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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(9) OF THE SECURITIES EXCHANGE ACT OF 1934
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INFORMATION ADVANTAGE, INC.
(Name of Subject Company)
INFORMATION ADVANTAGE, INC.
(Name of Person Filing Statement)
Common Stock, Par Value $0.01 Per Share
(Title of Class of Securities)
45669P 10 1
(CUSIP Number of Common Stock)
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Larry J. Ford
President and Chief Executive Officer
7905 Golden Triangle Drive, Suite 190
Eden Prairie, Minnesota 55344
(612) 833-3700
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications
on Behalf of Person Filing Statement)
Copies to:
Brian D. Wenger, Esq. Jay K. Hachigian, Esq.
Thomas F. Steichen, Esq. Gunderson Dettmer Stough
Briggs and Morgan Villeneuve Franklin & Hachigian, LLP
Professional Association 155 Constitution Drive
2400 IDS Center Menlo Park, California 94025
Minneapolis, Minnesota 55402 (650) 321-2400
(612) 334-8400
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9" or this "Statement") relates to an offer by Sterling Software
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Sterling Software, Inc., a Delaware corporation, to purchase all of the Shares
(as defined below) of Information Advantage, Inc., a Delaware corporation.
Capitalized terms used herein and not otherwise defined herein shall have the
meaning assigned to them in the Offer to Purchase dated July 21, 1999, a copy
of which is filed as Exhibit (a)(1) hereto (the "Offer to Purchase").
Item 1. Security and Subject Company.
The name of the subject company is Information Advantage, Inc., a Delaware
corporation (the "Company"). The address of the principal executive office of
the Company is 7905 Golden Triangle Drive, Suite 190, Eden Prairie, Minnesota
55344. The title of the class of equity securities to which this Statement
relates is the common stock, $0.01 par value, of the Company (the "Common
Stock"). Unless the context otherwise requires, as used herein the term
"shares" shall mean shares of Common Stock including the associated preferred
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated March 1, 1999, as amended, between the Company and Norwest Bank, N.A as
Rights Agent (the "Rights Agreement").
Item 2. Tender Offer of the Bidder.
This Statement relates to the tender offer (the "Offer") disclosed in the
Schedule 14D-1 dated July 21, 1999 (as amended or supplemented, the "Schedule
14D-1") filed with the Securities and Exchange Commission (the "Commission")
by Sterling Software, Inc., a Delaware corporation ("Parent"), and its wholly
owned subsidiary, Sterling Software Acquisition Corp., a Delaware corporation
(the "Purchaser"), relating to an offer by the Purchaser to purchase all
outstanding Shares at $6.50 per Share, net to the seller in cash, without
interest (the "Offer Price"), upon the terms and subject to the conditions set
forth in the Offer to Purchase and the related letter of transmittal ("Letter
of Transmittal"), copies of which are filed as Exhibits (a)(1) and (a)(2)
hereto, respectively. The principal executive offices of the Purchaser and
Parent are located at 300 Crescent Court, Suite 1200, Dallas, Texas 75201.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of July 15, 1999 (the "Merger Agreement") among the Company, Parent and the
Purchaser. A copy of the Merger Agreement is filed as Exhibit (c)(1) to this
Statement and is hereby incorporated by reference. The Merger Agreement
provides that, among other things, as soon as practicable after the purchase
of Shares pursuant to the Offer and the satisfaction of the other conditions
set forth in the Merger Agreement and in accordance with the relevant
provisions of the Delaware General Corporation Law ("DGCL"), Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and will become a wholly owned subsidiary of the Parent. At the
effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held by
Parent or the Purchaser or any other subsidiary of Parent and Shares held by
stockholders of the Company who have properly perfected their dissenters
rights, if any, under Delaware law) shall, by virtue of the Merger and without
any action on the part of the Purchaser, the Company or the holder thereof, be
converted into and shall become the right to receive $6.50 in cash, without
interest (the "Merger Consideration"). The Merger Agreement is summarized in
Item 3 of this Schedule 14D-9.
Item 3. Identity and Background
(a) Name and Address of the Company
The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the Company
together with its subsidiaries, viewed as a single entity.
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(b)(i) Arrangements with the Company's Executive Officers, Directors or
Affiliates
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of the Company's directors, executive
officers and affiliates are described in the Information Statement of the
Company attached to this statement as Schedule I (the "Information
Statement"). The Information Statement is being furnished to the Company's
stockholders pursuant to Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and Rule 14f-1 issued under the Exchange Act
in connection with the Purchaser's right (after consummation of the Offer) to
designate persons to the Board of Directors of the Company other than at a
meeting of the stockholders of the Company. The Information Statement is
herein incorporated by reference.
Each of the Company's executive officers and directors has entered into one
or more option agreements pursuant to the Company's 1997 Equity Incentive
Plan. All such options shall be assumed by Parent immediately at the time of
the consummation of the Merger, as more fully described below under "The
Merger Agreement--Options."
The amendment to the Company's 1997 Equity Incentive Plan (the "Equity
Incentive Plan") described in the Company's Proxy Statement dated May 10,
1999, relating to its June 22, 1999 Annual Meeting of Stockholders, which
increased the authorized number of shares of Common Stock that may be offered
under the Equity Incentive Plan from 1,507,871 to 2,500,000 shares, was
approved by the Stockholders of the Company at the annual meeting on June 22,
1999.
Parent has reached an oral understanding with Larry Ford, President and
Chief Executive Officer of the Company, with respect to Larry Ford's
employment with the Company. In the event Mr. Ford does not come to an
agreement with the Company with respect to his role with the Company following
the Merger, the agreement will provide that (i) Mr. Ford will remain an
employee of the Company and the Company will pay Mr. Ford his then current
base salary and on-target bonus (a total of $310,000 per year) over a two year
period based on the Company's regular payroll practice; (ii) Parent will
provide Mr. Ford and anyone entitled to claim under or through him with
benefits under the applicable employee benefit plans (to the extent legally
permissible) of Parent until such time as he is no longer an employee of the
Company; (iii) Company will reimburse Mr. Ford up to a maximum of $5,000 per
month for his office, secretarial support and related expenses until the
earlier of the period ending two years following the Effective Time or his
acceptance of other employment; and (iv) all of Mr. Ford's outstanding options
will accelerate upon his ceasing to be an employee, unless such options are to
be sooner accelerated under existing agreements between the Company and Mr.
Ford. In the event Mr. Ford comes to an alternative agreement with the Company
regarding his employment following the Closing and his position is thereafter
terminated by the Company for any reason within one year after the Closing,
the agreement will provide that he will receive the payments and benefits from
the Company following such termination as set forth in (i), (ii) and (iv)
above. Parent also may enter into severance agreements with certain other
executive officers of the Company. The specific terms of such new severance
agreements have not yet been determined.
The Company has previously entered into indemnification agreements with each
officer or director of the Company. The indemnification agreements generally
provide (i) for indemnification against all costs and expenses (including
attorneys' fees) actually and reasonably incurred in connection with the
investigation, defense or appeal of any threatened, pending or completed
action, suit or proceeding related to the fact that such indemnitee is or was
serving the Company as a director, officer, employee, agent or fiduciary, or
by reason of anything done or not done by such indemnitee in any such capacity
and any and all judgments, fines, penalties and amounts paid in settlement of
any claim, unless it is determined that such indemnification is not permitted
under applicable law or as a result of certain culpable action by such
indemnitee and (ii) for the prompt advancement of expenses to an indemnitee as
well as the reimbursement by such indemnitee of any such advances to the
Company if it is determined that the indemnitee is not entitled to such
indemnification. Indemnitees' rights under the indemnification agreements are
not exclusive of any other rights they may have under the DGCL, the Company's
Bylaws or otherwise.
Article 9 of the Certificate of Incorporation of the Company, as amended to
date, limits the personal liability of directors of the Company and provides
for indemnification of the officers and directors of the Company, in each case
to the fullest extent permitted by the DGCL. A copy of such Article 9 has been
filed as Exhibit (c)(5)
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to this Schedule 14D-9 and is incorporated herein by reference in its
entirety. Article V of the Bylaws of the Company also provides for
indemnification of officers and directors of the Company. A copy of such
Article V has been filed as Exhibit (c)(6) to this Schedule 14D-9 and is
incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, the officers and directors of the Company
are given additional indemnification rights. The Merger Agreement is attached
as an exhibit to this Schedule 14D-9.
(ii) Arrangements with Sterling Software, Inc., its Executive Officers,
Directors and Affiliates
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full
text of the Merger Agreement filed with the Commission as an exhibit to the
Schedule 14D-9 and is incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable, but in no event later than five business days
after the initial public announcement of the execution and delivery of the
Merger Agreement. The obligation of Purchaser to accept for payment and pay
for the Shares tendered pursuant to the Offer is subject to the satisfaction
of (i) the Minimum Condition (as described in the "Conditions of the Offer"
section below) prior to the expiration of the Offer and (ii) certain other
conditions described in the "Conditions to the Offer" section below. The
Merger Agreement provides that without the prior written consent of the
Company, Purchaser will not (and Parent shall cause Purchaser not to) (i)
decrease or change the form of the Offer Consideration or decrease the number
of Shares sought pursuant to the Offer, (ii) impose additional conditions to
the Offer, (iii) extend the expiration date of the Offer beyond the initial
expiration date of the Offer (which shall be the 20th business day after
commencement of the Offer), except (A) as required by applicable law, (B) that
if, immediately prior to the expiration date of the Offer (as it may be
extended), the Shares tendered and not withdrawn pursuant to the Offer
constitute more than 75% and less than 90% of the outstanding Shares,
Purchaser may extend the Offer for one or more periods not to exceed an
aggregate of fifteen business days, notwithstanding that all conditions to the
Offer are satisfied as of such expiration date of the Offer and (C) that if
any condition to the Offer has not been satisfied or waived, Purchaser may, in
its sole discretion, extend the expiration date of the Offer for one or more
periods, provided that the expiration date of the Offer may not be extended
beyond October 31, 1999, (iv) waive the Minimum Condition, or (v) amend any
term or other condition of the Offer in any manner materially adverse to
holders of Shares; provided, however, that, except as set forth above and
subject to applicable legal requirements, Purchaser may waive any condition to
the Offer other than the Minimum Condition in its sole discretion; and
provided further that the Offer may be extended in connection with an increase
in the consideration to be paid pursuant to the Offer so as to comply with
applicable rules and regulations of the Commission. Purchaser will, on the
terms and subject to the prior satisfaction or waiver of the conditions of the
Offer, accept for payment, and pay for, in accordance with the terms and
subject to the conditions of the Offer, all Shares validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the expiration
date thereof.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries,
authority to enter into the Merger Agreement, no conflicts between the Merger
Agreement and the certificate of incorporation and bylaws of the Company,
certain agreements to which the Company or its assets may be subject and
applicable law, required consents, capital stock, options or other rights to
acquire Shares, filings with the Commission, financial statements, absence of
certain changes or events, undisclosed liabilities, disclosures in proxy
statement and tender offer documents, real property, software, Year
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2000 compliance of the Company's software products, intellectual property,
material contracts, litigation, compliance with applicable laws, environmental
matters, tax matters, benefit plans, absence of changes in benefit plans,
labor matters, brokers' and finders' fees, receipt of the Financial Advisor
Opinion, votes required to approve the Merger Agreement, and the Rights
Agreement.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
no conflicts between the Merger Agreement and the certificate of incorporation
and by-laws of Parent and Purchaser, certain agreements to which Purchaser or
Parent or their assets may be subject and applicable law, required consents,
disclosures in proxy statements and tender offer documents and financing.
