CAPTION>
YEAR PRICE
- - ---- -----
<S> <C>
1999........................................................ $1,030.00
2000........................................................ $1,020.00
2001........................................................ $1,010.00
2002 and thereafter......................................... $1,000.00
</TABLE>
(2) If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined pro
rata or by lot or in such other manner and subject to such regulations as the
Board of Directors in its sole discretion shall prescribe.
(3) At least 15 days, but not more than 30 days, prior to the date fixed
for the redemption of shares of Series B Preferred Stock, a written notice shall
be mailed in a postage prepaid envelope to each holder of record of the shares
of Series B Preferred Stock to be redeemed, addressed to such holder at his post
office address as shown on the records of the Corporation, notifying such holder
of the election of the Corporation to redeem such shares, stating the date fixed
for redemption thereof (the "Redemption Date"), and calling upon
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such holder to surrender to the Corporation, on the Redemption Date at the place
designated in such notice, his certificate or certificates representing the
number of shares specified in such notice of redemption. On or after the
Redemption Date, each holder of shares of Series B Preferred Stock to be
redeemed shall present and surrender his certificate or certificates for such
shares to the Corporation (together with transfer instruments sufficient to
transfer such shares to the Corporation free of any adverse interest) at the
place designated in such notice and thereupon the redemption price of such
shares shall be paid to or on the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In case less than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
Any notice that is mailed as herein provided shall be conclusively presumed
to have been duly given, whether or not the holder of the Series B Preferred
Stock receives such notice; and failure to give such notice by mail, or any
defect in such notice to the holders of any shares designated for redemption
shall not affect the validity of the proceedings for the redemption of any other
shares of Series B Preferred Stock.
From and after the Redemption Date (unless default shall be made by the
Corporation in payment of the redemption price), all dividends on the shares of
Series B Preferred Stock designated for redemption in such notice shall cease to
accrue, and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price of such shares
(including all accrued and unpaid dividends up to the Redemption Date) upon the
surrender of certificates representing the same, shall cease and terminate and
such shares shall not thereafter be transferred (except with the consent of the
Corporation) on the books of the Corporation, and such shares shall not be
deemed to be outstanding for any purpose whatsoever. No interest shall accrue on
the redemption price of any shares of Series B Preferred Stock after the date of
redemption of such shares. At its election, the Corporation, prior to the
Redemption Date, may deposit the redemption price (including all accrued and
unpaid dividends up to the Redemption Date) of shares of Series B Preferred
Stock so called for redemption in trust for the holders thereof with a bank or
trust company (having a capital surplus and undivided profits aggregating not
less than $50,000,000) in the Borough of Manhattan, City and State of New York,
or in any other city in which the Corporation at the time shall maintain a
transfer agency with respect to such shares, in which case the aforesaid notice
to holders of shares of Series B Preferred Stock to be redeemed shall state the
date of such deposit, shall specify the office of such bank or trust company as
the place of payment of the redemption price, and shall call upon such holders
to surrender the certificates representing such shares at such place on or after
the date fixed in such redemption notice (which shall not be later than the
Redemption Date) against payment of the redemption price (including all accrued
and unpaid dividends up to the Redemption Date). Any interest accrued on such
funds shall be paid to the Corporation from time to time. Any moneys so
deposited which shall remain unclaimed by the holders of such shares of Series B
Preferred Stock at the end of two years after the Redemption Date shall be
returned by such bank or trust company to the Corporation.
If a notice of redemption has been given pursuant to this Section 5 and any
holder of shares of Series B Preferred Stock shall, prior to the close of
business on the day preceding the Redemption Date, give written notice to the
Corporation pursuant to Section 7 below of the conversion of any or all of the
shares to be redeemed held by such holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the Corporation, and
any necessary transfer tax payment, as required by Section 7 below), then such
redemption shall not become effective as to such shares to be converted, such
conversion shall become effective as provided in Section 7 below, and any moneys
set aside by the Corporation for the redemption of such shares of converted
Series B Preferred Stock shall revert to the general funds of the Corporation.
SECTION 6. SHARES TO BE RETIRED.
All shares of Series B Preferred Stock which shall have been issued and
reacquired in any manner by the Corporation (excluding, until the Corporation
elects to retire them, shares which are held as treasury shares) shall be
restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to series.
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<PAGE> 72
SECTION 7. CONVERSION.
Holders of shares of Series B Preferred Stock shall have the right to
convert all or a portion of such shares into shares of Common Stock, as follows:
(1) Subject to and upon compliance with the provisions of this Section 7, a
holder of shares of Series B Preferred Stock shall have the right, at his or her
option, at any time after 90 days following the latest date of original issue of
any shares of Series B Preferred Stock, to convert such shares into the number
of fully paid and nonassessable shares of Common Stock obtained by dividing the
aggregate Stated Value of such shares by the Conversion Price (as in effect on
the date provided for in the last paragraph of paragraph (B) of this Section 7)
by surrendering such shares to be converted, such surrender to be made in the
manner provided in paragraph (B) of this Section 7; provided, however, that the
right to convert shares called for redemption pursuant to Section 5 shall
terminate at the close of business on the date preceding the Redemption Date,
unless the Corporation shall default in making payment of the cash payable upon
such redemption under Section 5 hereof. Certificates will be issued for the
remaining shares of Series B Preferred Stock in any case in which fewer than all
of the shares of Series B Preferred Stock represented by a certificate are
converted.
(2) In order to exercise the conversion right, the holder of shares of
Series B Preferred Stock to be converted shall surrender the certificate or
certificates representing such shares, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent in the Borough of
Manhattan, City of New York, accompanied by written notice to the Corporation
that the holder thereof elects to convert Series B Preferred Stock. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which such share of Series B Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Any share of Series B Preferred Stock surrendered for conversion during the
period from the close of business on a dividend payment record date for any
Dividend Payment Date through the close of business on the day next preceding
such Dividend Payment Date shall (unless such share of Series B Preferred Stock
being converted shall have been called for redemption on a Redemption Date in
such period) be accompanied by payment of an amount equal to the dividend
payable on such share on such Dividend Payment Date. An amount equal to such
payment shall be paid by the Corporation on such Dividend Payment Date to the
record holder of such share of Series B Preferred Stock at the close of business
on such dividend payment record date. Except as provided above, the Corporation
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on converted shares or for dividends on the shares of Common Stock
issued upon such conversion.
As promptly as practicable after the surrender of certificates for shares
of Series B Preferred stock as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with provisions of
this Section 7, and any fractional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in paragraph (C)
of this Section 7.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Series
B Preferred Stock shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such shares)
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Price in effect at such time on
such date, unless the stock transfer books of the Corporation shall be closed on
that date, in which event such person or persons shall be deemed to have become
such holder or holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date upon which such shares shall have
been surrendered and such notice received by the Corporation.
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(3) No fractional shares or scrip representing fractions of shares of
Common Stock shall be issued upon conversion of the Series B Preferred Stock.
Instead of any fractional interest in a share of Common stock that would
otherwise be deliverable upon the conversion of a share of Series B Preferred
Stock, the Corporation shall pay to the holder of such share an amount in cash
based upon the Current Market Price of Common Stock on the date of conversion or
if such date of conversion is not a Trading Day then on the Trading Day
immediately preceding such date of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series B Preferred Stock so
surrendered.
(4) The Conversion Price shall be adjusted from time to time as follows:
(1) If the Corporation shall after the earliest date of original issue
of any shares of Series B Preferred Stock (A) pay a dividend or make a
distribution on its capital stock in shares of its Common Stock, (B)
subdivide its outstanding Common Stock into a greater number of shares, (C)
combine its outstanding Common Stock into a smaller number of shares or (D)
issue any shares of capital stock by reclassification of its Common Stock,
the Conversion Price in effect at the opening of business on the day next
following the date fixed for the determination of stockholders entitled to
receive such dividend or distribution or at the opening of business on the
day next following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted
so that the holder of any share of Series B Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock that such holder would have owned or have been
entitled to receive after the happening of any of the events described
above had such share been converted immediately prior to the record date in
the case of a dividend or distribution or the effective date in the case of
a subdivision, combination or reclassification. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in paragraph (H) below) in the case of a dividend or distribution
and shall become effective immediately after the opening of business on the
day next following the effective date in the case of a subdivision,
combination or reclassification.
(2) If the Corporation shall issue after the earliest date of
original issue of any shares of Series B Preferred Stock rights or
warrants to all holders of Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Stock at a price per share less than the
Fair Market Value per share of Common Stock on the record date for the
determination of stockholders entitled to receive such rights or warrants,
then the Conversion Price in effect at the opening of business on the day
next following such record date shall be adjusted to equal the price
determined by multiplying (I) the Conversion Price in effect immediately
prior to the opening of business on the day next following the date fixed
for such determination by (II) a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding on the
close of business on the date fixed for such determination and (B) the
number of shares that the aggregate proceeds to the Corporation from the
exercise of such rights or warrants for Common Stock would purchase at
such Fair Market Value, and the denominator of which shall be the sum of
(A) the number of shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (B) the number of
additional shares of Common Stock offered for subscription or purchase
pursuant to such rights or warrants. Such adjustment shall become
effective immediately after the opening of business on the day next
following such record date (except as provided in paragraph (H) below). In
determining whether any rights or warrants entitle the holders of Common
Stock to subscribe for or purchase shares of Common Stock at less than
such Fair Market Value, there shall be taken into account any
consideration received by the Corporation upon issuance and upon exercise
of such rights or warrants, the value of such consideration, if other than
cash, to be determined by the Board of Directors.
(3) If the Corporation, after the earliest date of original issue of
any shares of Series B Preferred Stock, shall distribute to all holders of
its Common Stock any shares of capital stock of the Corporation (other than
Common Stock), assets (excluding cash dividends or distributions paid from
profits or surplus of the Corporation, other than Extraordinary Cash
Distributions (as defined herein)), evidence of
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<PAGE> 74
its indebtedness or rights or warrants to subscribe for or purchase any of
its securities (excluding those rights and warrants issued to all holders
of Common Stock entitling them for a period expiring within 45 days after
the record date referred to in subparagraph (ii) above to subscribe for or
purchase Common Stock, which rights and warrants are referred to in and
treated under subparagraph (ii) (above) (any of the foregoing being
hereinafter in this subparagraph (iii) called the "Securities"), then in
each such case the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (I) the Conversion Price in
effect immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by (II)
a fraction, the numerator of which shall be the Fair Market Value per share
of the Common Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive) of the portion of such capital stock, assets, evidence
of its indebtedness or rights or warrants so distributed per share of
Common Stock, and the denominator of which shall be the Fair Market Value
per share of the Common Stock on the record date mentioned below. Such
adjustment shall become effective immediately at the opening of business on
the Business Day next following (except as provided in paragraph (H) below)
the record date for the determination of shareholders entitled to receive
such distribution. For the purposes of this clause (iii), the distribution
of a Security, which is distributed not only to the holders of the Common
Stock on the date fixed for the determination of stockholders entitled to
such distribution of such Security, but also is distributed with each share
of Common Stock delivered to a Person converting a share of Series B
Preferred Stock after such determination date, shall not require an
adjustment of the Conversion Price pursuant to this clause (iii); provided
that on the date, if any, on which a Person converting a share of Series B
Preferred Stock would no longer be entitled to receive such Security with a
share of Common Stock (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be deemed to have
occurred and the Conversion Price shall be adjusted as provided in this
clause (iii) (and such day shall be deemed to be "the date fixed for the
determination of the stockholders entitled to receive such distribution"
and "the record date") within the meaning of the two preceding sentences).
"Extraordinary Cash Distribution" means the portion of any cash dividend or
cash distribution on the Common Stock that, when added to all other cash
dividends and cash distributions on the Common Stock made during the
immediately preceding 12-month period (other than cash dividends and cash
distributions for which a prior adjustment to the Conversion Price was
previously made), exceeds, on a per share of Common Stock basis, ten
percent (10%) of the average daily Current Market Price of the Common Stock
over such 12-month period.
(4) No adjustment in the Conversion Price shall be required unless
such adjustment would require a cumulative increase or decrease of at least
1% in such price; provided, however, that any adjustments that by reason of
this subparagraph (iv) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in
accordance with the provisions of this Section 7 (other than this
subparagraph (iv)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders of shares of
Common Stock. Notwithstanding any other provisions of this Section 7, the
Corporation shall not be required to make any adjustment of the Conversion
Price for the issuance of any shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends on securities of the
Corporation or any employee stock purchase plan (including without
limitation the Corporation's 1995 Employees' Stock Purchase Plan) approved
by the stockholders of the Corporation. All calculations under this Section
7 shall be made to the nearest cent (with $.005 being rounded upward) or to
the nearest 1/10 of a share (with .05 of a share being rounded upward), as
the case may be. Anything in this paragraph (D) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted
by law, to make such reductions in the Conversion Price, in addition to
those required by this paragraph (D), as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivision of
shares, reclassification or combination of shares, distribution of rights
or warrants to purchase stock or securities, or a distribution of other
assets (other than cash dividends) hereafter made by the Corporation to its
stockholders shall not be taxable.
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(5) To the extent permitted by applicable law, the Corporation from
time to time may reduce the Conversion Price by any amount for any period
of time if the period is at least 20 days, the reduction is irrevocable
during the period and the Board shall have made a determination that such
reduction would be in the best interests of the Corporation, which
determination shall be conclusive. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Corporation shall mail to holders
of record of the Series B Preferred Stock a notice of the reduction at
least 15 days prior to the date the reduced Conversion Price takes effect,
and such notice shall state the reduced Conversion Price and the period it
will be in effect. Any such reduction of the Conversion Price does not
change or adjust the Conversion Price otherwise in effect for this Section
7(D).
(5) If the Corporation, after the earliest date of original issue of any
shares of Series B Preferred Stock, shall be a party to any transaction
(including without limitation a merger, consolidation, sale of all or
substantially all of the Corporation's assets or recapitalization or
reclassification of the Common Stock and excluding any transaction as to which
subparagraph (D)(i) of this Section 7 applies) (each of the foregoing being
referred to herein as a "Transaction"), in each case as a result of which shares
of Common Stock shall be converted into the right to receive stock, securities
or other property (including cash or any combination thereof), each share of
Series B Preferred Stock which is not converted into the right to receive stock,
securities or other property in connection with such Transaction shall
thereafter be convertible into the kind and amount of shares of stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such Transaction by a holder of that number of shares
or fraction thereof of Common Stock into which one share of Series B Preferred
Stock was convertible immediately prior to such Transaction, assuming such
holder of Common Stock (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of stock,
securities or other property (including cash or any combination thereof)
receivable upon such Transaction (provided that if the kind or amount of stock,
securities or other property (including cash or any combination thereof)
receivable upon such Transaction is not the same for each share of Common Stock
held immediately prior to such Transaction by other than a Constituent Person or
an affiliate thereof and in respect of which such rights of election shall not
have been exercised ("non-electing share"), then for the purpose of this
paragraph (E) the kind and amount of stock, securities or other property
(including cash or any combination thereof) receivable upon such Transaction by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by the plurality of the non-electing shares). The Corporation shall
not be a party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this paragraph (E) and it shall not consent or
agree to the occurrence of any Transaction until the Corporation has entered
into an agreement with the successor or purchasing entity, as the case may be,
for the benefit of the holders of the Series B Preferred Stock that will contain
provisions enabling the holders of the Series B Preferred Stock that remains
outstanding after such Transaction to convert into the consideration received by
holders of Common Stock at the Conversion Price in effect immediately prior to
such Transaction. The provisions of this paragraph (E) shall similarly apply to
successive Transactions.
(6) If:
(1) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of profits or
surplus other than Extraordinary Cash Distributions); or
(2) the Corporation shall authorize the granting to the holders of the
Common Stock of rights or warrants to subscribe for or purchase any shares
of any class or any other rights or warrants which, pursuant to the terms
of this Section 7, would require an adjustment in the Conversion Price; or
(3) there shall be any reclassification of the Common Stock (other
than an event to which subparagraph (D)(i) of this Section 7 applies) or
any consolidation or merger to which the Corporation is a party and for
which approval of any stockholders of the Corporation is required, or the
sale or transfer of all or substantially all of the assets of the
Corporation as an entirety; or
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(4) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, then the Corporation shall
cause to be filed with the Transfer Agent and shall cause to be mailed to
the holders of shares of the Series B Preferred Stock at their addresses as
shown on the stock records of the Corporation, as promptly as possible, but
at least 15 days prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or rights or
warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winging up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up. Failure to
give or receive such notice or any defect therein shall not affect the
legality or validity of the proceedings described in this Section 7.
(7) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's certificate
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment which certificate shall
be prima facie evidence of the correctness of such adjustment. Promptly after
delivery of such certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion Price
and the effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price of the holder of each share of Series B
Preferred Stock at such holder's last address as shown on the stock records of
the Corporation.
(8) In any case in which paragraph (D) of this Section 7 provides that an
adjustment shall become effective on the day next following a record date for an
event, the Corporation may defer until the occurrence of such event (A) issuing
to the holder of any share of Series B Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder any amount
in cash in lieu of any fraction pursuant to paragraph (C) of this Section 7.
(9) For purposes of this Section 7, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation. The Corporation shall not pay a
dividend or make any distribution on shares of Common Stock held in the treasury
of the Corporation.
(10) There shall be no adjustment of the Conversion Price in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section 7. If
any action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section 7, only one adjustment shall
be made and such adjustment shall be the amount of adjustment that has the
highest absolute value.
(11) If the Corporation shall take any action affecting the Common Stock,
other than action described in this Section 7, that in the opinion of the Board
of Directors would materially adversely affect the conversion rights of the
holders of the shares of Series B Preferred Stock, the Conversion Price for the
Series B Preferred Stock may be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors may determine
to be equitable in the circumstances.
(12) The Corporation covenants that its will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued shares of Common Stock or its issued shares of Common Stock held in
its treasury, or both, for the purpose of effecting conversion of the Series B
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all outstanding shares of Series B Preferred Stock not theretofore
converted. For purposes of this paragraph (L), the number of shares of Common
Stock that shall be deliverable upon the conversion of all outstanding shares of
Series B Preferred Stock shall be computed as if at the time of computation all
such outstanding shares were held by a single holder.
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The Corporation covenants that any shares of Common Stock issued upon
conversion of the Series B Preferred Stock shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par value of the shares of Common
Stock deliverable upon conversion of the Series B Preferred Stock, the
Corporation will take any corporate action that, in the opinion of its counsel,
may be necessary in order that the Corporation may validly and legally issue
fully-paid and nonassessable shares of Common Stock at such adjusted Conversion
Price.
The Corporation shall endeavor to list the shares of Common Stock required
to be delivered upon conversion of the Series B Preferred Stock, prior to such
delivery, upon each national securities exchange or market, if any, upon which
the outstanding Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series B Preferred Stock (and
subject to the provisions of the Registration Rights Agreement), the Corporation
shall endeavor to comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or any approval
of or consent to the delivery thereof by, any governmental authority.
(13) The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock or other securities or property on conversion of the Series B
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the Series B Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting any issue or delivery has paid to the Corporation
that amount of any such tax or established, to the reasonable satisfaction of
the Corporation, that such tax has been paid.
SECTION 8. RANKING.
Any class or series of stock of the Corporation shall be deemed to rank:
(1) prior to the Series B Preferred Stock, as to the payment of dividends
or as to distributions of assets upon liquidation, dissolution or winding up, as
the case may be, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series B Preferred Stock;
(2) on a parity with the Series B Preferred Stock, as to the payment of
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, as the case may be, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof be different
from those of the Series B Preferred Stock if the holders of such class of stock
or series and the Series B Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective amounts of accrued and
unpaid dividends per share or liquidation preferences, without preference or
priority one over the other; and
(3) junior to the Series B Preferred Stock, as to the payment of dividends
or as to the distribution of assets upon liquidation, dissolution or winding up,
as the case may be, if such stock or series shall be Common Stock or if the
holders of Series B Preferred Stock shall be entitled to receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such stock or
series.
SECTION 9. VOTING.
(1) Each share of Series B Preferred Stock shall entitle the holder.
thereof to one (1) vote on all matters submitted to a vote of the Stockholders
of the Corporation. Except as otherwise required by applicable law or as set
forth in the Certificate of Incorporation or herein, the holders of shares of
Series B Preferred Stock and the holders of shares of Common Stock and any other
class or series of stock of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation.
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(2) Unless the affirmative vote or consent of the holders of a greater
number of shares shall then be required by law, the consent of the holders of at
least 66 2/3% of all of the Outstanding shares of Series B Preferred Stock and
all other affected Parity Dividend Stock or Parity Liquidating Stock upon which
like voting rights have been conferred and are exercisable, given in person or
proxy, either in writing or by a vote at a meeting called for the purpose, at
which the holders of shares of Series B Preferred Stock and such Parity Dividend
Stock and Parity Liquidating Stock shall vote together as a single class without
regard to series, shall be necessary for authorizing, effecting or validating
the amendment, alteration or repeal of any of the provisions of the Certificate
of Incorporation or of any certificate amendatory thereof or supplemental
thereto (including any certificate of designations, or any similar document
relating to any series of Preferred Stock) which would materially adversely
affect the preferences, rights, powers or privileges of the Series B Preferred
Stock; provided, however, that the amendment of the provisions of the
Certificate of Incorporation or of any certificate amendatory thereof or
supplemental thereto so as to authorize or create, or to increase the authorized
amount of, any Junior Dividend Stock, Junior Liquidating Stock, Parity Dividend
Stock or Parity Liquidating Stock shall not be deemed to materially adversely
affect the preferences, rights, powers or privileges of the Series B Preferred
Stock.
(3) Unless the affirmative vote or consent of the holders of a greater
number of shares shall then be required by law, the consent of the holders of at
least 66 2/3% of all of the outstanding shares of Series B Preferred Stock and
all Parity Dividend Stock or Parity Liquidating Stock upon which like voting
rights have been conferred and are exercisable, given in person or by proxy,
either in writing or by a vote at a meeting called for the purpose at which the
holders of shares of Series B Preferred Stock and such Parity Dividend Stock and
Parity Liquidating Stock shall vote together as a single class without regard to
series, shall be necessary for authorizing, effecting or validating the
creation, authorization or issue of any shares of any class of stock of the
Corporation ranking prior to the Series B Preferred Stock as to dividends or
upon liquidation, dissolution or winding up, or the reclassification of any
authorized stock of the Corporation into any such prior shares, or the creation.
authorization or issuance of any obligation or security convertible into or
evidencing the right to purchase any such prior shares.
(4) If at the time of any annual meeting of stockholders for the election
of directors a default in preference dividends (as defined below) on the Series
B Preferred Stock shall exist, the number of directors constituting the Board of
Directors shall be increased by two, and the holders of the Series B Preferred
Stock and any Parity Dividend Stock upon which like voting rights have been
conferred and are exercisable shall have the right at such meeting voting
together as a single class without regard to series, to the exclusion of the
holders of Common Stock, to elect two directors (the "Series B Preferred
Directors") of the Corporation to fill such newly created directorships. Such
right shall continue until there are no dividends in arrears upon the Series B
Preferred Stock or any such Parity Dividend Stock. Any Series B Preferred
Director may be removed by, and shall not be removed except by, the vote of the
holders of record of the outstanding shares of Series B Preferred Stock and any
Parity Dividend Stock upon which like voting rights have been conferred and are
exercisable, voting together as a single class without regard to series, at a
meeting of the stockholders, or of such holders, called for the purpose. So long
as a default in any preference dividends on the Series B Preferred Stock or any
such Parity Dividend Stock shall exist, (a) any vacancy in the office of a
Series B Preferred Director may be filled (except as provided in the following
clause (b) by an instrument in writing signed by the remaining Series B
Preferred Director and filed with the Corporation and (b) in the case of the
removal of any Series B Preferred Director, the vacancy may be filled by the
vote of the holders of the outstanding shares of Series B Preferred Stock and
any Parity Dividend Stock upon which like voting rights have been conferred and
are exercisable, voting together as a single class without regard to series, at
the same meeting at which such removal shall be voted. Each director appointed
as aforesaid by the remaining Series B Preferred Director shall be deemed, for
all purposes hereof, to be a Series B Preferred Director. Whenever a default in
preference dividends shall no longer exist, the term of office of each Series B
Preferred Director shall terminate and the number of directors constituting the
Board of Directors shall be reduced by two and the rights of the holders of the
shares of the Series B Preferred Stock to vote as provided in this Section 9(D)
shall cease, and the holders of shares of the Series B Preferred Stock shall
have only the voting rights elsewhere herein set forth, until such time as a
default in Preference dividends on the Series B Preferred Stock recurs in which
case the special voting rights set forth in this Section 9(D) shall apply. For
the purposes
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hereof, a "default in preference dividends" on the Series B Preferred Stock
shall be deemed to exist whenever the equivalent of six quarterly dividends have
not been declared and paid or set apart for payment, whether or not consecutive,
and, having so occurred, such default shall be deemed to exist thereafter until,
but only until, all accrued dividends on all shares of Series B Preferred Stock
shall have been declared and paid or set apart for payment to the end of the
last preceding dividend period.
For purposes of the foregoing provisions of this Section 9, each share of
Series B Preferred Stock shall have one (1) vote per share. Except as otherwise
required by applicable law or as set forth herein, the shares of Series B
Preferred Stock shall not have any voting rights and the consent of the holders
thereof shall not be required for the taking of any corporate action. Any shares
of Series B Preferred Stock held by the Corporation or any entity controlled by
the Corporation shall not have voting rights hereunder and shall not be counted
in determining the presence of a quorum.
SECTION 10. RECORD HOLDERS.
The Corporation and the Transfer Agent may deem and treat the record holder
of any shares of Series B Preferred Stock as the true and lawful owner thereof
for all purposes, and neither the Corporation nor the Transfer Agent shall be
affected by any notice to the contrary.
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APPENDIX C
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Certificate of
Incorporation, a series of Preferred Stock of the Corporation be and it hereby
is created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series C Junior Participating Preferred Stock" and the
number of shares constituting such series shall be One Hundred Thousand
(100,000).
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series C Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series C Junior Participating Preferred
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the 1st day of January, April, July and
October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series C Junior Participating Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $10.00 or
(b) subject to the provision for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times
the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, par value
$0.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series C Junior Participating Preferred
Stock. In the event the Corporation shall at any time after May 1, 1998
(the "Rights Declaration Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the amount to which holders of shares of
Series C Junior Participating Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series C Junior Participating Preferred Stock as provided in Paragraph (A)
above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $10.00 per share on the Series C Junior Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series C Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series C Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not
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bear interest. Dividends paid on the shares of Series C Junior
Participating Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series C Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series C Junior
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series C Junior Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series C Junior Participating Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series C Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series C Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "default period")
which shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series C Junior Participating
Preferred Stock then outstanding shall have been declared and paid or
set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series C Junior Participating
Preferred Stock) with dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) directors.
(ii) During any default period, such voting right of the holders of
Series C Junior Participating Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at
annual meetings of stockholders, provided that neither such voting right
nor the right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of directors
shall be exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect directors to fill
such vacancies, if any, in the Board of Directors as may then exist up
to two (2) directors or, if such right is exercised at an annual
meeting, to elect two (2) directors. If the number which may be so
elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of directors as shall be necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect directors in
any default period and during the continuance of such period, the number
of directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights
of any equity securities ranking senior to or pari passu with the Series
C Junior Participating Preferred Stock.
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(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective
of series, may request, the calling of a special meeting of the holders
of Preferred Stock, which meeting shall thereupon be called by the
President, a Vice-President or the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be
given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books
of the Corporation. Such meeting shall be called for a time not earlier
than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such
order or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this Paragraph (C)(iii),
no such special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation if applicable, shall continue to be
entitled to elect the whole number of directors until the holders of
Preferred Stock shall have exercised their right to elect two (2)
directors voting as a class, after the exercise of which right (x) the
directors so elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in Paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining directors
theretofore elected by the holders of the class of stock which elected
the director whose office shall have become vacant. References in this
Paragraph (C) to directors elected by the holders of a particular class
of stock shall include directors elected by such directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
directors shall be such number as may be provided for in the certificate
of incorporation or by-laws irrespective of any increase made pursuant
to the provisions of Paragraph (C)(ii) of this Section 3 (such number
being subject, however, to change thereafter in any manner provided by
law or in the certificate of incorporation or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses (y) and (z)
in the preceding sentence may be filled by a majority of the remaining
directors.