Certain representations and warranties in the Merger Agreement are qualified
as to "materiality" or "Material Adverse Effect." For the purposes of the
Merger Agreement and the Offer to Purchase, "Material Adverse Effect" with
respect to any person means any event, change, occurrence, effect, fact or
circumstance having, or which would reasonably be expected to have, a material
adverse effect on (i) the ability of such person to perform its obligations
under the Merger Agreement or to consummate the transactions contemplated
thereby or (ii) the condition (financial or otherwise), assets, liabilities,
properties, results of operations, cash flows, value or business of such
person and its subsidiaries taken as a whole.
The Company Board. Promptly after (i) the purchase of and payment for any
Shares by Purchaser or any of its affiliates pursuant to the Offer as a result
of which Purchaser and its affiliates own beneficially at least a majority of
the then outstanding Shares and (ii) compliance with Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder, whichever shall occur
later, Parent shall be entitled to designate such number of directors, rounded
up to the next whole number, on the Company's Board as is equal to the product
of the total number of directors on such Board (after giving effect to any
resulting increase in the size of such Board pursuant to Section 1.4 of the
Merger Agreement) multiplied by the percentage that the number of Shares
beneficially owned by Purchaser at such time (including Shares so accepted for
payment) bears to the total number of Shares then outstanding (such persons,
the "Parent Designees"). In furtherance thereof, the Company shall, upon
request of Parent, use its best efforts promptly either to increase the size
of its Board of Directors or to secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable the Parent Designees
to be so elected or appointed to the Company Board, and the Company shall take
all actions available to the Company to cause such designees of Parent to be
so elected or appointed. At such time, the Company shall, if requested by
Parent, also take all action necessary to cause persons designated by Parent
to constitute at least the same percentage (rounded up to the next whole
number) as Parent is entitled to designate on the Company Board of (i) each
committee of the Company Board, (ii) each board of directors (or similar body)
of each subsidiary of the Company and (iii) each committee (or similar body)
of each such board.
The Merger Agreement provides that the Company shall promptly take all
actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under the Merger
Agreement, including mailing to stockholders the information required by such
Section 14(f) and Rule 14f-1 (or including such information in the Schedule
14D-9 initially filed with the Commission and distributed to the stockholders
of the Company) as is necessary to enable the Parent Designees to be elected
to the Company Board. Parent or Purchaser will supply to the Company in
writing and be solely responsible for any information with respect to either
of them and their nominees, officers, directors and affiliates required by
such Section 14(f) and Rule 14f-1. The Merger Agreement provides that the
foregoing provisions are in addition to and shall not limit any rights which
Purchaser, Parent or any of their affiliates may have as a holder or
beneficial owner of Shares as a matter of applicable law with respect to the
election of directors or otherwise.
Notwithstanding the foregoing, the parties to the Merger Agreement shall use
their respective reasonable best efforts to ensure that at least two of the
members of the Board shall, at all times prior to the Effective Time, be
directors of the Company who were directors of the Company on the date of the
Merger Agreement (the "Continuing Directors"), provided, that, if the number
of Continuing Directors shall be reduced below two for any reason, the
remaining Continuing Director may designate a person to fill such vacancy who
shall be deemed
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to be a Continuing Director for all purposes of the Merger Agreement, or if no
Continuing Directors then remain, the other directors of the Company then in
office shall designate two persons to fill such vacancies who will not be
officers or employees or affiliates of the Company, Parent or either of their
subsidiaries and such persons shall be deemed to be Continuing Directors for
all purposes of the Merger Agreement. From and after the time, if any, that
Parent's designees constitute a majority of the Company Board and prior to the
Effective Time, any amendment or modification of the Merger Agreement, any
amendment to the Company's Certificate of Incorporation or By-Laws
inconsistent with the Merger Agreement, any termination of the Merger
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or Purchaser under the Merger Agreement, any waiver of
any condition to the Company's obligations under the Merger Agreement or any
of the Company's rights under the Merger Agreement or other action by the
Company under the Merger Agreement may be effected only by the action of a
majority of the Continuing Directors of the Company, which action shall be
deemed to constitute the action of any committee specifically designated by
the Company Board to approve the actions contemplated by the Merger Agreement
and the Company Board; provided, that, if there shall be no Continuing
Directors, such actions may be effected by majority vote of the entire Company
Board.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law to consummate the Merger, the Company, acting through the
Company Board, shall, in accordance with the DGCL, the Exchange Act and other
applicable laws, its Certificate of Incorporation and By-Laws: (i) as soon as
practicable following the acceptance for payment and purchase of Shares by
Purchaser pursuant to the Offer, take all action necessary to convene and hold
a special meeting of its stockholders (the "Special Meeting") for the purposes
of considering and voting upon the Merger Agreement and to solicit proxies
pursuant to the Proxy Statement (as defined below) in connection therewith;
(ii) if requested by Parent, prepare and file with the Commission a proxy
statement or information statement relating to the Stockholders Meeting in
accordance with the Exchange Act and the rules and regulations thereunder and
(x) use its reasonable efforts to respond to all comments made by the
Commission with respect to the proxy statement or information statement and,
subject to compliance with Commission rules and regulations, cause a proxy
statement or information statement, including any amendment or supplement
thereto (the "Proxy Statement"), to be mailed to its stockholders at the
earliest practicable date, and (y) recommend that the stockholders of the
Company vote in favor of the adoption of the Merger Agreement at the
Stockholders Meeting and cause such recommendation to be included in the Proxy
Statement. Pursuant to the Merger Agreement, Parent and Purchaser have agreed
to: (i) cause, at the Stockholders Meeting, all of the Shares owned by them to
be voted in favor of the adoption of the Merger Agreement; and (ii) promptly
supply to the Company in writing, for inclusion in the Proxy Statement, all
information concerning Parent and Purchaser required under the Exchange Act
and the rules and regulations thereunder to be included in the Proxy
Statement.
Options. The Merger Agreement provides that at the Effective Time of the
Merger, each then-outstanding option to purchase Shares (collectively, the
"Options") under the Company Option Plans whether or not then exercisable or
fully vested, shall be assumed by Parent and shall constitute an option (a
"Substitute Option") to acquire, on substantially the same terms and subject
to substantially the same conditions as were applicable under such Option,
including without limitation term, vesting, exercisability, status as an
"incentive stock option" (if applicable) under Section 422 of the Code, and
termination provisions, the number of shares of common stock, par value $0.10
per share, of Parent ("Parent Common Stock"), rounded down to the nearest
whole share, determined by multiplying the number of Shares subject to such
Option immediately prior to the Effective Time by the Conversion Factor (as
defined below), at an exercise price per share of Parent Common Stock
(increased to the nearest whole cent) equal to the exercise price per Share
subject to such Option divided by the Conversion Factor; provided, however,
that in the case of any Option to which Section 421 of the Code applies by
reason of its qualification as an incentive stock option under Section 422 of
the Code, the conversion formula shall be adjusted if necessary to comply with
Section 424(a) of the Code. For purposes of the Merger Agreement, "Conversion
Factor" means the Offer Price divided by the average closing price per share
of Parent Common Stock on the NYSE for the five consecutive trading days
ending on the trading day immediately prior to the Closing Date. In the Merger
Agreement, the Company has agreed to use its best efforts to obtain all
necessary waivers, consents or releases from holders of Options under the
Company Option Plans and take any such other action as may be reasonably
necessary to give effect to the transactions contemplated hereby.
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In connection with the foregoing, the Company has agreed in the Merger
Agreement that as soon as practicable following the date of the Merger
Agreement, the Company Board (or, if appropriate, any committee administering
a Company Option Plan) will adopt resolutions and take such actions as may be
required to cause each outstanding Option to be automatically converted, at
the Effective Time, into a Substitute Option and shall make such other changes
to the Company Option Plans as it deems appropriate to give effect to the
Merger (subject to the approval of Parent, which shall not be unreasonably
withheld).
In connection with the foregoing, Parent has agreed in the Merger Agreement
to take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of
Substitute Options. As soon as practicable, but in any event within 15 days,
after the Effective Time the shares of Parent Common Stock subject to
Substitute Options will be covered by an effective registration statement on
Form S-8 (or any successor form) or another appropriate form and Parent shall
use its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as the Substitute Options remain
outstanding. In addition, Parent shall use all reasonable efforts to cause the
shares of Parent Common Stock subject to Substitute Options to be listed on
the NYSE and such other exchanges as Parent shall determine.