(D) Except as set forth herein, holders of Series C Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series C
Junior Participating Preferred Stock outstanding shall have been paid in
full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior Participating
Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Junior
Participating Preferred Stock, except dividends paid ratably on the
Series C Junior
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Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Junior
Participating Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series C Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series C Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series C Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under Paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series C Junior
Participating Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Series C Junior
Participating Preferred Stock shall have received an amount equal to $1,000
per share of Series C Participating Preferred Stock, plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series C Liquidation
Preference"). Following the payment of the full amount of the Series C
Liquidation Preference, no additional distributions shall be made to the
holders of shares of Series C Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained
by dividing (i) the Series C Liquidation Preference by (ii) 1,000 (as
appropriately adjusted as set forth in subparagraph (C) below to reflect
such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series C
Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series C Junior Participating Preferred Stock and
Common Stock, respectively, holders of Series C Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed
in the ratio of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation Preference
and the liquidation preferences of all other series of preferred stock, if
any, which rank on a parity with the Series C Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to
the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not
sufficient assets available to permit
B-30
<PAGE> 84
payment in full of the Common Adjustment, then such remaining assets shall
be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash or any other property, then in any such case the
shares of Series C Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 1,000 times
the aggregate amount of stock, securities, cash or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series C Junior Participating Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series C Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series C Junior Participating Preferred
Stock shall rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of assets, un
less the terms of any such series shall provide otherwise.
Section 10. Amendment. At any time when any shares of Series A
Junior Participating Preferred Stock are outstanding, neither the
Certificate of Incorporation of the Corporation nor this Certificate of
Designation shall be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series C Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series C Junior Participating Preferred Stock, voting separately
as a class.
Section 11. Fractional Shares. Series C Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series C Junior Participating
Preferred Stock.
B-31
<PAGE> 85
APPENDIX C
OLIVETTI SOLUTIONS
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
US GAAP
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
FEBRUARY 24, 1998
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<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Olivetti S.p.A.
Ivrea
We have audited the combined consolidated balance sheets of Olivetti
Solutions ("Olsy"), an integrated business unit of the Olivetti Group, as of
September 30, 1997 and December 31, 1996 and the related combined consolidated
statements of income, changes in net assets (liabilities) and cash flows for the
nine month and one year periods, respectively then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain combined and/or
consolidated companies, whose statements as of and for the nine months ended
September 30, 1997 and the year ended December 31, 1996 reflect total assets and
revenues constituting 22% and 22% and 15% and 16% respectively, of the related
combined consolidated totals. Those statements were audited by other auditors
whose reports have been furnished to us and our opinion, in so far as it relates
to the amounts included for those companies, is based solely on the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and reports of the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
the combined consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Olsy as of September 30,
1997 and December 31, 1996 and the results of its operations and its cash flows
for the nine month and one year periods respectively then ended, in conformity
with generally accepted accounting principles in the United States of America.
COOPERS & LYBRAND S.P.A.
Turin, Italy
February 24, 1998 except with respect to
notes 29 c) and 29 d) for which the dates are
April 7, 1998 and May 12, 1998 respectively.
C-2
<PAGE> 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Olsy Belgium S.A.:
We have audited the accompanying consolidated carved out balance sheet of
OLSY BELGIUM S.A. AND SUBSIDIARIES as of December 31, 1996 and the related
consolidated statements of income, cash flows, and stockholders' equity for the
year then ended and the accompanying consolidated balance sheet of Olsy Belgium
S.A. and subsidiaries as of September 30, 1997 and the related consolidated
statements of income, cash flows, and stockholders' equity for the nine months
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above
(not presented separately herein) present fairly, in all material respects, the
consolidated carved out financial position of Olsy Belgium S.A. and subsidiaries
as of December 31, 1996, and the consolidated results of their carved out
operations and the consolidated carved out cash flows for the year then ended
and the consolidated financial position of Olsy Belgium S.A. and subsidiaries as
of September 30, 1997, and the consolidated results of the their operations and
the consolidated cash flows for the nine months period then ended in conformity
with accounting principles generally accepted in the United States of America.
ARTHUR ANDERSEN
Reviseurs d'Entreprises
/s/ Guy Wygaerts
--------------------------------------
GUY WYGAERTS
Brussels, Belgium
February 24, 1998
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<PAGE> 88
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Olivetti Espana, S.A.:
We have audited the accompanying carved-out balance sheet of Olivetti
Espana, S.A. as of December 31, 1996, and the accompanying balance sheet as of
September 30, 1997, and the related statements of income, cash flows and changes
in stockholders' equity for the year ended December 31, 1996 and for the
nine-month period ended September 30, 1997. There financial statements are the
responsibility of Olivetti Espana, S.A.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the 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 (not presented
separately herein) present fairly, in all material respects, the financial
position of Olivetti Espana, S.A. as of December 31, 1996 and September 30,
1997, and the results of its operations and its cash flows for the year ended
December 31, 1996 and the nine-month period ended September 30, 1997, in
accordance with generally accepted accounting principles in the United States of
America.
ARTHUR ANDERSEN
/s/ Koro Usarraga
--------------------------------------
KORO USARRAGA
Barcelona, Spain
February 23, 1998
C-4
<PAGE> 89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Olivetti Corporation of Japan:
We have audited the accompanying balance sheet of Olivetti Corporation of
Japan (a Japanese corporation, 80%-owned by Olivetti Systems Technology
Corporation and 20%-owned by Toshiba Corporation) as of December 31, 1996 and
the related statements of loss and accumulated deficit, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatment. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the financial
position of Olivetti Corporation of Japan as of December 31, 1996 and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ ARTHUR ANDERSEN
Tokyo, Japan,
November 7, 1997
C-5
<PAGE> 90
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Olivetti Corporation of Japan:
We have audited the accompanying balance sheet of Olivetti Corporation of
Japan (a Japanese corporation, 80%-owned by Olivetti Systems Technology
Corporation and 20%-owned by Toshiba Corporation) as of September 30, 1997 and
the related statements of loss and accumulated deficit, and cash flows for the
nine-month period then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatment. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the financial
position of Olivetti Corporation of Japan as of September 30, 1997 and the
results of its operations and its cash flows for the nine-month period then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ ARTHUR ANDERSEN
Tokyo, Japan,
November 7, 1997
C-6
<PAGE> 91
To the shareholders of
Olsy Austria Information Systems GmbH
Vienna
Olsy Austria Information Systems GmbH (Olsy Austria)
Audit Opinion on the Consolidated Financial Statements
as of December 31, 1996 and September 30, 1997
We have audited the accompanying consolidated balance sheet of Olsy Austria
and its subsidiaries as of December 31, 1996 and September 30, 1997 and the
related consolidated profit and loss account and statements of cash flows for
the year ended December 31, 1996 and the nine months period ended September 30,
1997, all expressed in thousands of Austrian Schillings. These consolidated
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 the above financial statements in accordance
with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
after the restatement described in Note 11, present fairly, in all material
respects, the financial position of Olsy Austria as of December 31, 1996 and
September 30, 1997, and the results of its operations and its cash flows for the
year ended December 31, 1996 and the nine months period ended September 30, 1997
in conformity with generally accepted accounting principles in the United States
of America.
PRICE WATERHOUSE AG
/s/ WOLFRAM STEINER
--------------------------------------
WOLFRAM STEINER
/s/ JOHANNES MORTL
--------------------------------------
JOHANNES MORTL
Vienna, Austria
February 24, 1998, except as to
Note 11, which is as of May 12, 1998
C-7
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of Olivetti (Hong Kong) Limited
We have audited the accompanying consolidated financial statements of
Olivetti (Hong Kong) Limited and its subsidiary as of September 30, 1997 and
December 31, 1996 and the related consolidated statements of income, of cash
flows and of changes in shareholders' equity for the nine months period ended
September 30, 1997 and the year ended December 31, 1996, all expressed in Hong
Kong dollars. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Olivetti (Hong Kong) Limited
and its subsidiary at September 30, 1997, and December 31, 1996 and the
consolidated results of their operations and their cash flows for the period
from January 1, 1997 to September 30, 1997 and the year ended December 31, 1996,
in conformity with generally accepted accounting principles in the United States
of America.
PRICE WATERHOUSE
Price Waterhouse
Certified Public Accountants
Hong Kong, January 10, 1998
C-8
<PAGE> 93
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors of
Olsy Africa (Proprietary) Limited
We have audited the accompanying consolidated balance sheets of Olsy Africa
(Proprietary) Limited as of September 30, 1997 and December 31, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two periods ended September 30, 1997 and December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the 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 consolidated financial position of Olsy Africa
(Proprietary) Limited as at September 30, 1997 and December 31, 1996 and the
consolidated results of its operations and its cash flows for each of the
periods ended September 30, 1997 and December 31, 1996 in conformity with
generally accepted accounting principles in the United States of America.
/s/ PRICE WATERHOUSE
Johannesburg, South Africa
December 24, 1997
C-9
<PAGE> 94
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
COMBINED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(ITALIAN LIRE IN BILLIONS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1997 DECEMBER 31, 1996
- - ------ ------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. 179 329
Restricted cash........................................... 13 10
Marketable securities..................................... 19 10
Accounts receivable trade, net of allowance for doubtful
accounts............................................... 1,263 1,617
Advances to related parties............................... 744 538
Inventories............................................... 405 405
Accrued income, prepaid expenses and other current
assets................................................. 294 343
Deferred tax assets....................................... 2 3
----- -----
Total current assets.............................. 2,919 3,255
----- -----
Property, plant and equipment, net.......................... 364 359
Investments................................................. 16 16
Prepaid pension costs....................................... 22 21
Intangible assets, net...................................... 29 29
Other assets................................................ 66 54
Deferred tax assets......................................... 13 17
----- -----
Total Assets...................................... 3,429 3,751
===== =====
<CAPTION>
LIABILITIES
- - -----------
<S> <C> <C>
Current liabilities:
Due to related parties.................................... 533 1,026
Current portion of long-term debt and obligations under
capital leases......................................... 341 518
Accounts payable and accrued liabilities.................. 1,595 1,585
Other current liabilities................................. 103 166
Income taxes payable...................................... 10 21
----- -----
Total current liabilities......................... 2,582 3,316
----- -----
Long-term debt.............................................. 76 89
Obligations under capital leases............................ 85 96
Other liabilities........................................... 429 402
Deferred tax liabilities.................................... 3 4
Minority interests.......................................... 22 31
----- -----
Total Liabilities................................. 3,197 3,938
----- -----
Commitments and contingencies (Note 20)
Net assets (liabilities).......................... 232 (187)
----- -----
Total Liabilities and Net Assets.................. 3,429 3,751
===== =====
</TABLE>
The accompanying notes are an integral part of the combined consolidated
financial statements.
C-10
<PAGE> 95
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
COMBINED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(ITALIAN LIRE IN BILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Revenues:
Product sales.......................................... 1,590 2,218
Services............................................... 1,280 2,263
Other.................................................. 68 14
------ ------
Total Net Revenues................................ 2,938 4,495
Operating costs and expenses:
Cost of product sales.................................. (1,309) (1,828)
Cost of services....................................... (994) (1,785)
Selling, general and administrative.................... (702) (1,048)
Restructuring costs.................................... (1) (82)
------ ------
Total Operating Costs and Expenses................ (3,006) (4,743)
------ ------
Loss before interest expense, provision for income
taxes, minority interests and extraordinary
item............................................ (68) (248)
Interest expense, net....................................... (35) (76)
------ ------
Loss before provision for income taxes, minority
interests, and extraordinary item............... (103) (324)
Provision for income taxes.................................. (15) (29)
Minority interests in net loss (earnings) of subsidiaries... 5 (3)
------ ------
Net Loss Before Extraordinary Item..................... (113) (356)
Loss on early extinguishment of debt, net of
tax............................................. -- (30)
------ ------
Net Loss............................................... (113) (386)
====== ======
</TABLE>
The accompanying notes are an integral part of the combined consolidated
financial statements.
C-11
<PAGE> 96
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
COMBINED CONSOLIDATED STATEMENTS
OF CHANGES IN NET ASSETS (LIABILITIES)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
THE YEAR ENDED DECEMBER 31, 1996
(ITALIAN LIRE IN BILLIONS)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1996.................................... 297
Adjustment for the initial adoption of FASB 87, net of
tax (Note 18)......................................... (25)
Capital contribution (Note 18)......................... 13
Net capital distribution (Note 1)...................... (84)
Net loss............................................... (386)
Foreign currency translation adjustment................ (2)
----
BALANCE, DECEMBER 31, 1996.................................. (187)
Forgiveness of amounts due to Olivetti Group (Notes 1
and 11)............................................... 515
Capital increase, Olivetti Espana S.A. (Note 27)....... 15
Net loss............................................... (113)
Foreign currency translation adjustment................ 2
----
BALANCE, SEPTEMBER 30, 1997................................. 232
====
</TABLE>
The accompanying notes are an integral part of the combined consolidated
financial statements.
C-12
<PAGE> 97
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
(ITALIAN LIRE IN BILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. (113) (386)
Adjustments to reconcile net loss to cash flows provided by
operating activities:
Gain on sale of property, plant and equipment and
shareholdings........................................ (31) (7)
Loss on disposition of assets.......................... -- 23
Loss on early extinguishment of debt................... -- 30
Allowance for doubtful accounts........................ 11 25
Depreciation and amortization of property, plant and
equipment and intangible assets...................... 101 161
Restructuring costs.................................... 1 33
Tax deferrals.......................................... 5 8
Allocated costs, not paid.............................. 26 --
Pension expense........................................ 21 25
Other.................................................. (3) (12)
Changes in assets and liabilities:
Decrease in accounts receivable...................... 343 922
Decrease in inventories.............................. -- 161
(Increase) decrease in other current and noncurrent
assets............................................ 24 (67)
Increase (decrease) in accounts payable and accrued
liabilities....................................... 10 (566)
Increase (decrease) in other current and noncurrent
liabilities....................................... (68) (191)
---- ----
Net Cash Flows Provided by Operating Activities... 327 159
---- ----
Cash flows from investing activities:
Advances to related parties............................... (206) 21
Additions to property, plant and equipment................ (96) (118)
Proceeds from the sale of property, plant and equipment
and shareholdings...................................... 46 28
Acquisition of businesses, net of cash acquired........... (9) (24)
Other, principally marketable securities.................. (10) 206
---- ----
Net Cash (Used) Provided by Investing
Activities...................................... (275) 113
---- ----
Cash flows from financing activities:
Due to related parties.................................... 4 (53)
Capital contribution from Olivetti Group.................. 15 13
Cash distribution to Olivetti Group....................... -- (159)
Proceeds from long-term debt.............................. -- 55
Retirement of long-term debt.............................. (205) (217)
---- ----
Net Cash Used in Financing Activities............. (186) (361)
---- ----
Effect of exchange rate changes on cash and cash equivalents
and restricted cash....................................... (13) (31)
---- ----
Decrease in cash and cash equivalents and restricted cash... (147) (120)
Cash and cash equivalents and restricted cash, beginning of
year...................................................... 339 459
---- ----
Cash and Cash Equivalents and Restricted Cash, end
of Year......................................... 192 339
==== ====
Income taxes paid........................................... 21 14
Interest paid............................................... 20 76
</TABLE>
The accompanying notes are an integral part of the combined consolidated
financial statements.
C-13
<PAGE> 98
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
THE COMPANY
Olivetti Solutions "OLSY", an integrated business unit of the Olivetti
Group, includes the combined systems and services businesses of Olivetti
Solutions S.p.A. ("Olsy S.p.A.") and its legally owned companies, O. Group
Technology S.p.A., Regulus S.p.A., O.R.E.& L s.r.l., the systems and services
business of Olivetti do Brasil, 40% interest in Olivetti Espana and Olivetti
Corporation of Japan and their predecessor operations (collectively the
"Company" or the "Business"). These financial statements have been prepared
pursuant to the requirements of the draft Sale and Purchase Agreement by and
among Wang Laboratories, Inc., Wang Netherland B.V., Olivetti S.p.A., Olivetti
Holding B.V. and Olivetti do Brasil S.A. for inclusion in filings with the
United States of America Securities and Exchange Commission under Rule 3.05 of
Regulation SX.
DESCRIPTION OF BUSINESS
The Company is a provider of information technology ("IT") solutions and
services to the Italian, European and global market. The Company's primary
geographical markets outside of Italy are: Great Britain, Netherlands, France,
Belgium, North America and Japan. The Company delivers solutions and services
based on open computing standards, distributed client server architectures and
network infrastructures to customers, pricipally in the banking, public
authority, utility and retail sectors. The solutions range from development of
the initial computing environment to systems integration and include analysis,
design, validation, procurement and production through to delivery and roll out
of complete solutions. The services provided by the Company, include hardware,
software and network maintenance and support, outsourcing of distributed desktop
computing environments and consultancy all of which are provided under
contractual arrangements with customers.
FORMATION
Prior to 1996, the business of the Company was conducted by Olivetti
S.p.A., several other Olivetti Group corporations located in Italy and in
various other countries, some of which conducted other operations through
several business lines (the "Non-Olsy Business"). Beginning in 1995, the
Olivetti Group began a series of transactions to formally separate the business
of the Company from the Non-Olsy Business. At the end of 1995 and during the
first months of 1996, certain international subsidiaries of the Olivetti Group
transferred certain Non-Olsy Business assets and liabilities, consisting
primarily of inventories and severance pay reserves, to other newly created
Olivetti Group companies. The remaining assets and liabilities of the Non-Olsy
Business including cash, tangible and intangible assets, trade receivables,
payables, and provisions were transferred to the Company. These transfers have
been recorded as a net capital distribution in the combined consolidated
statement of changes in net assets (liabilities). Accordingly, the statements of
income and cash flows subsequent to the transfer reflect the activity relating
to the transferred assets and liabilities.
On January 1, 1997, substantially all of the systems and services assets
and liabilities of Olivetti S.p.A. were transferred to Olivetti Solutions S.p.A.
(formerly Sixcom S.p.A.), an Olivetti Group company, which prior to that date,
had nominal activity and nominal assets and liabilities. As part of the
transaction several minor companies involved in the systems and services
business' and certain other assets and liabilities mainly including cash,
intangibles and debt were retained by Olivetti S.p.A. For the purpose of these
financial statements these transactions have been accounted for as part of the
net capital distribution described above, in the combined consolidated statement
of changes in net assets (liabilities) as of December 31, 1996.
During 1997, substantially all of the shareholdings in certain
international subsidiaries of the Olivetti Group, except for the shareholdings
in Olivetti do Brasil, Olivetti Corporation of Japan, 40% of Olivetti Espana
S.A., O.Group Technology S.p.A., Regulus S.p.A. and O.R.E.& L. s.r.l., and some
other minor Italian entities were transferred to Olivetti Solutions S.p.A. In
conjunction with the transfer certain amounts
C-14
<PAGE> 99
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including debt, interest and allocated costs owed by the Company to other
Olivetti Group Companies of approximately Lire 515 billion was forgiven. The
forgiveness has been recorded as a net capital contribution in the combined
consolidated statement of changes in net assets (liabilities).
As a result of the above changes in legal structure and share ownership
certain previously combined entities were consolidated in 1997.
BASIS OF PRESENTATION
These financial statements present the combined consolidated assets and
liabilities and results of operations of the Company. Because the Company did
not previously prepare separate financial statements, these financial statements
were derived by extracting the assets and liabilities and results of operations
of the Company from the consolidated assets, liabilities and results of
operations of the Olivetti Group. Accordingly, the combined consolidated
financial statements contain necessary allocations of assets, liabilities,
revenues and expenses attributable to the Company as deemed reasonable by
management to present the Company on a stand alone basis. Although management is
unable to estimate the actual costs that would have been incurred had the
services been purchased from independent third parties, the allocation
methodologies described below and within the respective notes to financial
statements, where appropriate, are considered reasonable by management. However,
the financial position and results of operations of the Company may differ from
the results that may have been achieved had the Company operated as an
independent entity. Additionally, future expenses incurred as an independent
entity may not be comparable to the historical levels.
The combined consolidated financial statements are presented in accordance
with generally accepted accounting principles of the United States of America.
The reporting currency of the Company is the Italian lira. All amounts in
these financial statements have been prepared in billions of Italian lira unless
otherwise stated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOCATIONS
The financial statements reflect the assets, liabilities, revenue and
expenses that were directly related to the Company as they were operated within
the Olivetti Group. In cases involving assets and liabilities not specifically
identifiable to any particular business line, a portion of such items were
allocated to the Company based on assumptions that management considers
reasonable in the circumstances.
The Olivetti Group uses a centralized approach to cash management and the
financing of its operations, except for certain specific cash, marketable
securities, and debt recorded by the operating companies. Cash and cash
equivalents, marketable securities and debt not specifically identifiable to the
operations of the Company were allocated to the Company based on the historical
debt to equity ratio of each individual operating company within Olsy as of the
beginning of 1996. The balances of these accounts at the end of 1996 reflect the
beginning allocated balance plus the net cash inflow and outflow during the
year. Interest expense on attributed debt was allocated to the Company by
applying the average interest rates applicable to each operating company to
which the debt related to.
The statements of income include all of the costs of doing business
including specific corporate costs of the Company and certain allocated costs
incurred by the Olivetti Group on the Company's behalf including finance, human
resources, investor relations, strategic planning, legal and the tax department.
These allocations were based on a variety of factors including, for example, the
number of employees, estimates of usage and revenues.
C-15
<PAGE> 100
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to December 31, 1996, the Company participated in certain Olivetti
Group centralized foreign currency and risk management functions. As part of
these activities, derivative financial instruments were utilized to manage risks
generally associated with foreign currency and interest rate volatility. The
statement of income for 1996 reflects both specific and allocated benefits and
costs from these functions.
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The combined consolidated financial statements of the Company include the
consolidated accounts of Olsy S.p.A. and its subsidiaries and the combined
accounts of O.Group Technology S.p.A., Regulus S.p.A., O.R.E.& L. s.r.l., 40% of
Olivetti Espana S.A., and Olivetti Corporation of Japan, and their respective
predecessor entities. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. The most significant estimates and assumptions relate to revenue and
cost allocations, income tax allocations, allowance for uncollectable accounts
receivable, employee benefit plans and the reserve for restructuring costs.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash in hand and cash in bank current
accounts, with original maturities of three months or less. Included in cash and
cash equivalents as of September 30, 1997 and December 31, 1996 is approximately
Lire 69 billion and Lire 119 billion, respectively of cash collected in
connection with the securitization program (Note 4) that must be transferred to
the program administrator as repayment of financing under the securitization
program.
INVENTORIES
Inventories are valued at the lower of purchase or production cost,
determined on an average cost basis, or net realizable value. Inventories also
include work-in-process recorded using the percentage of completion (cost to
cost) method. Any losses on such contracts are charged to the combined
consolidated statement of income in the period in which they are first
identified.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is provided primarily using the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the lease term or the estimated useful life of
the improvements. Upon retirement or other disposal of fixed assets, the costs
and related accumulated depreciation or amortization are eliminated from the
accounts, and any resulting gain or loss is reflected in income for the period.
Repairs and maintenance costs are charged to expense as incurred.
C-16
<PAGE> 101
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The yearly rates are the following:
<TABLE>
<S> <C>
Buildings................................................... 3-5%
Plant and machinery......................................... 10-20%
Industrial and commercial equipment......................... 20-40%
Electronic office machines.................................. 20-33%
Office furniture and fixture................................ 12-25%
Vehicles.................................................... 14-25%
</TABLE>
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired is recorded
as goodwill and is amortized on a straight-line basis over periods of 5 to 10
years. The cost of other acquired intangibles is amortized on a straight-line
basis over their estimated useful lives. The Company evaluates the carrying
value of intangible assets if the facts and circumstances indicate a potential
impairment of their carrying value. Any impairments are recognized when the
expected future undiscounted operating cash flows related to such intangible
assets are less than their carrying values.
RECOGNITION OF REVENUES
Revenues from the sale of products are recognized on the transfer of
ownership. Revenues from rental and maintenance contracts are recognized as
earned. Revenues from long-term contracts are recorded using the percentage of
completion (cost to cost) method.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company
receives under the terms of specific legislation assisted loans for research and
development purposes. Interest-relief grants that reduce the financial charges
applied to the research loans received are recognized on an accrual basis. The
costs incurred for research and development were Lire 33 billion and Lire 90
billion for the nine months ended September 30, 1997 and the year ended December
31, 1996, respectively.
INCOME TAXES
The Company is not a separate taxable entity for Italian or international
tax purposes. Accordingly, income tax expense in the combined consolidated
financial statements has been calculated on a separate tax return basis by tax
jurisdiction.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS 109 requires an asset and liability approach for financial accounting and
reporting for income tax purposes. Under the asset and liability method,
deferred income taxes are recognized for the tax consequences of temporary
differences and net operating loss carryforwards by applying enacted statutory
tax rates applicable to future years. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currencies of its international
subsidiaries are their functional currencies. In consolidating international
subsidiaries, assets and liabilities are translated at period end exchange rates
and income statement items are translated at the average exchange rates for the
period. Translation adjustments are reported as an adjustment to net assets
(liabilities).
C-17
<PAGE> 102
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS
Currency gains and losses resulting from transactions denominated in
currencies other than the local currency are included in results of operations.
Net currency transaction losses included in other expense were Lire 5 billion
and Lire 32 billion for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively.
CONCENTRATION OF CREDIT RISKS
The Company deposits its cash with major banks throughout the world and
invests in high-quality, short-term liquid money market instruments. The Company
has a policy of making investments only with commercial institutions that have
at least an "A" (or equivalent) credit rating. The Company's practice has been
to advance its excess cash to other Olivetti Group companies. Although the
Company does not currently foresee a credit risk associated with these amounts,
the Company may suffer a significant loss in the case of non performance by
these affiliates.
The Company sells a broad range of products in the information technology
sector in most countries of the world. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. Ongoing credit evaluations of customers'
financial condition are performed and, generally, no collateral is required. The
Company maintains reserves for potential credit losses.
3. RESTRICTED CASH
Restricted cash as of September 30, 1997 and December 31, 1996
consists of Lire 13 billion and Lire 10 billion respectively, held in
deposit by a bank which has provided financing to another Olivetti Group
company. This financing was repaid on October 11, 1997 and consequently the
restriction was removed.
4. ACCOUNTS RECEIVABLE TRADE, NET
Accounts receivable, net, consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Amounts due from third parties.............................. 1,283 1,534
Amounts due from:
Olivetti Group companies.................................. 108 214
----- -----
Total............................................. 1,391 1,748
Less: allowance for doubtful accounts....................... 128 131
----- -----
Total............................................. 1,263 1,617
===== =====
</TABLE>
Receivables from related parties mainly comprise amounts due for goods and
services provided in the ordinary course of business.
Within the normal course of business, the Company operates a securitization
program whereby trade accounts receivable are transferred to Global Accounts
Receivable Backed Offerings Ltd. ("Garbo"). At the time of transfer the Company
receives cash equal to approximately 70% of the total nominal value of the
receivables transferred or the advance purchase price ("APP"). The remaining
purchase price, less applicable fees, or the deferred purchase price ("DPP"), is
received on collection of the transferred receivables. In accordance with
generally accepted accounting principles in the United States of America, the
transfers have been accounted for as secured borrowings. In this regard, the
receivables transferred under the program have been retained in the accounts of
the Company until collected and the APP is recorded as short term debt (See
C-18
<PAGE> 103
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Note 14). As of September 30, 1997 and December 31, 1996, approximately Lire 173
billion and Lire 191 billion, respectively were transferred and remained
uncollected as of the balance sheet dates, under the program. The Company
provides for potential bad debts on transferred receivables consistent with its
policy on receivables that are not transferred as part of the program. Included
in interest expense for the nine months ended September 30, 1997 and for the
year ended December 31, 1996 is approximately Lire 12 billion and Lire 29
billion, respectively in interest charges for the program.
As part of the securitization program, the Company granted a subordinated
start up loan of Lire 2 billion and subordinated revolving loans equal to the
APP received for ineligible receivables (as defined), to Garbo of Lire 7 billion
and Lire 17 billion as of September 30, 1997 and December 31, 1996,
respectively, all of which are included in other current receivables.
The Company is the collection agent for the transferred receivables. Cash
collected on transferred receivables that has not been forwarded to Garbo as of
the balance sheet date, is recorded as cash with a corresponding liability of
the same amount in debt from factors and other financial institutions (Note 14).
According to the terms of the contract the securitization program expires
unless renewed. Subsequent to the balance sheet date the Company chose to
discontinue the program. The program is currently in wind up.