Warrants. The Merger Agreement provides that Parent and Purchaser will not
assume or continue any outstanding warrants to purchase Shares (the
"Warrants") and that the parties thereto will take all appropriate action to
provide that, in accordance with the respective terms of the Warrants, at or
prior to the Effective Time, each holder of an outstanding Warrant shall be
entitled to receive an amount in cash equal to the product of (i) the excess,
if any, of the Offer Price over the per share exercise price of such Warrant
and (ii) the number of shares subject to such Warrant (a "Warrant Cash-out
Amount").
In connection with the foregoing, the Company has agreed in the Merger
Agreement that as soon as practicable following the date of the Merger
Agreement, the Company Board (or, if appropriate, any committee administering
any Warrants) will adopt resolutions and take such actions as may be required
to cause each holder of an outstanding Warrant to be automatically entitled to
receive their respective Warrant Cash-out Amount.
Employee Stock Purchase Plan. The Company has agreed that the "offering
period" and "accumulation period" (as each such term is defined in the ESPP)
under the Company's ESPP will terminate not later than five business days
prior to the Effective Time, and no further offering period or accumulation
period under the ESPP will be created. In addition, the Company Board will
cause the ESPP to be terminated as of the Effective Time.
Employee Benefit Matters. From and after the Effective Time, Parent has
agreed to honor and provide for payment of all accrued obligations and
benefits under all employee benefit plans of the Company and employment or
severance agreements disclosed to Parent, all in accordance with their
respective terms.
Parent has agreed to provide persons who are employees of the Company at or
prior to the Effective Time ("Covered Employees") who remain in the employ of
the Company or any of its subsidiaries with employee benefits that are
reasonably comparable, in the aggregate, to the employee benefits provided to
similarly situated employees of Parent or any such subsidiary who are not
Covered Employees. To the extent that Covered Employees are included in any
benefit plan of Parent or its subsidiaries, Parent agrees that the Covered
Employees will receive credit under such plan (other than any such plan
providing for sabbaticals) for service prior to the Effective Time with the
Company and its subsidiaries to the same extent such service was counted under
similar plans of the Company for purposes of eligibility, vesting, eligibility
for retirement (but not for benefit accrual) and, with respect to vacation,
disability and severance, benefit accrual. To the extent that Covered
Employees are included in any medical, dental or health plan other than the
plan or plans they participated in at the Effective Time, Parent has agreed
that any such plans shall not include pre-existing condition exclusions,
except to the extent such exclusions were applicable under the similar plan of
the Company at the Effective Time, and shall provide credit for any
deductibles and co-payments applied or made with respect to each Covered
Employee in the calendar year of the change. Except as set forth above,
nothing in the Merger Agreement shall prevent Parent or the Surviving
Corporation from amending or terminating any plan of the Company in accordance
with its terms.
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Interim Operations. The Merger Agreement provides that after the date of the
Merger Agreement and prior to the Effective Time, subject to certain
exceptions, the Company shall, and shall cause each of its subsidiaries to,
act and carry on its business only in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current business
organizations, keep available the services of its current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with the Company, and to that end, without limiting the
generality of the foregoing, the Company shall not, and shall not permit any
of its subsidiaries to, without the prior consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its outstanding capital stock (other than, with respect to a
subsidiary of the Company, to its corporate parent), (ii) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, or (iii)
purchase, redeem or otherwise acquire any shares of outstanding capital
stock or any rights, warrants or options to acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options and Warrants
outstanding on the date of the Merger Agreement;
(c) amend its Certificate of Incorporation, By-Laws or other comparable
charter or organizational documents or amend or redeem the Rights
Agreement;
(d) directly or indirectly acquire, make any investment in, or make any
capital contributions to, any person other than in the ordinary course of
business consistent with past practice;
(e) make any new capital expenditure or expenditures in excess of $50,000
individually, or $250,000 in the aggregate, other than the specific capital
expenditures disclosed on a schedule to the Merger Agreement;
(f) amend or terminate any material contract where such amendment or
termination would have a Material Adverse Effect on the Company, or waive,
release or assign any material rights or claims;
(g) directly or indirectly sell, pledge or otherwise dispose of or
encumber any of its properties or assets that are material to its business,
except for sales, pledges or other dispositions or encumbrances in the
ordinary course of business consistent with past practice;
(h) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any direct or indirect
wholly owned subsidiary of the Company or (ii) make any loans or advances
to any other person,
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other than to the Company or to any direct or indirect wholly owned
subsidiary of the Company and other than routine advances to employees
consistent with past practice, except, in the case of clause (i) for
borrowings, in the ordinary course of business consistent with past
practice, under existing credit facilities described in documents filed by
the Company with the Commission and publicly available prior to the date of
the Merger Agreement;
(i) grant or agree to grant to any officer, employee or consultant any
increase in wages or bonus, severance, profit sharing, retirement, deferred
compensation, insurance or other compensation or benefits, or establish any
new compensation or benefit plans or arrangements, or amend or agree to
amend any existing Company Option Plans, except as may be required under
existing agreements or by law;
(j) accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock option,
insurance or other compensation or benefits;
(k) enter into or amend any employment, consulting, severance or similar
agreement with any individual other than consulting agreements entered into
in the ordinary course of business involving payments in the aggregate for
such consulting agreements not in excess of $50,000 in any month and not
with a term in excess of 90 days;
(l) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization or any agreement relating to an Acquisition
Proposal (as defined hereinafter);
(m) make or rescind any tax election or settle or compromise any tax
liability of the Company or of any of its subsidiaries;
(n) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) of any such claims,
liabilities or obligations in the ordinary course of business and
consistent with past practice or (ii) of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated
financial statements (or the notes thereto) of the Company and its
consolidated subsidiaries;
(o) make any change in any method of accounting or accounting practice or
policy (including any method, practice or policy relating to taxes), except
as required by any changes in generally accepted accounting practices or as
otherwise required by law;
(p) settle any action, suit, claim, investigation or proceeding (legal,
administrative or arbitrative) in an amount in excess of $50,000 (other
than the settlement of the pending class action lawsuit against the Company
(Harvey Altman v. IQ Software Corporation, et al., N.D. Georgia, No. 1-97-
CV3203) consistent with the terms of the Memorandum of Understanding, dated
February 5, 1999);
(q) permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated without notice to Parent,
except in the ordinary course of business and consistent with past
practice;
(r) enter into any agreement, understanding or commitment that restrains,
limits or impedes the Company's ability to compete with or conduct any
business or line of business, including, but not limited to, geographic
limitations on the Company's activities;
(s) plan, announce, implement or effect any reduction in force, lay-off,
early retirement program, severance program or other program or effort
concerning the termination of employment of employees of the Company or its
subsidiaries;
(t) accelerate the collection of any account receivable or delay the
payment of any account payable, or otherwise reduce the assets or increase
the liabilities of the Company or any of its subsidiaries otherwise than in
the ordinary course of business consistent with past practice, in any such
case with the purpose or effect of using the resulting increase in the cash
flow of the Company or any of its subsidiaries to reduce the total
indebtedness of the Company and its subsidiaries for money borrowed;
(u) take any action that would result in (i) any of its representations
and warranties set forth in the Merger Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and
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warranties that are not so qualified becoming untrue in any material
respect or (iii) any of the conditions to the Offer not being satisfied; or
(v) authorize any of, or commit or agree to take any of, the foregoing
actions.
No Solicitation. The Merger Agreement provides that the Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize (and
shall use its best efforts not to permit) any affiliate, officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries relating to, or
the submission of, any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding any Acquisition Proposal, or, in
connection with any Acquisition Proposal, or furnish to any person any
information or data with respect to or access to the properties of the Company
or any of its subsidiaries, or take any other action, to knowingly facilitate
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal or approve or resolve to approve any
Acquisition Proposal; provided, that nothing contained in the Merger Agreement
shall prohibit the Company or the Company Board from (i) taking and disclosing
to the Company's stockholders a position with respect to a tender or exchange
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act, or (ii) making such disclosure to the Company's stockholders as,
in the good faith judgment of the Company Board, after consultation with
outside counsel, is required under, or is necessary to comply with, applicable
law; provided, further, that the Company may not, except as otherwise
permitted by the Merger Agreement, withdraw or modify, or propose to withdraw
or modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
enter into any agreement with respect to, any Acquisition Proposal. Upon
execution of the Merger Agreement, the Company agreed to immediately cease any
existing activities, discussions or negotiations with any parties conducted
theretofore with respect to any of the foregoing. Notwithstanding the
foregoing, prior to the time of acceptance of Shares for payment pursuant to
the Offer, the Company may furnish information concerning its business or its
subsidiaries, properties or assets to any person or group and may negotiate
and participate in discussions and negotiations with such person or group
concerning an Acquisition Proposal, provided that such person or group shall
have entered into a confidentiality agreement, the confidentiality provisions
of which shall be no more favorable to such third party than those provided
for in the letter agreement, dated June 9, 1999, between Parent and the
Company with respect to confidentiality and other matters, if: (x) such Person
or group has submitted a Superior Proposal (as defined hereinafter); and (y)
in the opinion of the Company Board, determined only after consulting with
independent legal counsel to the Company, such action is required to discharge
the Company Board's fiduciary duties to the Company's stockholders under
applicable law and the failure to provide such information or access or to
engage in such discussions or negotiations would cause the Company Board to
violate its fiduciary duties to the Company's stockholders under applicable
law.
The Merger Agreement provides that the Company will promptly (but in no case
later than 24 hours) notify Parent in writing of the existence of any
proposal, discussion, negotiation or inquiry received by the Company regarding
any Acquisition Proposal, and the Company will immediately communicate to
Parent the terms of any proposal, discussion, negotiation or inquiry which it
may receive regarding any Acquisition Proposal (and will promptly provide to
Parent copies of any written materials received by the Company in connection
with such proposal, discussion, negotiation or inquiry) and the identity of
the party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other person in connection
with any Acquisition Proposal which was not previously provided to Parent. The
Company will keep Parent informed of the status and details of any such
Acquisition Proposal and of any amendments or proposed amendments to any
Acquisition Proposal and of the status of any discussions or negotiations
relating to any Acquisition Proposal and will promptly (but in no case later
than 24 hours) notify Parent of any determination by the Company Board that a
Superior Proposal has been made.