5. ADVANCES TO RELATED PARTIES
Advances to related parties consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Due from Olivetti International S.A......................... 191 124
Due from Olivetti S.p.A..................................... 535 404
Other:
-- due from Olivetti Finanziaria Industriale........... 8 6
-- due from Rapida SA.................................. 7 --
-- due from Olivetti Supplies.......................... 1 1
-- due from Olivetti Africa Lexikon.................... 2 3
--- ---
Total............................................. 744 538
=== ===
</TABLE>
The amounts due from Olivetti International S.A. consist of excess cash of
the foreign operating companies deposited with this related party, bearing
interest at LIBOR for the various currencies plus 0.125%. The amounts due from
Olivetti S.p.A. consist of an interest bearing current account, bearing interest
at rates established from time to time. On January 1, 1997 the Company entered
into a formal agreement with Olivetti S.p.A. for the interest bearing current
account and the amounts payable to it. In accordance with the terms of the
agreement, the Company may terminate the arrangement with one months notice and
in the event the Company is no longer an Olivetti Group Company.
C-19
<PAGE> 104
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Spare parts.............................. 53 30
Raw materials............................ 15 44
Work in process.......................... 20 20
Finished goods........................... 185 225
Contract work-in-process................. 132 86
--- ---
Total.......................... 405 405
=== ===
</TABLE>
Recorded in contract work-in-process are cost and unbilled margin of
approximately Lire 32 billion as of September 30, 1997 and December 31, 1996,
respectively, relating to a contract on which work has been suspended.
Management anticipates a favorable resolution in the matter. The Olivetti Group
has committed to reimburse the Company for any potential losses under the
contract on or before December 31, 1999.
7. ACCRUED INCOME, PREPAID EXPENSES AND OTHER CURRENT ASSETS
Accrued income, prepaid expenses and other current assets consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Accrued income -- third parties.......... 68 28
Prepaid expenses -- third parties........ 71 40
Accrued income and prepaid expenses:
- - - Olivetti Group companies............... 23 6
Financial receivables from third
parties................................ 23 40
Other receivables:
- - - third parties.......................... 107 201
- - - other Olivetti Group Companies......... 2 28
--- ---
Total.......................... 294 343
=== ===
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------
HELD UNDER LEASED TO
OWNED CAPITAL LEASE THIRD PARTIES TOTAL
----- ------------- ------------- -----
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Land and buildings................................... 202 83 285
Plant and machinery.................................. 167 4 24 195
Industrial and commercial equipment.................. 391 391
Other assets......................................... 251 5 256
Assets under construction............................ 42 42
----- -- -- -----
Total...................................... 1,053 92 24 1,169
Less: accumulated depreciation and amortization...... 753 33 19 805
----- -- -- -----
Total...................................... 300 59 5 364
===== == == =====
</TABLE>
C-20
<PAGE> 105
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
HELD UNDER LEASED TO
OWNED CAPITAL LEASE THIRD PARTIES TOTAL
----- ------------- ------------- -----
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Land and buildings................................... 205 87 292
Plant and machinery.................................. 111 17 128
Industrial and commercial equipment.................. 360 360
Other assets......................................... 175 6 181
Assets under construction............................ 43 43
---- --- --- -----
Total...................................... 894 93 17 1,004
---- --- --- -----
Less: accumulated depreciation and amortization...... 617 26 2 645
---- --- --- -----
Total...................................... 277 67 15 359
==== === === =====
</TABLE>
Depreciation and amortization expense for property, plant and equipment was
Lire 97 billion and Lire 133 billion, for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively.
9. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Investments in associated companies...... 14 13
Investments in other companies........... 2 3
--- ---
Total.......................... 16 16
=== ===
</TABLE>
INVESTMENTS IN ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
-------------------- --------------------
% %
BOOK VALUE OWNED BOOK VALUE OWNED
---------- ------ ---------- ------
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Investments accounted using the equity method:
-- Caridata S.p.A............................. 2 40.00 -
-- Datitalia Processing S.p.A................. 4 30.00 4 30.00
-- ISC Bunker Ramo de Mexico.................. 1 25.00 -
-- ISC Argentina SA........................... 2 49.00 2 49.00
-- Olicredit.................................. - 2 49.00
--- ---
Total.............................................. 9 8
Investments carried at cost:
-- Infogroup.................................. 1 20.00 1 40.00
-- Consorzio Narita........................... 1 50.00 1 50.00
-- Zhongshan Bank Autom....................... 1 40.00 --
-- Others (1996 includes 40% of Caridata)..... 2 3
--- ---
Total Investments in Associated Companies.......... 14 13
=== ===
</TABLE>
C-21
<PAGE> 106
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS IN OTHER COMPANIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
-------------------- --------------------
% %
BOOK VALUE OWNED BOOK VALUE OWNED
---------- ------ ---------- ------
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Investments stated at cost:
-- Olivetti Ricerca S.C.p.A................... 2 3.70 2 3.70
-- Others..................................... - 1
--- ---
Total Investments in Other Companies............... 2 3
=== ===
</TABLE>
10. INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Goodwill................................. 25 23
Patents and copyrights................... 15 13
Intangible asset, pension................ 7 10
--- ---
Total.......................... 47 46
Less: accumulated amortization........... 18 17
--- ---
Net Intangible Assets.................... 29 29
=== ===
</TABLE>
Amortization expense for intangible assets was Lire 4 billion and Lire 28
Billion for the nine months ended September 30, 1997 and the year ended December
31, 1996, respectively.
During the nine months ended September 30, 1997 and the year ended December
31, 1996, the Company acquired all or a majority of the shares in several
entities. The acquisitions have been accounted for using the purchase business
combination method. Supplemental pro forma information on the results of
operations as though the entities had combined at the beginning of the period in
which acquired and for the proceding period, if required, have not been
presented as the pro forma results of operations were not material in the
aggregate.
11. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Financial receivables.................... 37 27
Deposits................................. 29 27
--- ---
Total.......................... 66 54
=== ===
</TABLE>
C-22
<PAGE> 107
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. DUE TO RELATED PARTIES
Due to related parties consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
---------------------
<S> <C> <C>
Due to Olivetti Finanziaria Industriale...... 11 -
Due to Olivetti International S.A............ 476 406
Due to Olivetti S.p.A........................ 45 611
Other Olivetti Group Companies............... 1 9
--- -----
Total........................................ 533 1,026
=== =====
</TABLE>
The amount due to Olivetti S.p.A. at December 31, 1996 of Lire 611 billion
reflects the allocation of debt to the Company determined based on the
historical debt to equity ratio of Olivetti S.p.A. as of the beginning of the
year. During 1997 approximately Lire 497 billion of the amount due was forgiven.
The forgiveness of debt has been recorded as a capital contribution in the
statement of net assets (liabilities).
During the nine months ended September 30, 1997 and the year ended December
31, 1996, the Company recorded interest expense of Lire 25 billion and Lire 55
billion, respectively on borrowings from related parties. The amounts due to
Olivetti International S.A. bear interest at LIBOR plus 2.50% for the various
currencies. The amounts due to Olivetti S.p.A. bear interest at rates
established from time to time in accordance with the agreement described in note
5.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
---------------------
<S> <C> <C>
Trade payables:
-- to third parties..................... 744 633
-- to Olivetti Group.................... 136 323
Deferred income.............................. 177 148
Accrued liabilities and customer advances.... 267 262
Taxes (other than income) and social security
authorities................................ 113 125
Other payables:
-- to Olivetti Group.................... 48 12
-- to third parties..................... 110 82
----- -----
Total........................................ 1,595 1,585
===== =====
</TABLE>
14. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Reserve for restructuring costs.......... 33 74
Warranty reserve......................... 21 27
Other provisions......................... 49 65
--- ---
Total.......................... 103 166
=== ===
</TABLE>
C-23
<PAGE> 108
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reserve for restructuring costs as of September 30, 1997 and December
31, 1996 total Lire 33 billion and Lire 74 billion, respectively and are
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Work force reduction costs............... 12 39
Abandoned space.......................... 15 24
Other provisions......................... 6 11
--- ---
Total............................... 33 74
=== ===
</TABLE>
15. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
IMI loans for research, repayable by 1998
yearly interest rates of 4.5%.......... 1 1
IMI loans for research, pursuant to Law
no. 346/1998 (interest relief grants)
repayable by 2003. Yearly interest rate
of 2.265%.............................. 6 7
Assisted loans for technological
innovation (FIT) repayable by 2007
yearly interest rates of 8.76%......... 2 2
Other loans of foreign subsidiaries
repayable by 2003...................... 79 231
Short term bank borrowings............... 117 125
Factors or other financial
institutions........................... 199 231
--- ---
404 597
Less: Current debt and current portion of
long term debt......................... 328 508
--- ---
Long Term Debt........................... 76 89
=== ===
</TABLE>
Prior to 1996, the Company entered into a sale-leaseback transaction
involving the Company's office buildings in Germany. The transaction was
accounted for as a financing. Included in other loans of foreign subsidiaries as
of September 30, 1997 and December 31, 1996 is approximately Lire 66 billion and
Lire 69 billion, respectively for this arrangement. Approximately Lire 26
billion of the above mentioned financing was retained by the purchaser subject
to the successful completion of certain ongoing renovations to the buildings.
The retained amount has been recorded as a financial receivable by the Company
and included in other assets.
The weighted average interest rate on outstanding short term borrowings was
5.82% for the nine months ended September 30, 1997, which was substantially the
same for the year ended December 31, 1996.
Included in debt from factors or other financial institutions as of
September 30, 1997 and December 31, 1996 is approximately Lire 94 billion and
Lire 72 billion, respectively of APP.
C-24
<PAGE> 109
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNTS
- - ------------- -------
(IN BILLIONS
OF LIRE)
<S> <C>
1998........................................................ 328
1999........................................................ 4
2000........................................................ 5
2001........................................................ 5
2002........................................................ 5
Thereafter.................................................. 57
---
Total.................................................. 404
===
</TABLE>
As of September 30, 1997 the Company had unused lines of credit, primarily
for short term borrowings, of Lire 254 billion. Prior to 1997 the Company did
not have all of its own lines of credit but was able to benefit from the lines
maintained by other Olivetti Group companies.
Certain credit lines or borrowings obtained by the Company have been
guaranteed by other Olivetti Group companies. These guarantees as of September
30, 1997 and December 31, 1996 amounted to Lire 269 billion and Lire 194
billion, respectively.
Approximately Lire 34 billion and Lire 170 billion as of September 30, 1997
and December 31, 1996, respectively of lines credit and or borrowings were
collateralized by the Company's inventory, trade receivables and fixed assets.
16. CAPITALIZED LEASE OBLIGATIONS
The minimum future lease payments and present values of the net minimum
lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNTS
- - ------------- -------
(IN BILLIONS
OF LIRE)
<S> <C>
1998........................................................ 20
1999........................................................ 17
2000........................................................ 15
2001........................................................ 16
2002........................................................ 11
After 2002.................................................. 68
---
Total minimum lease payments........................... 147
Less: Amount representing interest.......................... 49
---
Present value of net minimum lease payments................. 98
Less: current portion....................................... 13
---
Total.................................................. 85
===
</TABLE>
C-25
<PAGE> 110
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Currently Payable:
Italian taxes........................ 1 1
International taxes.................. 8 20
Italian state and local taxes........ 1 --
--- ---
10 21
Deferred:
Italian taxes........................ -- --
International taxes.................. 5 8
Italian state and local taxes........ -- --
--- ---
Total............................. 15 29
=== ===
</TABLE>
Temporary differencies and carryforwards as of September 30, 1997 and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 ,1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Current deferred tax assets:
Net operating loss carryforwards................... 34 23
Account Receivable................................. 16 6
Inventories........................................ 20 29
Accrued income and prepaid expenses and other
current assets.................................. 7 5
Property, plant and equipment, net................. 3 10
Accounts payable and accrued liabilities........... 2 5
Other current liabilities.......................... 15 15
Other.............................................. 5 4
---- ----
Net deferred tax assets......................... 102 97
Valuation allowance.................................. (100) (94)
---- ----
Total current deferred tax assets.......... 2 3
==== ====
Non-current deferred tax assets:
Net operating loss carryforwards................... 622 585
Accounts payable and accrued liabilities........... 82 91
Other non-current liabilities...................... 47 35
Intangible assets.................................. 51 50
Accounts receivable................................ -- 8
Other.............................................. 13 11
---- ----
Total...................................... 815 780
Non-current deferred tax liabilities:
Accounts receivable................................ 2 --
Property, plant and equipment...................... 37 44
---- ----
Total...................................... 39 44
Net non-current deferred tax assets.................. 776 736
Valuation allowance.................................. (766) (723)
---- ----
Total non current deferred tax assets...... 10 13
==== ====
</TABLE>
For financial reporting purposes, a valuation allowance was recognized for
the amount of the deferred tax assets as of September 30, 1997 and December 31,
1996, that more likely than not will not be realized on a separate company basis
by tax jurisdiction.
C-26
<PAGE> 111
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1997, the Company had operating loss carryforwards
totalling approximately Lire 1,541 billion, the tax effect of which is
approximately Lire 656 billion.
These carryforwards will expire as follows:
<TABLE>
<CAPTION>
AMOUNTS
-------
(IN BILLIONS OF LIRE)
<S> <C>
as at 1997.............................................. 34
1998................................................ 39
1999................................................ 37
2000................................................ 47
2001................................................ 44
After 2001............................................... 162
Without expiration....................................... 293
---
Total.................................................... 656
===
</TABLE>
As a result of changes in the Company's legal structure during 1996, as
described in note 1, the Company lost the use of certain net operating loss
carryforwards and acquired the use of certain other net operating loss
carryforwards the net tax effect of which is a decrease in net operating loss
carryforwards of approximately Lire 704 billion. The net reduction in net
operating loss carryforwards resulted in a corresponding decrease in valuation
allowance.
The reconciliation from the statutory taxes and tax rate to the effective
taxes and tax rate for each of the periods is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
AMOUNT % AMOUNT %
--------- ------ -------- -----
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Taxes at Italian statutory tax rate...................... 55 53 189 53
Non deductible losses.................................... (15) (15) (61) (17)
Changes in valuation allowance........................... (49) (47) (153) (43)
Impact of foreign tax rates.............................. 3 3 -- --
Other.................................................... (9) (9) (4) (1)
--- --- ---- ---
Effective income tax rate................................ (15) (15) (29) (8)
=== === ==== ===
</TABLE>
18. EMPLOYEE BENEFIT PLANS
The Company sponsors various employee benefit plans, including defined
benefit and defined contribution pension plans, which cover substantially all
employees worldwide and the Company also participates in multiemployer
postretirement benefit plans which cover certain employees in Italy.
DEFINED BENEFIT PENSION PLANS
The Company's international subsidiaries maintain defined benefit pension
plans that provide plan benefits primarily based on the employee's compensation
during the last years before retirement and the number of years of service. The
Company has plans under which funds are deposited with trustees, annuities are
purchased under group contracts, or reserves are provided. In certain countries
the funding of pension plans is not a common practice, consequently, the Company
has pension plans which are underfunded. Several of these plans including plans
in the Company's Subsidiaries in Germany, Canada and South Africa have been
frozen whereby employees in these locations are no longer accruing additional
benefits.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 87 "Employers' Accounting for Pensions" for
its defined benefit plans located outside the
C-27
<PAGE> 112
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
United States. The initial adoption of SFAS No. 87 resulted in Lire 25 billion
increase in net liabilities representing the amount of the net transition
obligation that would have been amortized, net of tax, had SFAS No. 87 been
adopted as of January 1, 1989. The Company did not obtain SFAS No. 87 actuarial
valuations of immaterial defined benefit arrangements.
Net pension expense for the Company's defined benefit plans for the nine
months ended September 30, 1997, and for the year ended December 31, 1996
included the following components:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Service cost........................................ 17 22
Interest cost....................................... 22 27
Actual return on plan assets........................ (25) (24)
Net amortization and deferral....................... 7 --
--- ---
Net periodic pension cost........................... 21 25
=== ===
</TABLE>
During 1996, the Company instituted a workforce reduction program in its
Japanese subsidiary resulting in a net curtailment gain of Lire 2 billion and
work force reduction costs of Lire 17 billion. The Company received Lire 13
billion from the Olivetti Group as reimbursement for these costs. The
reimbursement has been recorded as an increase in net assets.
The following table sets forth the actuarial present value of the benefit
obligations and funded status for the Company's defined benefit plans:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------------- -----------------------------------
PLANS HAVING PLANS HAVING PLANS HAVING PLANS HAVING
ASSETS IN EXCESS ACCUMULATED ASSETS IN EXCESS ACCUMULATED
OF ACCUMULATED BENEFITS IN OF ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS BENEFITS EXCESS OF ASSETS
---------------- ---------------- ---------------- ----------------
(IN BILLIONS OF LIRE)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested Benefit Obligations..... 267 232 186 234
Non vested benefits............ 1 3 -- 4
--- ---- --- ----
Accumulated Benefit Obligation
("ABO")...................... 268 235 186 238
Effect of further salary
increases.................... 20 29 10 33
--- ---- --- ----
Projected Benefit Obligation
("PBO")...................... 288 264 196 271
Plan assets at fair market
value........................ 325 99 235 102
--- ---- --- ----
Plan assets in excess of (less
than) PBO.................... 37 (165) 39 (169)
Unrecognized net (gain) loss... -- (9) (2) --
Unrecognized transition (asset)
obligation................... (15) 39 (16) 42
Unrecognized Prior Service
cost......................... -- -- -- --
Additional minimum liability... -- (7) -- (10)
--- ---- --- ----
Accrued Pension Cost................ 22 (142) 21 (137)
=== ==== === ====
</TABLE>
Pursuant to SFAS No. 87, intangible assets of Lire 7 billion and Lire 10
billion were recorded as of September 30, 1997 and December 31, 1996,
respectively, in order to recognize the required minimum liability.
C-28
<PAGE> 113
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table provides the range of assumptions, which are based on
the economic environment of each applicable country, used to develop net
periodic pension cost and the actuarial present value of projected benefit
obligations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Rate of return on assets.................................... 3.30% - 8.50% 3.30% - 9.50%
Discount rate............................................... 3.50% - 7.50% 3.50% - 8.50%
Salary growth............................................... 3.00% - 5.50% 3.00% - 6.50%
</TABLE>
ITALIAN TFR
Under Italian law, deferred compensation accrues in favour of employees and
agents which they (or in the case of their death, their heirs) are entitled to
collect upon termination of employment or under certain other circumstances. The
amount payable related to each year's service is calculated on the basis of the
remuneration for that year and will be subject to annual revaluations based on
increases in the Italian cost-of-living index (ISTAT). Provision for the effect
of such revaluations is made as increases in the cost-of-living index are
realized. Included in other liabilities as of September 30, 1997 and December
31, 1996 is approximately Lire 181 billion and Lire 171 billion, respectively
for this liability, which is unfunded.
DEFINED CONTRIBUTION PENSION PLANS
In addition to the defined benefit plans described above, the Company also
sponsors defined contribution plans in various countries. The Company's expense
for the defined contribution plans totaled approximately Lire 4 billion and Lire
5 billion for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively.
MULTIEMPLOYER POSTRETIREMENT PLANS
The Company, as part of the Olivetti Group, sponsors contributory retiree
health benefit plans for managers and employees for its Italian operations which
provide medical and dental benefits to employees who meet age and years of
service requirements prior to retirement and who agree to contribute to a
portion of the cost. The amounts charged to expense for the nine months ended
September 30, 1997 and the year ended December 31, 1996, were not significant.
19. POSTEMPLOYMENT AND TERMINATION BENEFITS
The Company provides certain postemployment and termination benefits to
certain qualified former or inactive employees. The benefits are paid in either
lump sum amounts or during the period following employment but before
retirement. Postemployment and termination benefit expense totaled Lire 0 (nil)
billion and Lire 2 billion for the nine months ended September 30, 1997 and the
year ended December 31, 1996, respectively. Included in other liabilities are
accruals of Lire 5 billion and Lire 7 billion as of September 30, 1997 and
December 31, 1996, respectively for these benefits.
In prior years the Olivetti Group shut down the manufacturing business in
its subsidiary in Spain. This business was part of the Non-Olsy Business. As
part of the shut down, the Olivetti Group granted termination benefits to the
affected employees. The benefits consist of direct payments to the employee,
social security contributions and supplements to retirement income. The Olivetti
Group recorded a provision for this liability. During 1996 this liability was
transferred to the Company and recorded as part of the net capital distribution.
Included in other liabilities as of September 30, 1997 and December 31, 1996 is
approximately Lire 72 billion and Lire 71 billion, respectively for this
liability. On December 31, 1997, the liability was assumed by Promociones
Actividades Comerciales RAP S.A. ("Rapida"), another Olivetti Group company, in
exchange for a payment equal to the recorded book value of the liability.
Pursuant to the agreement, Rapida will
C-29
<PAGE> 114
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reimburse the Company for the future benefit payments to the terminated
employees. Such assignment, however does not discharge the Company, which
remains primarily liable, from its obligation to the terminated employees.
20. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is involved in various legal disputes in the ordinary course of
its business. These disputes relate to claims for damages mainly in connection
with the sale of goods and services and recourses against adjudication of
contracts. In some of these disputes the Company has filed counter-claims. Based
on advice from the Company's legal advisors, management does not believe that
the outcome of such disputes will materially affect the Company's results of
operations, cash flows, or financial position.
OPERATING LEASES
Expense Costs of office space, vehicles, manufacturing equipment, and
office and data processing equipment held under operating leases amounted to
approximately Lire 50 billion for the nine months ended September 30, 1997 and
Lire 65 billion for the year ended December 31, 1996.
The approximate future minimum rental payments required under operating
leases that have initial or remaining noncancellable lease terms are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
------------
(IN BILLIONS OF LIRE)
<S> <C>
1998..................................................... 54
1999..................................................... 35
2000..................................................... 23
2001..................................................... 22
2002..................................................... 20
Thereafter............................................... 58
---
Total............................................... 212
===
</TABLE>
RENTAL INCOME
Certain rentals of the Company's commercial equipment are accounted for as
operating leases. The minimum future revenues to be received on commercial
equipment as of September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
------------
(IN BILLIONS OF LIRE)
<S> <C>
1998..................................................... 8
1999..................................................... 4
2000..................................................... 4
2001..................................................... 3
2002..................................................... 2
Thereafter............................................... 10
---
Total............................................... 31
===
</TABLE>
C-30
<PAGE> 115
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GUARANTEES
From time to time, the Company guarantees the financing for product
purchases by customers. The Company seeks to limit its exposure to credit risks
in any single country or region. Certain financial guarantees are backed by
amounts held in trust for the Company.
"YEAR 2000"
The Company has commenced an evaluation of its potential commitments
regarding the "Year 2000" date recognition issue in computer systems. The
evaluation will consider the Company's responsibilities concerning the systems
installed in the past with customers, the situation of its internal systems,
those of its key suppliers and the opportunities to transact new business. At
this time it is not possible to quantify the economic effect that may result
from the issue.
PURCHASE COMMITMENT
With reference to the agreement for the sale of Syntax Processing
("Syntax") from the Olivetti Group, the Company is committed to purchase a
minimum level of certain services from Syntax for approximately five years for a
minimum total amount of Lire 339 billion. The costs for the services are
determined based on rates established in the agreement. During the nine months
ended September 30, 1997 and the year ended December 31, 1996, purchased
services exceeded the required minimums.
PENDING ACQUISITION
The Company is committed to purchase the remaining 2000 shares (40%) of
Datrac AG, at a price to be determined based on the profits realized during the
three year period 1995-1997. The purchase price may range between Lire 16
billion and Lire 21 billion.
PURCHASE PRICE ADJUSTMENT
In connection with the acquisition in 1997 of an equity investment in Open
Access Ltd., the Company is committed to pay to the seller a price adjustment to
be determined based on earnings (as defined) in the next three years.
GUARANTEES AND COMMITMENTS RECEIVED
Olivetti S.p.A. has made the following commitments to the Company: 1) to
hold Olivetti Corporation of Japan harmless for any possible funding deficit in
the local pension plan; 2) to assume the capital lease agreement entered into in
respect of the office building located in Paris, France; 3) to purchase from the
Company some minor shareholdings at their Italian GAAP book values; 4) to
reimburse the Company for any possible shortfalls in the workforce reduction
provisions recorded in the Italian GAAP financial statements as of September 30,
1997; and 5) to hold the Company harmless for the renovation costs of the German
office buildings in excess of the amounts accrued in the Italian GAAP financial
statements as of September 30, 1997.
Olivetti S.p.A. has pledged to financially support certain of the operating
subsidiaries of the Company that have incurred substantial losses in the past.
As of September 30, 1997, Olivetti S.p.A. granted approximately Lire 19
billion in performance guarantees to third party suppliers on behalf of the
Company.
C-31
<PAGE> 116
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
advances to related parties, due to related parties, accounts payable, other
loans of foreign subsidiaries, short term bank borrowings and debt from factors
or other financial institutions are not materially different than fair value due
to the short-term maturities of these instruments.
The fair values of marketable securities classified as available-for-sale,
were based on quoted market prices of these or similar instruments where
available. The fair value of available-for-sale securities totaled Lire 9
billion at September 30, 1997, and Lire 6 billion at December 31, 1996 which
corresponds to the carrying amounts recorded in current marketable securities.
All other marketable securities are classified as held-to-maturity and carried
at amortized cost.
For the research and assisted loans provided by the Italian government, the
Company is unable to quantify the fair value of these instruments due to their
nature.
22. GEOGRAPHIC AREAS AND SEGMENT INFORMATION
The Company operates entirely in one industry segment, information
technology (IT). As previously reported, the Company is a provider of IT
solutions and services to the Italian, European and global market.
The following is a summary of operations by geographic region at September
30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Sales:
Italy..................................................... 942 1,515
Europe.................................................... 1,242 1,954
United States............................................. 240 279
Other..................................................... 446 733
----- -----
Total....................................................... 2,870 4,481
===== =====
Earnings (losses) before interest expense, provision for
income taxes, minority interest and extraordinary item:
Italy..................................................... (89) (231)
Europe.................................................... 19 8
United States............................................. 6 (10)
Other..................................................... (4) (15)
----- -----
Total....................................................... (68) (248)
===== =====
Identifiable assets:
Italy..................................................... 1,675 1,932
Europe.................................................... 1,251 1,251
United States............................................. 150 165
Other..................................................... 353 403
----- -----
Total....................................................... 3,429 3,751
===== =====
</TABLE>
Europe includes operations located primarily in United Kingdom,
Netherlands, Belgium, Spain and France.
C-32
<PAGE> 117
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. RESTRUCTURING COSTS
In 1995, the Company approved a restructuring plan (the "1995 Plan") which
at December 31, 1995 concerned 1,230 employees, which decreased to 356 at
December 31, 1996, after the termination of 874 employees during the year. An
additional 173 employees were terminated during the nine months ended September
30, 1997. In 1996 the Company approved a new plan (the "1996 Plan") for the
termination of 157 employees, to be terminated in the first nine months of 1997.
In 1997 and additional plan was approved for the termination of an additional 10
employees to be terminated by the end of 1997.
The relevant costs incurred are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
(IN BILLIONS OF LIRE)
<S> <C>
Year ended December 31, 1996................................ 82
Nine months ended September 30, 1997........................ 1
</TABLE>
<TABLE>
<CAPTION>
PLAN APPROVED IN THE
NUMBER OF EMPLOYEES PLAN APPROVED PLAN APPROVED NINE MONTHS ENDED
TO BE TERMINATED IN 1995 IN 1996 SEPTEMBER 30, 1997
- - ------------------- ------------- ------------- --------------------
<S> <C> <C> <C>
December 31, 1996................................ 356 157 --
September 30, 1997............................... 183 77 10
</TABLE>
<TABLE>
<CAPTION>
PLAN APPROVED IN THE
PLAN APPROVED PLAN APPROVED NINE MONTHS ENDED
AMOUNTS PAID IN 1995 IN 1996 SEPTEMBER 30, 1997
- - ------------ ------------- ------------- --------------------
(IN BILLIONS OF LIRE)
<S> <C> <C> <C>
Year ended December 31, 1996..................... 77 -- --
Nine months ended September 30, 1997............. 14 14 --
</TABLE>
<TABLE>
<CAPTION>
PLAN APPROVED IN THE
NUMBER OF EMPLOYEES PLAN APPROVED PLAN APPROVED NINE MONTHS ENDED
ACTUALLY TERMINATED IN 1995 IN 1996 SEPTEMBER 30, 1997
- - ------------------- ------------- ------------- --------------------
<S> <C> <C> <C>
Year ended December 31, 1996..................... 874 -- --
Nine months ended September 30, 1997............. 173 80 --
</TABLE>
24. RELATED PARTY TRANSACTIONS
Sales to related parties and purchases from related parties are estimated
as Lire 150 billion and Lire 300 billion for the nine months ended September 30,
1997 and as Lire 350 billion and Lire 800 billion for the year ended December
31, 1996, respectively.