The Merger Agreement provides that, except as set forth in this paragraph,
neither the Company Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to
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<PAGE>
Parent or Purchaser, the approval or recommendation by the Company Board of
the Offer, the Merger Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal or (iii) enter into
any agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, subject to compliance with applicable provisions of the Merger
Agreement, prior to the time of acceptance for payment of Shares pursuant to
the Offer, the Company Board may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement or the Merger, approve or
recommend a Superior Proposal, or enter into an agreement with respect to a
Superior Proposal, in each case at any time after the third business day
following Parent's receipt of written notice (including by facsimile) from the
Company advising Parent that the Company Board has received a Superior
Proposal which it intends to accept, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal.
The Merger Agreement provides that nothing contained therein, and no action
taken by the Company Board pursuant to the foregoing, will (i) permit the
Company to enter into any agreement providing for any transaction contemplated
by an Acquisition Proposal for as long as the Merger Agreement remains in
effect or (ii) affect in any manner any other obligation of the Company under
the Merger Agreement.
For purposes of the Merger Agreement, "Acquisition Proposal" means any bona
fide offer, proposal or other indication of interest regarding any of the
following (other than the transactions provided for in the Merger Agreement
involving the Company): (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction involving
the Company or any of its subsidiaries; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or a significant
portion of the assets of the Company and its subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any purchase
of, or tender offer or exchange offer for, 15% percent or more of the
outstanding shares of capital stock of the Company or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing. For purposes of
the Merger Agreement, "Superior Proposal" means an unsolicited Acquisition
Proposal on terms which the Company Board determines in good faith to be more
favorable to the Company's stockholders than the Offer and the Merger (based
on advice of the Company's independent financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger) for which financing,
to the extent required, is then committed or which, in the good faith
reasonable judgment of the Company Board, based on advice from the Company's
independent financial advisor, is reasonably capable of being financed by such
third party and which, in the good faith reasonable judgment of the Company
Board, is reasonably likely to be consummated within a period of time not
materially longer in duration than the period of time reasonably believed to
be necessary to consummate the Offer and the Merger.
In the Merger Agreement, the Company has further agreed to use its best
efforts to enforce any "standstill" provisions or similar restrictions on
Acquisition Proposals by any third party and, so long as the Merger Agreement
is in effect, not to amend or waive any such "standstill" provision.
Conditions to Each Party's Obligation to Effect the Merger. The Merger
Agreement provides that the respective obligation of each party thereto to
effect the Merger will be subject to the satisfaction or written waiver on or
prior to the Closing Date of the following conditions:
(a) Purchaser shall have accepted for payment and paid for all Shares
validly tendered in the Offer and not withdrawn; provided, however, that
neither Parent nor Purchaser may invoke this condition if Purchaser shall
have failed to purchase Shares so tendered and not withdrawn in violation
of the terms of the Merger Agreement or the Offer.
(b) The Merger Agreement shall have been adopted by the affirmative vote
of the holders of the requisite number of shares of capital stock of the
Company if such vote is required pursuant to the Company's Certificate of
Incorporation, the DGCL or other applicable law.
(c) No temporary restraining order, preliminary or permanent injunction
or other order issued by any court or competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the
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<PAGE>
Merger shall be in effect; provided, however, that prior to invoking this
condition, the party so invoking this condition shall have complied with
its commercially reasonable efforts and filing obligations and the parties
to the Merger Agreement shall have used commercially reasonable efforts to
lift or remove such order, injunction, restraint or prohibition.
(d) All necessary waiting periods under the HSR Act applicable to the
Merger shall have expired or been earlier terminated.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the
stockholders of the Company:
(a) By the mutual written consent of Parent and the Company; provided,
that if Parent shall have a majority of the directors, such consent of the
Company may only be given if approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting
the transactions contemplated by the Merger Agreement on the terms
contemplated by the Merger Agreement or (ii) any governmental entity shall
have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties to the Merger Agreement
shall use their reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) By either Parent or the Company if the Offer shall not have been
consummated on or before October 31, 1999; provided, that the party seeking
to terminate the Merger Agreement shall not have breached in any material
respect its obligations under the Merger Agreement.
(d) By the Company: (i) if the Company has entered into an agreement with
respect to a Superior Proposal or the Company or has approved or
recommended a Superior Proposal; provided, the Company has complied with
all applicable provisions of the Merger Agreement relating to the
prohibition on solicitation of Acquisition Proposals, including the notice
provisions therein, and that it simultaneously terminates the Merger
Agreement and makes simultaneous payment to Parent of the Termination Fee
(as defined herein) and the Expenses (as defined herein); or (ii) if Parent
or Purchaser shall have terminated the Offer or the Offer expires without
Parent or Purchaser, as the case may be, purchasing any Shares in the
Offer; provided, that the Company may not terminate the Merger Agreement if
the Company is in material breach of the Merger Agreement; or (iii) if
Parent, Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided, that the Company may
not terminate the Merger Agreement if the Company is in material breach of
the Merger Agreement; or (iv) if there shall be a material breach by either
Parent or Purchaser of any of their representations, warranties, covenants
or agreements contained in the Merger Agreement, except where such breach
does not have a material adverse effect on the ability of Parent or
Purchaser to consummate the Offer or the Merger.
(e) By Parent or Purchaser: (i) (A) if prior to the purchase of the
Shares pursuant to the Offer, the Company Board shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser, its
approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended or approved, or taken a neutral position with
respect to, an Acquisition Proposal or upon request of Parent, shall fail
to reaffirm its approval and recommendation of the Offer, the Merger
Agreement or the Merger; or (B) if there shall have been a material breach
by the Company of any provision of the Merger Agreement relating to the
prohibition on solicitation of Acquisition Proposals; or (ii) if Parent or
Purchaser shall have terminated the Offer without Parent or Purchaser
purchasing any Shares due to a failure to satisfy any of the conditions to
the Offer; provided, that Parent or Purchaser may not terminate the Merger
Agreement if Parent or Purchaser is in material breach of the Merger
Agreement; or (iii) if there shall be a material breach by the Company of
any of its representations, warranties, covenants or agreements contained
in the Merger Agreement.
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<PAGE>
Termination Fee. If (i) Parent or Purchaser terminates the Merger Agreement
pursuant to clauses (e)(i)(A) or (B), or (ii) the Company terminates the
Merger Agreement pursuant to clause (d)(i) under the heading "Termination"
above, then in each case, the Company shall pay, or cause to be paid to
Parent, at the time of termination, an amount equal to $6,500,000 (the
"Termination Fee") plus an amount equal to Parent's and Purchaser's actual and
reasonably documented out-of-pocket expenses incurred by Parent or Purchaser
in connection with the Offer, the Merger, the Merger Agreement and the
consummation of the transactions contemplated thereby in an amount not to
exceed $850,000 (the "Expenses"). In addition, if the Merger Agreement is
terminated by Parent pursuant to clause (e)(iii) under the heading
"Termination" above and if the Company shall within ninety (90) days of such
termination enter into an agreement with respect to an Acquisition Proposal,
then the Company shall pay to Parent the Termination Fee and Expenses
concurrently with entering into any such agreement.
Indemnification. Pursuant to the Merger Agreement, Parent and Purchaser have
agreed that, for a period of six years after the Effective Time, the
provisions with respect to indemnification set forth in the certificate of
incorporation and by-laws of Purchaser as in effect on the date of the Merger
Agreement shall not be amended, repealed or otherwise modified in any manner
that would adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including without limitation the transactions contemplated by the Merger
Agreement), unless such modification is required by law.
The Merger Agreement also provides that, from and after the Effective Time,
Parent shall, or shall cause the Surviving Corporation to, indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date of the Merger Agreement or who becomes prior to the Effective Time, an
officer or director of the Company (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees
and expenses), liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) incurred in connection with any threatened or actual
action, suit or proceeding based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of
the Company ("Indemnified Liabilities"), including all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, the
Merger Agreement or the transactions contemplated thereby, in each case, to
the full extent that a corporation is permitted under the DGCL to indemnify
its own directors or officers, as the case may be. In the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Party, the indemnifying party shall assume and direct all aspects
of the defense thereof, including settlement, and the Indemnified Party shall
cooperate in the vigorous defense of any such matter. The Indemnified Party
shall have a right to participate in (but not control) the defense of any such
matter with its own counsel and at its own expense. The indemnifying party
shall not settle any such matter unless (i) the Indemnified Party gives prior
written consent, which shall not be unreasonably withheld, or (ii) the terms
of the settlement provide that the Indemnified Party shall have no
responsibility for the discharge of any settlement amount and impose no other
obligations or duties on the Indemnified Party and the settlement discharges
all rights against the Indemnified Party with respect to such matter. In no
event shall the indemnifying party be liable for any settlement effected
without its prior written consent. Any Indemnified Party wishing to claim
indemnification under the Merger Agreement, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify Parent and
the Surviving Corporation (but the failure so to notify shall not relieve the
indemnifying party from any liability which it may have under the Merger
Agreement except to the extent such failure prejudices such indemnifying
party), and shall deliver to Parent and the Surviving Corporation the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified
Parties as a group will be represented by a single law firm with respect to
each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two
or more Indemnified Parties. The rights to indemnification under the Merger
Agreement as set forth in this paragraph shall continue in full force and
effect for a period of six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Indemnified Liabilities
asserted or made within such period shall continue until the disposition of
such Indemnified Liabilities.
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<PAGE>
The Merger Agreement provides that, for a period of two years after the
Effective Time, Parent shall cause to be maintained in effect policies of
directors' and officers' liability insurance, for the benefit of those persons
who are covered by the Company's directors' and officers' liability insurance
policies at the Effective Time, providing coverage with respect to matters
occurring prior to the Effective Time that is at least equal to the coverage
provided under the Company's current directors' and officers' liability
insurance policies, to the extent that such liability insurance can be
maintained at an annual cost to Parent not greater than 150 percent of the
premium for the current Company directors' and officers' liability insurance;
provided that if such insurance cannot be so maintained at such cost, Parent
shall maintain as much of such insurance as can be so maintained at a cost
equal to 150 percent of the current annual premiums of the Company for such
insurance.