25. OTHER REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Net gain on sales of fixed assets........................... 20 4
Net gain on sales of shareholding........................... 11 3
Equity in earnings.......................................... 1 1
Other....................................................... 36 6
-- --
Total....................................................... 68 14
== ==
</TABLE>
Net gain on sales of fixed assets for the nine months ended September 30,
1997, relates primarily to the sale of a building in Spain for proceeds of Lire
26 billion resulting in a gain of Lire 19 billion.
C-33
<PAGE> 118
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
26. INTEREST EXPENSE, NET
Interest expense, net consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN BILLIONS OF LIRE)
<S> <C> <C>
Net interest (charged by) income from other Olivetti Group
companies................................................. (4) 13
Interest expense, third party borrowings.................... (19) (60)
Securitization charges...................................... (12) (29)
--- ---
TOTAL....................................................... (35) (76)
=== ===
</TABLE>
27. CAPITAL INCREASE
During the nine months ended September 30, 1997, the Company and another
Olivetti Group company contributed Lire 22 billion and Lire 15 billion,
respectively to Olivetti Espana S.A. The contribution of Lire 15 billion from
the other Olivetti Group company has been recorded in the statement of net
assets (liabilities). The remaining amount eliminates in consolidation.
28. EXTRAORDINARY ITEM
During 1996 the Company repurchased from a related party equipment for
approximately Lire 83 billion held under several sale-leaseback agreements. The
sale-leaseback agreements were accounted for as financing arrangements by the
Company. The repurchase has been accounted for as an early extinguishment of the
financing arrangements resulting in an extraordinary loss of approximately Lire
30 billion. The loss results in a deferred tax asset with a corresponding full
valuation allowance.
29. SUBSEQUENT EVENTS
a) On December 31, 1997, net receivables included in trade receivables as
of September 30, 1997 and December 31, 1996 of Lire 82 billion were sold to
another Olivetti Group company for proceeds of Lire 102 billion. The transaction
has been accounted for as a sale of receivables for Lire 82 billion and a
capital contribution of Lire 20 billion.
b) Subsequent to September 30, 1997, a change in Italian tax legislation
was enacted which becomes effective on January 1, 1998. The change in the tax
law includes a repeal of certain local taxes on income and adjusts taxable
income for certain expense and income items. The Company has not yet estimated
the impact of the new legislation on its financial position and its results of
operations.
c) On March 17, 1998, the Olivetti Group sold almost all of its ownership
interests in Olsy, except for its interest in Olivetti Corporation of Japan,
which was sold on April 7, 1998, to Wang Laboratories, Inc. pursuant to the
terms of the Stock Purchase Agreement by and among Wang Laboratories, Inc., Wang
Nederland BV, Ing. C. Olivetti & C. S.p.A., Olivetti Sistemas e Servicious
Limitada and Olivetti do Brasil S.A. dated February 28, 1998. The Stock Purchase
Agreement together with certain other ancillary agreements contain provisions
which required the consummation of certain pre-closing transactions and other
actions by the Company and/or the Olivetti Group, some of which have been
previously described in other sections of these notes to the combined
consolidated financial statements. Under the terms of the agreements, the
Olivetti Group (1) settled or extinguished all amounts due from/to the Company
under certain related party borrowing/funding arrangements; (2) and the Company,
subject to normal trade practice, agreed on the amounts immediately due on the
outstanding trade receivables and payables between the companies; (3) caused the
assignment of the Company's termination liability for the terminated employees
of the Spanish subsidiary to another Olivetti Group company, as previously
stated in note 19; (4) made cash contributions of
C-34
<PAGE> 119
OLIVETTI SOLUTIONS
(AN INTEGRATED BUSINESS UNIT OF THE OLIVETTI GROUP)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Lire 40 billion to the Company; (5) purchased certain receivables of the Company
for approximately Lire 102 billion; and (6) purchased from the Company certain
real property located in Spain for consideration equal to the net book value of
Lire 10 billion. The Company (1) repaid or extinguished all amounts owed under
third party credit facilities and loan arrangements, except for certain
borrowings of the Company's subsidiary in Japan, and caused all relevant liens
on the assets of the Company to be released; (2) terminated all securitization
and factoring arrangements and settled all amounts due to or from third parties
as a result of the arrangements and caused all relevant liens on the assets of
the Company to be released; (3) purchased additional shares in Olivetti Ricerca,
another Olivetti Group company, for approximately Lire 8 billion, increasing its
interest to 19.9%, and (4) recorded in its Italian GAAP financial statements
certain additional provisions for abandoned space, vacation, work force
reduction and costs to complete the renovation of the office buildings in
Germany.
Pursuant to the terms of the Stock Purchase Agreement and certain other
ancillary agreements, the Olivetti Group provided the Company with certain
additional guarantees and commitments. In this regard, the Olivetti Group will
(1) assume the capital lease of the office building located in Paris, France at
a date no later than the closing date or June 30, 1998; (2) reimburse/charge the
Company 75% of any shortfall/excess in the work force reduction provision
recorded in the Italian GAAP accounts and for certain wages incurred after July
1, 1998; (3) purchase from the Company any trade receivables recorded in the
closing financial statements in excess of the allowance for doubtful accounts
which will not be collected within a certain period of time; (4) purchase any
unbilled trade receivable of the company, not collected within a certain period
of time; (5) reimburse the Company for the minimum amounts due under the Syntax
agreement for which services were not purchased, except Olsy is committed to
purchase services amounting to at least Lire 43 billion in 1998 and Lire 18
billion in 1999; and (6) will reimburse the Company for all benefits paid during
the period commencing on the closing date and ending on December 31, 2000, from
the Olivetti Corporation of Japan pension plan for benefits accrued to employees
as of the closing date and will reimburse/charge the Company for 80% of the
benefit deficit/surplus, as defined, of the plan as determined on December 31,
2000, net of applicable taxes.
These combined consolidated financial statements do not reflect the affect
of these transactions or any adjustment resulting from the acquisition of the
Company by Wang.
d) On May 12, 1998, the Company's subsidiary in Germany filed a petition in
local court to initiate bankruptcy proceedings. At September 30, 1997 and
December 31, 1996, the subsidiary's net liabilities reflected in these combined
consolidated financial statements approximated Lire 24 billion and Lire 35
billion, respectively. The subsidiary's revenues and net loss for the nine
months ended September 30, 1997 and the year ended December 31, 1996, were
approximately Lire 79 billion and Lire 8 billion and Lire 192 billion and Lire
28 billion, respectively.
C-35
<PAGE> 120
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Subsequent to the filing of its Form-8K/A in connection with the purchase
of Olivetti Solutions ("Olsy"), the Company and the staff of the Securities and
Exchange Commission ("SEC") have had discussions with regard to the
determination and allocation of the purchase price in connection with the
accounting for the acquisition of Olsy. As a result of these discussions, which
concluded March 1999, the Company has modified the valuation of the acquisition
related consideration and the allocation of the related intangible assets. In
addition, the Company has reclassified an extraordinary loss on the discharge of
debt in the pro forma financial statements for the year ending June 30, 1997 to
conform to the presentation in the audited financial statements for Olsy.
Restatement Related to Valuation of Olsy Consideration -- Common Stock and
Stock Appreciation Rights:
The Company revised the values of the 8.75 million shares of common stock
(of which 1.5 million are to be delivered upon shareholder approval) and the 5.0
million Stock Appreciation Rights ("SARs") issued to Olivetti as part of the
consideration for Olsy. The value of the shares previously recorded was based on
the market value of the Company's common stock, discounted by 35% to reflect the
restrictions contained in the Stock Purchase Agreement between the Company and
Olivetti. The Company has adjusted this value to reflect a discount of 20% to a
revised calculation of market value. The value of the common stock used to
calculate the value of the SARs has been revised consistent with the new value
per share of the common stock described above. Accordingly, the value of the
consideration was adjusted by $41.0 million and additional paid-in capital
increased accordingly, with a corresponding increase to intangible assets.
Restatement Related to the estimated excess of purchase price over the net
tangible assets acquired:
The Company has modified the methods used to value acquired in-process
research and development ("IPR&D") and other intangible assets in connection
with the Company's acquisition of Olsy. Initial estimates of value of the
acquired IPR&D were based on the cost required to complete each project, the
after-tax cash flows attributable to each project, and the selection of an
appropriate rate of return to reflect the risk associated with the state of
completion of each project. Revised calculations are based on adjusted after-tax
cash flows that give explicit consideration to the Staff's views on IPR&D as set
forth in its September 15, 1998 letter to the American Institute of Certified
Public Accountants including consideration of the stage of completion of the
IPR&D at the acquisition date and the view that IPR&D be valued on a fair market
value basis versus a fair value basis in arriving at the valuation amount. As a
result of these modifications the Company has decreased the estimated amount of
the purchase price allocated to acquired in-process research and development in
this amended Form 8-K/A from $75.0 to $18.1 million. Additionally, the amounts
of purchase price allocated to developed software has been reduced to $43.2
million from $60.0 million and amounts allocated to trademarks increased from
$30.0 million to $57.0 million. The net effect of these charges was to increase
estimated goodwill by $87.7 million in the accompanying pro forma financial
statements.
The following discussion and pro forma statements have been amended to
reflect the changes previously discussed as though the Staff's views had been
known and applied at the original filing date.
On March 17, 1998 (the "Closing Date"), the Company completed the purchase
of Olsy, a wholly-owned information technology ("IT") solutions and service
subsidiary of The Olivetti Group ("Olivetti"), except for Olivetti Corporation
of Japan ("OCJ"), the purchase of which was not completed until April 7, 1998.
Olsy's revenues for the calendar year ended December 31, 1997 were approximately
$2.4 billion.
In consideration for Olsy, the Company paid Olivetti $68.6 million in cash;
8,750,000 shares of common stock (of which 1,500,000 are to be delivered upon
shareholder approval) with a value of $197.2 million at the time of issuance;
5,000,000 stock appreciation rights ("SARs") which give Olivetti value for the
increase in the market price of the Company's common stock above $30.00 per
share at any time from March 2001 to March 2005 and are redeemable in cash or
common stock at the Company's election; and the potential for an additional
amount (an "earnout") of up to $56.0 million payable in the year 2000, subject
to meeting mutually-agreed performance targets for the calendar years 1998 and
1999. The earnout will be recorded at the time it becomes probable that a
payment will be required and the amount can be reasonably estimated.
C-36
<PAGE> 121
The acquisition was accounted for using the purchase method of accounting
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations" ("APB 16"). Under APB 16, purchase price allocations are made to
the assets acquired and the liabilities assumed based on their respective fair
values. The value of the shares was recorded at a discount of 20% of the market
value of the Company's common stock in part because the shares are not
registered and are subject to a three-year restriction period. The value of the
SARs was recorded based on the historical and implied volatility of the common
stock, considering both the minimum guaranteed price and the restrictions on
exercise inherent in the SARs. The stock and SAR values were supported by an
independent valuation.
The Company estimates that expenditures of as much as $380 million will be
required over the next 24 to 36 months in connection with the integration and
rightsizing of both Olsy and Wang. The Company currently estimates that
approximately $290 million of the $380 million will be related to severance and
redundant facilities related to Olsy. Of the $290 million, $45 million was
recorded by Wang as part of purchase accounting at March 31, 1998. An additional
$90 million will relate to integration-related costs, systems and other costs,
of which $23.2 million was recorded at March 31, 1998. Under certain conditions,
costs related to the acquired Olsy business will be accounted for as an
additional cost of the acquisition at the time the formal plan of restructuring
is completed. The accompanying unaudited pro forma financial statements assume
that the remaining Olsy-related costs will be accounted for as additional costs
of the acquisition. Integration-related costs attributable to Wang will be
accounted for as charges to operations in the periods they are determined.
The estimated excess of the acquisition cost over the net tangible assets
acquired was determined as follows:
<TABLE>
<CAPTION>
UNAUDITED
------------------------------------------------
AS REPORTED PRO
MARCH 31, 1998 OCJ ADJUSTMENTS FORMA
-------------- --- ----------- -----
<S> <C> <C> <C> <C>
Cash (including $18.0 million of transaction
costs).......................................... $ 47.0 $ 39.6 $ 86.6
Common Stock...................................... 197.2 197.2
Stock Appreciation Rights......................... 32.5 32.5
Total Consideration..................... 276.7 39.6 316.3
------- ------ ------ -------
Estimated Olsy Restructuring Liability............ 245.0 245.0
------- ------ ------ -------
Total Estimated Acquisition Cost........ 276.7 39.6 245.0 561.3
Estimated Fair Value of Net Tangible Assets
Acquired........................................ (130.3) 7.6 (25.2) (147.9)
------- ------ ------ -------
Estimated Excess of Purchase Price over Net
Tangible Assets Acquired........................ $ 146.4 $ 47.2 $219.8 $ 413.4
======= ====== ====== =======
</TABLE>
The estimated excess of the purchase price over the fair value of the net
assets acquired of $413.4 million has been reflected in the unaudited pro forma
financial statements based on a preliminary purchase price allocation.
Finalization of the allocation of the purchase price to assets acquired and
liabilities assumed is subject to appraisals, valuations, evaluations and other
analyses of the fair value of assets acquired and liabilities assumed, including
the anticipated valuation of certain purchased research and development
activities and the finalization of the formal Olsy restructuring plans.
C-37
<PAGE> 122
The estimated excess of purchase price over the net tangible assets
acquired has been allocated on a preliminary basis as follows:
<TABLE>
<CAPTION>
ESTIMATED
VALUES
---------
(IN MILLIONS)
<S> <C>
Developed software.......................................... $ 43.2
Trademarks.................................................. 57.0
Goodwill.................................................... 295.1
------
Olsy related intangible assets.............................. 395.3
In process research and development......................... 18.1
------
Total............................................. $413.4
======
</TABLE>
In process research and development is to be expensed upon finalization of
the pending valuation, expected in the June quarter of 1998; developed software
is amortized based upon the ratio of anticipated annual revenues to total
anticipated revenues over the life of the developed software, primarily within
three years; trademarks -- two to five years and goodwill -- twenty-five years.
Based upon these estimates, the pro forma impact of amortization expense
for the succeeding five years is $53.4 million, $44.2 million, $21.2 million,
$19.0 million and $18.0 million, respectively. These estimates of amortization
expense are highly dependent upon the amounts of Olsy related restructuring
costs which still have not been finalized or approved, as well as the allocation
of the excess of purchase price over identifiable tangible assets to various
intangible asset categories.