Conditions to the Offer
The Merger Agreement provides that, notwithstanding any other provision of
the Offer and subject to the terms of the Merger Agreement, Purchaser shall
not be required to accept for payment or, subject to any applicable rules and
regulations of the Commission, pay for, and may delay the acceptance for
payment of or the payment for, any tendered Shares, and may amend the Offer
consistent with the terms of the Merger Agreement or terminate the Offer and
not accept for payment any tendered Shares, if (i) there shall not have been
validly tendered and not withdrawn prior to the expiration of the Offer such
number of Shares which, when added to the Shares, if any, beneficially owned
by Parent or Purchaser, would constitute at least a majority of the Shares
outstanding on a fully-diluted basis on the date of purchase ("on a fully-
diluted basis" meaning, as of any date, the number of Shares outstanding,
together with the Shares which the Company may be required to issue pursuant
to warrants, options or obligations outstanding at that date under employee
stock purchase or similar benefit plans or otherwise, whether or not vested or
then exercisable) (the "Minimum Condition"), (ii) any applicable waiting
period under the HSR Act has not expired or been terminated, or (iii) at any
time on or after July 15, 1999 and prior to the Expiration Date, any of the
following events shall occur and be continuing and shall not have resulted
from the breach by Parent or Purchaser of any of their obligations under the
Merger Agreement:
(a) there shall be threatened or pending any suit, action or proceeding
(i) seeking to prohibit or impose any material limitations on Parent's or
Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, (ii) seeking to compel Parent or Purchaser
or their respective subsidiaries and affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or
Parent and their respective subsidiaries, in each case taken as a whole,
(iii) challenging the acquisition by Parent or Purchaser of any Shares
pursuant to the Offer, (iv) seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of the
transactions contemplated by the Merger Agreement, (v) seeking to obtain
from the Company any damages (including damages against the Company's
directors or officers for which they may seek indemnification from the
Company) that would be reasonably likely to have a Material Adverse Effect
on the Company, (vi) seeking to impose material limitations on the ability
of Purchaser, or rendering Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares pursuant to the Offer and the Merger,
(vii) seeking to impost material limitations on the ability of Purchaser or
Parent effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by
Purchaser or Parent on all matters properly presented to the Company's
stockholders, or (viii) which otherwise is reasonably likely to have a
Material Adverse Effect on the Company or, as a result of the transactions
contemplated by the Merger Agreement, Parent and its subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
governmental entity, other than the application to the Offer or the Merger
of applicable waiting periods under the HSR Act, that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (viii) of paragraph (a) above; or
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<PAGE>
(c) the representations and warranties of the Company set forth in the
Merger Agreement which are not qualified by "materiality" or "Material
Adverse Effect" shall not be true and accurate in all material respects,
and the representations and warranties that are qualified by "materiality"
or "Material Adverse Effect" shall not be true and accurate in all
respects, in each case as of the date of consummation of the Offer as
though made on or as of such date (except for those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate
as of such date or with respect to such period) or the Company shall have
breached or failed to perform or comply in any material respect with any
material obligation, agreement or covenant required by the Merger Agreement
to be performed or complied with by it; or
(d) there shall have occurred any event, change, occurrence, effect or
circumstance which has had, individually or in the aggregate, a Material
Adverse Effect on the Company other than a Material Adverse Effect
resulting principally from the announcement of the Offer or the Merger;
provided, however, that if the Company's software license revenue
(recognized by the Company in accordance with generally accepted accounting
principles, consistently applied) for the fiscal quarter ending July 31,
1999 ("Current License Revenue") is greater than the software license
revenue publicly reported by the Company for the quarter ended April 30,
1999, then such Current License Revenue shall not be taken into account in
determining whether there is or could be a Material Adverse Effect; or
(e) the Company Board (i) shall have withdrawn, or modified or changed in
a manner adverse to Parent or Purchaser (including by amendment of this
Schedule 14D-9) its recommendation of the Offer, the Merger Agreement or
the Merger, (ii) shall have recommended or remained neutral with respect to
an Acquisition Proposal, (iii) shall have adopted any resolution to effect
any of the foregoing, or (iv) upon request of Parent, shall fail to
reaffirm its approval or recommendation of the Offer, the Merger Agreement
or the Merger; or
(f) the Merger Agreement shall have been terminated in accordance with
its terms; or
(g) the Stockholders shall have failed to comply with their obligations
under the Stockholder Agreements;
which in the sole good faith judgment of Parent or Purchaser, in any such
case, and regardless of the circumstances (including any action or inaction by
Parent or Purchaser) giving rise to such condition, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment
for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may (except for the Minimum Condition) be waived by Parent or Purchaser,
in whole or in part, at any time and from time to time, in the sole discretion
of Parent or Purchaser. The failure by Parent or Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
Stockholder Agreements
The following is a summary of certain provisions of the Stockholder
Agreements. This summary is not a complete description of the terms and
conditions of the Stockholder Agreements and is qualified in its entirety by
reference to the full text of the forms of Stockholder Agreement with respect
to certain significant stockholders of the Company, and the form of
Stockholder Agreement with respect to directors and certain executive officers
of the Company, each as filed with the Commission as an exhibit to the
Schedule 14D-9 and incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Merger
Agreement or the Stockholder Agreements, as the context may require.
As a condition and inducement to Parent's entering into the Merger Agreement
and incurring the liabilities therein, certain stockholders of the Company,
Norwest Equity Partners IV, Norwest Equity Partners V, St. Paul Fire and
Marine Insurance Company, St. Paul Venture Capital IV, L.L.C., and certain of
the senior executive
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officers and all of the directors of the Company (collectively, the
"Stockholders"), who collectively have voting power and dispositive power with
respect to an aggregate of 6,305,846 Shares, concurrently with the execution
and delivery of the Merger Agreement entered into the Stockholder Agreements
with Parent. Pursuant to the Stockholder Agreements, the Stockholders have
agreed, among other things, to grant Parent an irrevocable proxy with respect
to the voting of their Shares in favor of the Merger and against any other
Acquisition Proposal with respect to such Shares upon the terms and subject to
the conditions set forth therein. The Stockholders have also granted to Parent
an option to purchase the Shares subject to the Stockholder Agreements, at an
option price of $6.50 per Share or any higher price paid or to be paid
pursuant to the Offer, during the period (the "Option Period") commencing on
the date of the Stockholder Agreements and continuing through the earlier to
occur of (i) the Effective Time of the Merger, (ii) the six month anniversary
of the date, if any, on which the Merger Agreement is terminated pursuant to
clauses (d)(i), (e)(i)(A) or (e)(i)(B) under the subheading "Termination"
under the heading "Merger Agreement" above, or (iii) 90 days after the date,
if any, on which the Merger Agreement is terminated pursuant to clause
(e)(iii) under the subheading "Termination" under the heading "Merger
Agreement" above. The Stockholders have advised Parent that they intend to
tender their Shares pursuant to the Offer. If Purchaser purchases Shares
pursuant to the Offer, Purchaser intends to exercise its option pursuant to
the Stockholder Agreements to purchase all Shares that are not tendered by any
Stockholder.
During the Option Period, each Stockholder has agreed not to: (A) except
pursuant to the terms of the Stockholder Agreement and for the tender of
Shares in the Offer, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement to do so; (B) except pursuant to the terms of the Stockholder
Agreement, grant any proxies or powers of attorney, deposit any of their
Shares into a voting trust or enter into a voting agreement with respect to
any of their Shares; or (C) take any action that would make any representation
or warranty contained in the Stockholder Agreement untrue or incorrect or have
the effect of impairing the ability of the Stockholder to perform the
Stockholder's obligations under the applicable Stockholder Agreement or
preventing or delaying the consummation of any of the transactions
contemplated by the applicable Stockholder Agreement and the Merger Agreement.
Each of the Stockholders entering into a Stockholder Agreement has agreed to
unconditionally release, as of the Effective Time, any and all claims and
causes of action that such Stockholder may have against the Company or any of
its subsidiaries or any present or former director, officer, employee or agent
of the Company or any of its subsidiaries (collectively, the "Released
Parties") resulting from any act, omission or occurrence prior to the
Effective Time; provided, however, that such release by the Stockholders who
are directors and/or officers of the Company shall not apply to any claim or
cause of action insofar as it relates to rights to indemnification under the
Company's Certificate of Incorporation or Bylaws or any entitlement to
compensation or benefits earned or accrued by or for the benefit of such
Stockholders prior to the Effective Time in respect of services performed by
such Stockholders to the Company, in the ordinary course of business, as a
director or officer of the Company.
Each Stockholder has agreed that, in the capacity as a stockholder, it will
not respond to any inquiries or the making of any proposal by any person or
entity (other than Parent or any affiliate of Parent) concerning any business
combination, merger, tender offer, exchange offer, sale of assets, sale of
shares of capital stock or debt securities or similar transactions involving
the Company or any subsidiary, division or operating or principal business
unit of the Company. If any Stockholder, receives any such inquiry or
proposal, then the Stockholder has agreed to promptly inform Parent of the
existence thereof. Each Stockholder has agreed to immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties previously conducted with respect to any of the foregoing.
Exclusivity Agreement
The following is a summary of certain provisions of the Exclusivity
Agreement. This summary is not a complete description of the terms and
conditions of the Exclusivity Agreement and is qualified in its entirety by
reference to the full text of the Exclusivity Agreement filed with the
Commission as an exhibit to the Schedule 14D-9 and incorporated herein by
reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Exclusivity Agreement.
15
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In connection with the negotiation of the Merger Agreement, on July 7, 1999,
Parent and the Company entered into a letter agreement (the "Exclusivity
Agreement") in order to induce Parent to continue negotiations with the
Company with respect to the terms of a potential acquisition transaction. The
Exclusivity Agreement provided that until the earlier of 5:00 p.m., Dallas,
Texas time, on July 22, 1999 and the execution of a definitive agreement
relating to a potential acquisition of the Company (the "Exclusivity Period"),
the Company and its affiliates and representatives will discontinue any
solicitation efforts, discussions or negotiations with respect to, and will
not directly or indirectly initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any action to facilitate, any
inquiries, expressions of interest or the making of any proposal that
constitutes, or may be reasonably expected to lead to, an acquisition proposal
with any person other than Parent. The Company also agreed during the
Exclusivity Period not to enter into discussions or negotiations with any
other person concerning an acquisition proposal or to endorse such other
proposal. The Exclusivity Agreement terminated upon Parent, Purchaser and the
Company entering into the Merger Agreement.
Amendment to Rights Agreement
The following is a summary of an amendment to the Rights Agreement. This
summary is not a complete description of the amendment to the Rights Agreement
and is qualified in its entirety by reference to the full text of the
amendment to the Rights Agreement filed with the Commission as an exhibit to
the Schedule 14D-9 and incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Rights
Agreement.
The Company has distributed one Right for each outstanding Share pursuant to
the Rights Agreement between the Company and the Rights Agent. The Company has
represented in the Merger Agreement that it has taken all action which may be
necessary under the Rights Agreement so that (i) the Offer, the Merger and the
other transactions contemplated by the Merger Agreement and the Stockholder
Agreements shall be approved, in advance and in writing, by a majority of the
Disinterested Directors (as defined in the Rights Agreement) of the Company's
Board of Directors and that such transactions shall constitute Company-
Approved Transactions (as defined in the Rights Agreement) under the Rights
Agreement, (ii) the Rights will be inoperative with respect to the acquisition
of Shares by Parent, Purchaser or their affiliates pursuant to the Merger
Agreement, the Offer and/or the Stockholder Agreements (and any amendments
thereto) and the consummation of the Merger and the other transactions
contemplated thereby will not cause (w) Parent and/or Purchaser to constitute
an Acquiring Person (as defined in the Rights Agreement), (x) the Rights to
become exercisable, (y) a Distribution Date, Section (11)(a)(ii) Event or
Shares Acquisition Date (as each such term is defined in the Rights Agreement)
to occur, or (z) Section 13 of the Rights Agreement to become operative, and
(iv) the Rights shall not become exercisable upon or at any time after the
acceptance for payment of Shares pursuant to the Offer and/or the purchase of,
or the right to acquire, Shares pursuant to the Stockholder Agreements and/or
the consummation of the Merger. The Rights Agreement provides that if for any
reason the Merger Agreement is terminated and the Merger is abandoned, then
the amendment to the Rights Agreement shall be of no further force and effect
and the Rights Agreement shall remain exactly the same as it existed
immediately prior to the execution of the amendment.
Item 4. The Solicitation or Recommendation.
(a) Recommendation of the Board of Directors.
The Board of Directors of the Company unanimously (with one director absent)
(1) has approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, (2) has determined that the terms
of the Offer and the Merger are advisable and fair to, and in the best
interests of, the Company and the Company's stockholders and (3) recommends
that the stockholders accept the Offer and tender their Shares pursuant to the
Offer.
As set forth in the Offer, the Merger Agreement and the Letter of
Transmittal (the "Offer Documents"), the Purchaser will purchase shares
tendered prior to the close of the Offer if the conditions to the Offer have
been satisfied (or waived). Stockholders considering not tendering their
Shares in order to wait for the Merger
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<PAGE>
should note that if the Minimum Condition is not satisfied or any of the other
conditions to the Offer are not satisfied, the Purchaser is not obligated to
purchase any Shares, and can terminate the Offer and the Merger Agreement and
not proceed with the Merger. Under DGCL, the approval of the Board and the
affirmative vote of the holders of a majority of the outstanding Shares are
required to approve the Merger. Accordingly, if the conditions to the Offer
are satisfied, the Purchaser will have sufficient voting power to cause the
approval of the Merger without the affirmative vote of any other stockholder.
The Offer is scheduled to expire at 12:00 midnight, New York City time, on
Tuesday, August 17, 1999, unless the Purchaser elects to extend the period of
time for which the Offer is open. A copy of the press release issued jointly
by the Company and the Purchaser on July 16, 1999 announcing the Merger
Agreement is filed as Exhibit (a)(3) to this Schedule 14D-9 and is
incorporated herein by reference in its entirety.
(b) Background of the Offer; Reasons for the Recommendation.
Background of the Offer.
From time to time over the past year, the Board of Directors of the Company
has considered various strategic alternatives with a view to increasing
stockholder value. In February 1999, the Company's Board of Directors
authorized Larry J. Ford, the Company's President and Chief Executive Officer,
and other Company executives to explore possible acquisitions, sales or other
business combinations involving the Company. Between March and June 1999, the
Company selectively and with its financial advisor BancBoston Robertson
Stephens Inc. ("Robertson Stephens") explored a number of options for the
Company. The Company and Robertson Stephens contacted 11 companies, and from
these companies had discussions or meetings with seven companies which
expressed an interest in the Company. From these seven, the Company eventually
received bids from two companies, including Parent. The following summarizes a
number of these key meetings and discussions.
On March 12, 1999 Richard L. Tanler, Chairman of the Board and Vice
President of the Company, received a telephone call from a company interested
in a business transaction with the Company ("Interested Party 1"). This
conversation was an introductory overview discussion regarding the Company's
markets and operations, and included a discussion of potential synergy between
the companies at a high level.
On April 7, 1999, senior representatives of the Company held an all day
meeting with Interested Party 1 and its investment bankers. The Company's
representatives provided an overview of the Company. The discussions included
strategy, management, competitive landscape, market trends, sales and
marketing, product development, service organization, management and
organization, historical and projected financial results.
On April 19, 1999, more detailed discussions took place with Interested
Party 1. Kurt L. Betcher, Vice President and Chief Financial Officer of the
Company, held a meeting with the Chief Financial Officer of Interested Party 1
to discuss financial aspects of the Company's business operations, in order to
assess the strategic opportunities of a business combination with the Company.
On April 28, 1999, in a meeting with another interested company ("Interested
Party 2"), Mr. Ford and Robin L. Pederson, Vice President of the Company,
provided an overview of the Company. The Company's executives discussed
Company strategies, Company sales and marketing organization and potential
synergies of combining the two companies.
On May 5, 1999, in a meeting with another interested company ("Interested
Party 3"), Mr. Ford, Mr. Tanler and Mr. Betcher provided an overview of the
Company and discussed in detail Company strategies and potential synergies of
combining the two companies. Discussion included strategy, management,
competitive landscape, market trends, sales and marketing, product
development, services organization, management and organization, historical
and projected financial results.
On May 14, 1999, in a conference call with another company interested in a
business combination with the Company ("Interested Party 4"), Mr. Ford, Mr.
Betcher and Mr. Tanler provided a detailed overview of the Company which
included a review of the technology of the Company.
17
<PAGE>
On May 20, 1999, in a videoconference with Interested Party 2 and its
investment bankers, Mr. Ford and Mr. Betcher discussed the Company's business,
including results of operations for the first quarter ended April 30, 1999 and
related analysis of historical financial results of the Company, including
factors affecting financial performance for the first quarter and updated
projections.
On May 28, 1999, the Company executed an agreement to formally engage
Robertson Stephens as its investment banker to further investigate the
numerous interested parties that had surfaced to date and any other
potentially interested companies.
On May 28, 1999, in a conference call with executives of another interested
company ("Bidder 1"), Mr. Ford, Mr. Tanler and Mr. Betcher discussed Company
results of operations for the first quarter ended April 30, 1999 and related
analysis of historical financial results, including factors affecting
financial performance for the first quarter ended April 30, 1999.
On June 1, 1999, at another meeting with Bidder 1, senior executives of the
Company discussed in the detail the Company's operations, including strategy,
management, competitive landscape, market trends, sales and marketing, product
development, services organization, management and organization, historical
and projected financial results.
On June 4, 1999, in a videoconference call with executives of Interested
Party 1 and its investment bankers, Mr. Ford and Mr. Betcher discussed the
Company's results of operations for the first quarter ended April 30, 1999 and
related analysis of historical financial results, including factors affecting
the Company's financial performance for the first quarter ended April 30,
1999.
On June 8, 1999, Steve Wilkinson, Vice President of Business Development of
Parent's Information Management Group, telecopied a letter to Mr. Ford,
expressing a desire to set up a meeting to discuss the mutual interests of
Parent and the Company.
On June 9, 1999, in anticipation of a business review of the Company, Parent
and the Company entered into a confidentiality agreement for the purpose of
permitting Parent to review certain non-public information relating to the
Company in connection with Parent's evaluation of the Company.
On June 10, 1999, Robertson Stephens contacted potential bidders and their
advisors asking them to submit their initial indication of interest to the
Company.
On June 10, 1999, certain senior executives of Parent's Information
Management Group met with several senior executives of the Company in
Minneapolis, Minnesota to conduct a high level business review of the Company.
The Company also advised Parent that it was in the process of seeking
indications of interest from third parties relating to a possible sale of the
Company and would ask its financial advisor to include Parent in this process.
By letter dated June 11, 1999, Robertson Stephens notified Parent that the
Company was pursuing various strategic alternatives, including a possible sale
of the Company, and sought an indication of interest from Parent in such a
transaction.
On June 16, 1999, senior executives of the Company held meetings with
another interested corporation ("Interested Party 5"). The senior executives
provided an overview of the Company and discussed potential business
combinations. The discussions included strategy, management, competitive
landscape, market trends, sales and marketing, product development, services
organization, management and organization, historical and projected financial
results.
On June 22, 1999, Bidder 1 provided the Company with its initial nonbinding
indication of interest. Other than Parent and Bidder 1, no other interested
party provided the Company with an indication of interest.
18
<PAGE>
Over the weekend of June 26-27, 1999, the Company's senior management team
and representatives of the Company's financial advisor met with certain senior
representatives of Parent, executives of Parent's Information Management Group
and representatives of Parent's financial advisor, Deutsche Banc Alex. Brown,
for the purpose of conducting an in-depth business and operations review of
the Company. During such meetings, the Company provided to Parent certain
confidential information regarding the Company, including certain financial
projections with respect to the operations of the Company.
On June 29, 1999, Parent sent a letter to Robertson Stephens indicating its
interest in acquiring the Company at a price in the range of $5.75 to $6.00
per Share in cash, subject to satisfactory completion of a business and legal
due diligence review of the Company and negotiation of definitive
documentation.