The unaudited consolidated balance sheet at March 31, 1998 included in the
Company's report on Form 10-Q for the quarterly period ended March 31, 1998
reflects both the balance sheet of the acquired company and certain preliminary
purchase accounting adjustments recorded as of that date by the Company. In
addition, the accompanying unaudited pro forma combined condensed balance sheet
includes the effect of the nonrecurring charge to operations for the fair value
of certain technology under research and development estimated at $18.1 million
and is reflected as a direct reduction to equity; the estimated incremental
liability associated with restructuring the Olsy business of $245 million; the
preliminary allocation of excess purchase price to identifiable intangible
assets; and the acquisition of OCJ which was completed April 7, 1998. In
connection with the acquisition of OCJ, Olivetti has agreed to reimburse the
Company for the unfunded pension liability at the acquisition date. The unfunded
pension liability at March 31, 1998 was $25.2 million and has been reflected as
a reduction of purchase price in the accompanying pro forma financial
statements.
The accompanying unaudited pro forma combined condensed statements of
operations for the Company's nine months ended March 31, 1998 and its fiscal
year ended June 30, 1997 have been prepared to give effect to the acquisition of
Olsy by the Company. The unaudited pro forma combined statements of operations
do not include the nonrecurring charge to operations for the fair value of
certain purchased technology under research and development of $18.1 million,
nor other nonrecurring charges which may result from the transaction and the
integration of Olsy into the Company.
On May 12, 1998, the Company's Olsy subsidiary in Germany filed a petition
in local court to initiate bankruptcy proceedings. The pro forma financial
statements presented herein include the results of operations and financial
position of this subsidiary.
The unaudited pro forma information has been prepared assuming that the
acquisition, including OCJ, occurred at the beginning of the Company's most
recently completed fiscal year which began July 1, 1996. The pro forma
information is based on the historical financial statements of the company and
Olsy, giving effect to the transaction under the purchase method of accounting
and the assumptions and adjustments described in the accompanying notes to the
pro forma financial information. The pro forma information for the nine months
ended March 31, 1998 includes the unaudited historical results of Wang and Olsy
for the nine months then ended. The pro forma information for the fiscal year
ended June 30, 1997 includes the historical results of Wang plus the unaudited
historical results of Olsy for the four quarters ended September 30, 1997.
Accordingly, the unaudited results of operations for the Olsy quarter ended
September 30, 1997 are included
C-38
<PAGE> 123
in both the nine month and fiscal year periods. Revenues and loss from
continuing operations for that quarter were $509.2 million and $32.2 million,
respectively.
The pro forma information is unaudited and does not purport to be
indicative of the financial position or results of operations that would have
been attained had the combination been in effect on the dates indicated, nor of
future results of operations of the combined Company. The unaudited pro forma
financial statements should be read in conjunction with the separate audited
financial statements and notes thereto of Wang Laboratories, Inc. included in
its Annual Report on Form 10-K for the year ended June 30, 1997, the unaudited
financial information included in Wang's amended Form 10-Q for the three and
nine month periods ended March 31, 1998, and the audited financial statements
and notes thereto of Olsy for the year ended December 31, 1996 and the nine
months ended September 30, 1997 included as part of this Proxy Statement.
C-39
<PAGE> 124
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1998
UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
WANG(A) OCJ(B)(1) ADJUSTMENTS COMBINED
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents....................... $ 238.7 $23.2 $ -- $ 261.9
Accounts receivable, net................... 790.8 50.6 -- 841.4
Inventories................................ 188.7 9.0 -- 197.7
Other current assets....................... 200.9 4.6 -- 205.5
-------- ----- ------ --------
1,419.1 87.4 -- 1,506.5
Depreciable assets, net.................... 292.1 9.9 -- 302.0
Intangible assets, net..................... 304.2 0.5 -- 304.7
Olsy-related intangible assets............. 146.4 -- 248.9(2,3,4) 395.3
Other...................................... 117.8 -- (14.4)(2) 103.4
-------- ----- ------ --------
Total assets..................... $2,279.6 $97.8 $234.5 $2,611.9
======== ===== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Borrowings due within one year............. $ 120.3 $27.7 $ -- $ 148.0
Accounts payable........................... 381.5 17.3 -- 398.8
Accrued expenses........................... 242.1 34.4 -- 276.5
Other current liabilities.................. 372.2 -- 245.0 617.2
Deferred service revenue................... 156.1 0.9 -- 157.0
-------- ----- ------ --------
Total current liabilities........ 1,272.2 80.3 245.0 1,597.5
-------- ----- ------ --------
Long-term liabilities...................... 291.3 25.1 -- 316.4
-------- ----- ------ --------
Minority interest.......................... 6.7 -- -- 6.7
-------- ----- ------ --------
Series A Preferred Stock................... 86.0 -- -- 86.0
-------- ----- ------ --------
Stockholders' Equity
Series B Preferred Stock................... 138.3 138.3
Common stock............................... 0.5 -- -- 0.5
Capital in excess of par value............. 525.0 52.1 (52.1)(2) 525.0
Cumulative translation adjustment.......... (8.6) -- -- (8.6)
Retained earnings (accumulated deficit).... (31.8) (59.7) 41.6(2,4) (49.9)
-------- ----- ------ --------
Total stockholders' equity....... 623.4 (7.6) (10.5) 605.3
-------- ----- ------ --------
Total liabilities and
stockholders' equity........... $2,279.6 $97.8 $234.5 $2,611.9
======== ===== ====== ========
</TABLE>
- - ---------------
(A) As filed on Form 10-Q/A for the quarter ended March 31, 1998.
(B) Olivetti Corporation of Japan balance sheet, the purchase of which was not
completed by the Company until April 7, 1998. Accordingly, it was not
reported in the Company's March 31, 1998 balance sheet.
See Notes to Pro Forma Combined Condensed Financial Statements
C-40
<PAGE> 125
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
WANG(A) OCJ(B) ADJUSTMENTS COMBINED
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Net revenue................................. $1,053.7 $1,640.7 $ -- $2,694.4
Costs and expenses
Cost of revenues............................ 825.2 1,289.7 -- 2,114.9
Research and development.................... 3.7 16.2 -- 19.9
Selling, general and administrative....... 194.5 324.6 -- 519.1
Amortization of intangibles-acquisition and
fresh-start............................... 21.1 22.4 33.2(6) 76.7
Acquisition-related charges............... 12.5 -- -- 12.5
Restructuring charges..................... 10.7 30.9 -- 41.6
-------- -------- ------ --------
Total costs and expenses.......... 1,067.7 1,683.8 33.2 2,784.7
-------- -------- ------ --------
Operating loss.............................. (14.0) (43.1) (33.2) (90.3)
Other (income) expense...................... (6.3) 9.8 3.7(7) 7.2
-------- -------- ------ --------
Income (loss) before income taxes........... (7.7) (52.9) (36.9) (97.5)
Provision (benefit) for income taxes........ 13.4 6.7 -- 20.1
-------- -------- ------ --------
Income (loss) from continuing operations.... $ (21.1) $ (59.6) $(36.9) $ (117.6)
======== ======== ====== ========
Income (loss) from continuing operations
applicable to common stockholders......... $ (31.7) $ (59.6) $(36.9) $ (128.2)
======== ======== ====== ========
Earnings per share
Basic..................................... $ (1.22) $ (2.72)
Diluted................................... $ (1.22) $ (2.72)
Shares used to compute per share amounts
Basic..................................... 39.8 47.1
Diluted................................... 39.8 47.1
</TABLE>
- - ---------------
(A) As filed on Form 10-Q/A for the quarter ended March 31, 1998.
(B) Includes Olsy and Olivetti Corporation of Japan historical data for the nine
months ended March 31, 1998.
See Notes to Pro Forma Combined Condensed Financial Statements
C-41
<PAGE> 126
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
WANG(A) OLSY(B) ADJUSTMENTS COMBINED
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Net revenue.................................... $1,268.4 $2,653.3 $ -- $3,921.7
-------- -------- ------ --------
Costs and expenses
Cost of revenues............................. 961.0 2,074.1 -- 3,035.1
Research and development..................... 3.7 32.9 -- 36.6
Selling, general and administrative.......... 243.2 583.7 -- 826.9
Amortization of intangibles -- acquisition
and fresh-start........................... 47.0 15.6 53.4(6) 116.0
Acquisition-related charges.................. 35.0 -- -- 35.0
Chapter 11-related charges................... 1.3 -- -- 1.3
Restructuring charges........................ -- 46.1 -- 46.1
-------- -------- ------ --------
Total costs and expenses............. 1,291.2 2,752.4 53.4 4,097.0
-------- -------- ------ --------
Operating income (loss)........................ (22.8) (99.1) (53.4) (175.3)
Other (income) expense......................... (0.5) 30.8 4.9 35.2
-------- -------- ------ --------
Loss from continuing Operations before income
taxes and extraordinary item................. (22.3) (129.9) (58.3) (210.5)
Provision (benefit) for income taxes........... (15.6) 13.3 -- (2.3)
-------- -------- ------ --------
Loss from continuing Operations before
extraordinary item........................... $ (6.7) $ (143.2) $(58.3) $ (208.2)
Loss on debt discharge, net of tax............. -- (19.8) -- (19.8)
-------- -------- ------ --------
Net Loss....................................... (6.7) (163.0) (58.3) (228.0)
-------- -------- ------ --------
Income (loss) from continuing operations
applicable to common stockholders............ $ (20.8) $ (163.0) $(58.3) $ (242.1)
======== ======== ====== ========
Earnings per share
Basic........................................ $ (0.56) -- -- $ (5.26)
Diluted...................................... $ (0.56) -- -- $ (5.26)
Shares used to compute per share amounts
Basic........................................ 37.2 -- -- 46.0
Diluted...................................... 37.2 -- -- 46.0
</TABLE>
- - ---------------
(A) As filed on Form 10-K for the year ended June 30, 1997.
(B) For the twelve months ending September 30, 1997 (unaudited).
See Notes to Pro Forma Combined Condensed Financial Statements
C-42
<PAGE> 127
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Historical balance sheet amounts for Olsy are presented in accordance with
U.S. generally accepted accounting principles and have been converted from
Italian Lira to U.S. Dollars using the exchange rate in effect for the
Company at March 31, 1998.
(2) To reclassify the $39.6 million of escrow related to the purchase of OCJ
included in Other Assets to Olsy-related intangible assets, net of $25.2
million for pension liabilities reimbursable by Olivetti, and to reclassify
net liabilities assumed of $7.6 million to Olsy intangible assets.
(3) To record estimated amounts relating to Olsy to be incurred as part of the
Company's restructuring plan.
(4) To write off the estimated value of in process research and development.
(5) Historical amounts reported in the statement of operations for Olsy are
presented in accordance with U.S. generally accepted accounting principles
and have been converted from Italian Lire to U.S. Dollars using the average
exchange rate for the period.
(6) To record amortization expense for the intangible assets represented by the
excess of purchase price over net assets acquired, established in connection
with the Company's acquisition of Olsy. The amortization expense has been
calculated based on preliminary estimates of the allocation of purchase
price to identifiable intangible assets. An independent valuation is being
performed and is expected to be complete at June 30, 1998.
(7) To record interest expense of $3.7 million and $4.9 million for the nine
months ended March 31, 1998 and the year ended June 30, 1997, respectively,
on the Company's credit facility, assuming an average daily outstanding
balance of $68.6 million, calculated at an interest rate of 7.125%.
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<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WANG LABORATORIES, INC.
BY: /s/ PAUL A. BRAUNELS
---------------------------------
PAUL A. BRAUNELS
VICE PRESIDENT AND
CORPORATE CONTROLLER
April 1, 1999
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<PAGE> 129
WANG LABORATORIES, INC.
ANNUAL MEETING OF STOCKHOLDERS -- MAY 26, 1999
The undersigned, having received notice of the meeting and management's
proxy statement therefor, and revoking all prior proxies, hereby appoint(s)
Albert A. Notini and John A. Burgess, and each of them (with full power of
substitution), as proxies of the undersigned to attend the Annual Meeting of
Stockholders of Wang Laboratories, Inc. (the "Company") to be held on Wednesday
May 26, 1999 and any adjourned sessions thereof, and there to vote and act upon
the following matters in respect of all shares of capital stock of the Company
which the undersigned would be entitled to vote or act upon, with all powers the
undersigned would possess if personally present.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company in
a fiduciary, custodial or joint capacity or capacities, this proxy is signed by
the undersigned in every such capacity as well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT
THEREOF.
1. To elect the following individuals as Class II Directors:
MARCIA J. HOOPER / / FOR / / WITHHOLD AUTHORITY
JOSEPH J. KROGER / / FOR / / WITHHOLD AUTHORITY
JOHN P. WHITE / / FOR / / WITHHOLD AUTHORITY
2. To approve the Amendment and Restatement of the Director Stock Option
Plan of the Company.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Employees' Stock Incentive Plan to increase
the number of shares available for issuance under the plan.
4. To approve an amendment to the 1995 Employees' Stock Purchase Plan to
increase the number of shares available for issuance under the plan.
5. To approve an Amended and Restated Certificate of Incorporation of the
Company to:
(i) change the name of the Company from "Wang Laboratories, Inc." to
"Wang Global Corporation"
/ / FOR / / AGAINST / / ABSTAIN
(ii) increase the aggregate number of shares of Common Stock that the
Company is authorized to issue from 100 million to 200 million.
/ / FOR / / AGAINST / / ABSTAIN
(iii) eliminate certain obsolete provisions related to restrictions on the
transfer of Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE> 130
(Continued from other side)
6. To approve the issuance of additional shares of Common Stock to Ing. C.
Olivetti S.p.A.
/ / FOR / / AGAINST / / ABSTAIN
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL SPECIFIED ABOVE, THIS PROXY WILL BE VOTED FOR SUCH ELECTION TO OFFICE
OR PROPOSAL.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
DATED: ___________________________, 1999
----------------------------------------
SIGNATURE(S)
PLEASE SIGN NAME(S) EXACTLY AS APPEARING
HEREON. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR OR OTHER
FIDUCIARY, PLEASE GIVE YOUR FULL TITLE
AS SUCH. JOINT OWNERS SHOULD EACH SIGN
PERSONALLY. IF A CORPORATION, SIGN IN
FULL CORPORATE NAME, BY AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN
IN PARTNERSHIP NAME, BY AUTHORIZED
PERSON.