On June 30, 1999, the Company's financial advisor requested that all parties
that had indicated an interest in acquiring the Company submit revised
indications of interest with such parties' "best and final" offer prices on or
before Friday, July 2, 1999 so that the Company could select one party to
negotiate with and conduct more extensive due diligence. Mr. Ford also
conveyed this same message to Mr. Geno Tolari, Parent's Executive Vice
President and Chief Operating Officer. On Friday, July 2nd, a representative
of the Company's financial advisor advised Parent that the Company had
extended the deadline for revised indications of interest to Tuesday, July 6th
in view of the July 4th holiday weekend and that the Company Board was
scheduled to meet on Tuesday, July 6th to discuss the revised indications of
interest. The Company's financial advisor informed Parent that such revised
indications of interest were to also describe how stock options granted under
the Company Option Plans would be treated in an acquisition by Parent.
On July 1, 1999, in a meeting with Bidder 1, senior executives of the
Company provided an update on the Company's prospects and conducted due
diligence on Bidder 1 to evaluate the future expected performance of Bidder
1's common stock.
On July 2, 1999, Bidder 1 provided a revised indication of interest to the
Company.
On July 6, 1999, Parent delivered to the Company's financial advisor a
letter indicating, among other things, its interest in acquiring the Company
at a price of $6.50 per Share in cash, again subject to satisfactory
completion of a business and legal due diligence review of the Company and
negotiation of definitive documentation. Parent also indicated that Company
Options would be converted into options to purchase Parent common stock, and
proposed that Parent and the Company enter into an agreement granting Parent a
period of 15 days to negotiate exclusively with the Company.
In the evening on July 6, 1999, the Company Board met to discuss the revised
indications of interest submitted to the Company by Bidder 1 and Parent.
Following the Company Board meeting, the Company's financial advisor advised
Parent that the Company had determined to permit Parent to conduct more
extensive due diligence and to proceed with negotiations with Parent. This
determination was based on a number of factors, including the fact that the
per Share value for the Shares presented by Parent was higher, and a
transaction with Bidder 1 involved a higher risk of not closing.
On July 7, 1999, Parent delivered to the Company a draft Merger Agreement,
form of Stockholder Agreement and exclusivity letter agreement (the "Exclusive
Agreement"). The Exclusivity Agreement provided that until the earlier of 5:00
p.m., Dallas, Texas time, on July 22, 1999 and the execution of a definitive
agreement relating to a potential acquisition of the Company, the Company
would discontinue any solicitation efforts, discussions or negotiations with
respect to an acquisition proposal with any person other than Parent. The
Exclusivity Agreement was executed by representatives of Parent and the
Company late in the day on July 7, 1999 and telecopied on July 8, 1999.
On Friday, July 9, 1999, representatives of Parent and its advisors
commenced a more detailed due diligence review of the Company, including a
review of the Company's business, operations, technology and prospects, as
well as a detailed legal due diligence review. From time to time thereafter,
representatives of Parent requested and received certain additional
information from the Company.
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<PAGE>
On Saturday, July 10, 1999, representatives of Parent and the Company and
their respective counsel commenced negotiations with respect to the Merger
Agreement. Such negotiations continued until July 15, 1999.
On July 13, 1999 Parent began negotiating the terms of the Stockholder
Agreements with representatives of the Stockholders, which negotiations
continued until July 15, 1999.
On July 15, 1999, Parent's Board of Directors approved the proposed Merger
Agreement, the Stockholder Agreements and related transactions.
On July 15, 1999, the Company's Board met, reviewed and discussed the Merger
Agreement and Stockholder Agreements, Robertson Stephens delivered its opinion
to the Board that the Offer Consideration per Share was fair to the
stockholders of the Company from a financial point of view, and the Board
voted unanimously (with one director absent) to approve the Merger Agreement
and other transactions contemplated thereby, and to recommend that the
Company's stockholders tender their Shares pursuant to the Offer. On July 15,
1999, the Merger Agreement was executed and delivered by Parent, Purchaser and
the Company, and Parent, Purchaser and the Stockholder entered into the
Stockholder Agreements.
On July 16, 1999, Parent and the Company issued a joint press release
announcing the execution of the Merger Agreement. On July 21, 1999, pursuant
to the terms of the Merger Agreement, Parent and Purchaser commenced the
Offer.
Reasons for the Recommendation.
At a meeting on July 15, 1999, the Board of Directors of the Company
unanimously (with one director absent) (i) approved the Merger and the Offer,
(ii) determined that the Merger and Offer are advisable and fair to, and in
the best interests of, the stockholders of the Company and (iii) resolved to
recommend that stockholders accept the Offer and tender their Shares pursuant
to the Offer.
In arriving at its decision to approve the Merger and the Offer and to
recommend acceptance of the Offer, the Board of Directors considered, among
other things; (i) the terms and conditions of the Merger Agreement, including
the amount and form of the consideration; (ii) the fact that the $6.50 per
Share price represents a premium of approximately 18.2% over the closing sale
per Share as reported on the Nasdaq National Market on July 15, 1999, the date
the Board of Directors authorized and approved the Merger and the Offer, and a
premium of approximately 58% over the trailing 30-day average closing sales
prices of the Shares prior to the execution of the Merger Agreement; (iii) the
recent historical market prices of the Shares; (iv) the Board of Directors'
knowledge of the business, operations, prospects, properties, assets and
earnings of the Company; (v) the effect of the transaction on the Company's
relationships with its employees and customers; (vi) the likelihood that the
proposed Merger would be consummated, including the experience, reputation and
financial condition of Parent; (vii) the advantages in a competitive
environment of strategically aligning with a large, well-capitalized company;
(viii) the fact that pursuant to the Merger Agreement, the Company is not
prohibited from responding to any unsolicited bona fide proposals concerning
an acquisition of the Company that the Company's Board of Directors has
concluded represents a Superior Proposal, and the provisions of the Merger
Agreement which permit the Company to terminate the Merger Agreement upon
payment to Purchaser of a break-up fee and reimbursement of certain expenses;
(ix) the Company had discussions with numerous interested parties and another
bidder, and believe that Purchaser's Offer of $6.50 per Share is fair and in
the best interests of the stockholders, and is superior, taken as a whole, to
other alternatives considered; (x) the fact that certain significant
stockholders of the Company were prepared to endorse the transaction and to
enter into the Stockholder Agreements with Parent and Purchaser; and (xi) the
oral opinion (which was subsequently confirmed in writing) (the "Fairness
Opinion") of Robertson Stephens delivered at the meeting of the Board of
Directors held on July 15, 1999, to the effect that, as of such date, and on
the basis of the various factors considered, assumptions made and scope of
review undertaken that was described to the Board of Directors at the meeting,
the $6.50 in cash per Share to be received by the holders of Shares pursuant
to the Offer and the Merger is fair to the Company's stockholders (other than
Parent, the Purchaser, affiliates of the Parent or the Purchaser and
20
<PAGE>
holders of Shares for which dissenters' rights have been properly exercised),
from a financial point of view. In addition, the Board of Directors considered
presentations made to them by Robertson Stephens, concerning the Company and
financial aspects of the Merger and the Offer. The written copy of the
Fairness Opinion contains a description of the factors considered, the
assumptions made and the scope of review undertaken by Robertson Stephens in
rendering its opinion. THE FULL TEXT OF THE WRITTEN COPY OF THE FAIRNESS
OPINION RECEIVED BY THE COMPANY FROM ROBERTSON STEPHENS IS FILED AS EXHIBIT
(A)(4) TO THIS SCHEDULE 14D-9 AND IS ATTACHED HERETO. STOCKHOLDERS ARE URGED
TO READ SUCH OPINION IN ITS ENTIRETY.
The Board of Directors recognized that consummation of the Offer and the
Merger will deprive current stockholders of the Company of the opportunity to
participate in the future growth prospects of the Company and, therefore, in
reaching its conclusion to approve the Merger and the Offer, determined that
the historical results of operations and future prospects of the Company are
adequately reflected in the $6.50 price per Share. In addition, the Board of
Directors considered the possibility that, in the event the Offer but not the
Merger is consummated, the number of stockholders could be reduced, which
could adversely affect the liquidity and market value of the Shares.
In light of all the factors set forth above, the Board of Directors approved
the Merger and the Offer. In view of the variety of factors considered in
connection with its evaluation of the Merger and the Offer, the Board of
Directors did not assign relative weights to the specific factors considered
in reaching its decision.
It is expected that if Shares are not accepted for payment by the Purchaser
in the Offer and if the Merger is not consummated, the Company's current
management, under the general direction of the Board of Directors, will
continue to manage the Company as an on-going business. However, the Company
may, under these circumstances, continue to explore other possible methods of
maximizing stockholder value. In addition, individual directors may have given
different weight to the various factors considered.
Item 5. Persons Retained, Employed or to be Compensated.
The Company retained Robertson Stephens as its exclusive financial advisor
in connection with a possible business combination transaction for the
Company. Pursuant to a letter agreement dated June 30, 1999 between the
Company and Robertson Stephens, the Company has agreed to pay Robertson
Stephens a fee of approximately $2,210,000, $500,000 of which became due and
payable upon Robertson Stephens' delivery of the Fairness Opinion, for acting
as financial advisor in connection with the transactions. The Company has also
agreed to reimburse Robertson Stephens for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services,
including fees and disbursements of its legal counsel. The Company has agreed
to indemnify Robertson Stephens and its directors, officers, agents, employees
and controlling persons for certain costs, expenses and liabilities to which
each may be subjected arising out of or related to its engagement as financial
advisor.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on
its behalf with respect to the Offer.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) During the past 60 days, no transactions in Shares have been effected by
the Company or, to the best of the Company's knowledge, by any of its
executive officers, directors, affiliates or subsidiaries.
(b) To the best of the Company's knowledge, all of the Company's executive
officers and directors who own Shares currently intend to tender all of their
Shares pursuant to the Offer.
Item 7. Certain Negotiations and Transactions by the Subject Company.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer that relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
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(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relate
to or would result in one or more of the events referred to in Item 7(a)
above.
Item 8. Additional Information to be Furnished.
The information contained in Exhibits (a)(1), (a)(2) and (a)(4) referred to
in Item 9 below is incorporated herein by reference.
Item 9. Material to be Filed as Exhibits.
<TABLE>
<C> <S>
(a)(1) Offer to Purchase dated July 21, 1999.*
(a)(2) Letter of Transmittal.*
(a)(3) Press release issued by the Company and Purchaser on July 16, 1999.
(a)(4) Opinion of BancBoston Robertson Stephens Inc. dated July 15, 1999.(5)*
(a)(5) Letter to Stockholders dated July 21, 1999 from Larry Ford, President
and Chief Executive Officer of the Company.*
(c)(l) Merger Agreement dated as of July 15, 1999, among Parent, Purchaser
and the Company.
(c)(2) Form of Stockholders Agreement dated as of July 15, 1999 among
Purchaser and certain stockholders of the Company (together with a
schedule indicating the number of Shares owned by each stockholder who
entered into a Stockholder Agreement).
(c)(3) Exclusivity Agreement, dated July 7, 1999, by and between the Company
and Parent.
(c)(4) Form of Indemnification Agreement.(2)
(c)(5) Article 9 of the Company's Certificate of Incorporation, as amended to
date.
(c)(6) Article V of the Bylaws of the Company.
(c)(7) 1992 Stock Option Plan, as amended.(2)
(c)(8) 1997 Equity Incentive Plan, as amended.(2)
(c)(9) 1997 Employee Stock Purchase Plan, as amended.(3)
(c)(11) Amended and Restated Employment Agreement between the Company and
Richard L. Tanler, dated June 11, 1992.(2)
(c)(12) Employment Agreement between the Company and Richard S. Parker, dated
June 11, 1992.(2)
(c)(13) Employment Agreement between the Company and Rory C. (Butch) Terrien,
dated June 11, 1992.(2)
(c)(14) Offer Letter to Robin L. Pederson, dated March 6, 1996.(2)
(c)(15) Offer Letter to Donald W. Anderson, executed November 4, 1996.(2)
(c)(16) Severance Agreement between the Company and Larry Ford, dated November
10, 1997.(2)
(c)(17) Form of Severance Agreement between the Company and Richard L. Tanler,
Robin L. Pederson, Rory C. Butch Terrien, Donald W. Anderson, Richard
S. Parker, Mark Furtney, Mary K. Trick, Keith Deane and Michael Gaard,
dated November 10, 1997.(2)
(c)(18) Employment Agreement between the Company and Charles R. Chitty.(2)
(c)(19) Employment Agreement between the Company and Kurt L. Betcher, dated
January 8, 1999.(4)
(c)(20) The Company's Information Statement pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder.(6)*
(c)(21) First Amendment dated July 15, 1999 to Rights Agreement, dated as of
March 1, 1999, between Company and Norwest Bank National Association,
a national banking association.
</TABLE>
- --------
* Included in copies mailed to stockholders.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-62079), filed on August 21, 1998.
(2) Incorporated by reference to the Company's Registration on Form S-1 (File
No. 333-37707), filed on October 10, 1997.
(3) Incorporated by reference to the Company's Definitive Schedule 14A (Proxy
Statement) filed May 19, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed on April 28, 1999.
(5) Attached hereto as Annex A.
(6) Attached hereto as Schedule I.
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
INFORMATION ADVANTAGE, INC.
/s/ Larry Ford
By: _________________________________
Larry Ford
President and Chief Executive
Officer
Dated: July 21, 1999
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SCHEDULE I
INFORMATION ADVANTAGE, INC.
7905 Golden Triangle Drive, Suite 190
Eden Prairie, Minnesota 55344
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about July 22, 1999 as a
part of Information Advantage, Inc. (the "Company")
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
to the holders of record of shares of Common Stock, par value $0.01 per share,
of the Company (the "Shares") at the close of business on or about July 19,
1999. You are receiving this Information Statement in connection with the
possible election of persons designated by the Purchaser (as defined below) to
a majority of the seats on the Board of Directors of the Company.
On July 15, 1999, the Company, Sterling Software, Inc., a Delaware
corporation ("Parent") and Sterling Software Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent (the "Purchaser") entered
into a Merger Agreement (the "Merger Agreement") in accordance with the terms
and subject to the conditions of which (i) the Parent will cause Purchaser to
commence a tender offer (the "Offer") for all outstanding Shares at a price of
$6.50 per Share, net to the seller in cash and without interest thereon, and
(ii) the Purchaser will be merged with and into the Company (the "Merger"). As
a result of the Offer and the Merger, the Company will become a wholly-owned
subsidiary of Parent.
The Merger Agreement requires the Company to use its best efforts to cause
the Purchaser's designees to be elected to the Board of Directors under the
circumstances described therein. See "Board of Directors and Executive
Officers of the Company."
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You
are not, however, required to take any action. Capitalized terms used herein
and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
Wednesday, July 21, 1999. The Offer is scheduled to expire at 12:00 midnight,
New York City time, on Tuesday, August 17, 1999 unless the Offer is extended.
The following information contained in this Information Statement concerning
the Purchaser has been furnished to the Company by the Purchaser, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY
General
As of the date hereof, the authorized stock of the Company consists of
60,000,000 Shares, of which, as of July 15, 1999, 25,381,011 shares were
issued and outstanding, and 5,000,000 shares of Preferred Stock, no shares of
which are outstanding. The Board of Directors currently consists of three
classes with seven members. At each annual meeting of stockholders, each
director whose term is up or a nominee to replace such director is elected for
three-year terms.
S-1
<PAGE>
Pursuant to the Merger Agreement, promptly upon the purchase by the
Purchaser of any Shares pursuant to the Offer following the expiration date of
the Offer, Purchaser shall be entitled to designate directors of the Company
constituting a majority of the Board, and the Company shall use its best
efforts to, upon request by Purchaser, promptly, at the Company's election,
either increase the size of the Board to the extent permitted by its
Certificate of Incorporation or secure the resignation of such number of
directors as is necessary to enable Purchaser's designees to be elected to the
Board and to cause Parent's designees to be so elected and to constitute at
all times after the purchase of Shares in the Offer a majority of the Board.
Parent has informed the Company that it will choose the following Parent
Designees from the directors and executive officers listed in Schedule I to
the Offer to Purchase, a copy of which is being mailed to the Company's
stockholders together with this Schedule 14D-9: Sterling L. Williams, Geno P.
Tolari; R. Logan Wray and Don J. McDermett, Jr. The Purchaser has informed the
Company that each of the Parent Designees has consented to act as a director.
The information on such Schedule I is incorporated herein by reference.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge
of the Purchaser, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by the Purchaser
that, to the best of the Purchaser's knowledge, none of the Parent Designees
has been involved in any transaction with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant
to the rules and regulations of the Commission, except as may be disclosed
herein or in the Schedule 14D-9.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than August 17, 1999, and that, upon assuming
office, the Parent Designees will thereafter constitute at least a majority of
the Board of Directors.
The following tables set forth certain information with respect to the
directors and executive officers of the Company as of July 15, 1999. Directors
are elected for staggered terms for three years. Class I directors are elected
to serve until the first annual meeting of stockholders following the initial
public offering. Class II directors are elected to serve until the second
annual meeting of stockholders following the initial public offering. Class
III directors are elected to serve until the third annual meeting of
stockholders following the initial public offering. Executive officers are
elected by the Board of Directors to hold office until their successors are
elected and qualified.
Directors
<TABLE>
<CAPTION>
Name Age Principal Occupation
---- --- --------------------
<C> <C> <S>
President, Chief Executive Officer and
Larry J. Ford(4)................ 58 Director of the Company
Richard L. Tanler(3)............ 48 Chairman of the Board and Senior Vice
President, Strategic
Planning and Marketing of the Company
Ronald E.F. Codd (1)(5)......... 43 President and Chief Executive Officer of
Momentum Business
Applications, Inc.
Promod Haque (2)(5)............. 51 Managing General Partner of Norwest
Venture Partners VII, L.P., General
Partner of Norwest Venture Partners VI,
L.P., General Partner of Norwest Equity
Partners V, L.P. and General Partner of
Norwest Equity Partners IV, L.P.
President of DRH Strategic Consulting,
Donald R. Hollis (2)(3)......... 63 Inc.
Independent Investor and Business
Jay H. Wein (1)(4).............. 66 Consultant
General Partner of Sutter Hill Ventures,
William H. Younger, Jr. (1)(3).. 49 LLP
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Class I director
(4) Class II director
(5) Class III director
S-2
<PAGE>
Larry J. Ford has been President, Chief Executive Officer and a director
since May 1995. From August 1991 to November 1994, Mr. Ford served as Chairman
and Chief Executive Officer of Systems Software Associates, a Chicago-based,
enterprise-wide, vertically integrated applications software company
specifically targeting the manufacturing sector. Prior to August 1991, Mr.
Ford held several executive positions at IBM including President of the Latin
America Division, Vice President of Marketing for mid-range computing, and
Vice President of Information and Telecommunications Systems. Mr. Ford serves
as a director of Telular Corporation, where he serves on the Compensation and
Audit Committees. Mr. Ford holds a B.S. in Mathematics and Economics from
Claremont Men's College.
Jay H. Wein has been a director of the Company since June 1992. Mr. Wein has
worked as an independent investor and business consultant since September
1989. From June 1992 to May 1995, Mr. Wein served as Chairman of the Board of
the Company. Between July 1974 and August 1989, Mr. Wein served as Managing
Partner of the Minneapolis/St. Paul office of Arthur Andersen & Co. Mr. Wein
serves as a director of Great Hall Investment Funds, Inc. and of two private
companies and a non-profit organization. Mr. Wein holds a B.S.B.A. from the
University of South Dakota.
Ronald E.F. Codd has been a director of the Company since August 1997. In
January 1999, Mr. Codd became President and Chief Executive Officer of
Momentum Business Applications, Inc., a developer of enterprise application
software products. Mr. Codd worked at PeopleSoft, Inc., a software development
and marketing company, from September 1991 to December 1998, and had served as
the Senior Vice President of Finance and Administration and Chief Financial
Officer. From March 1989 to August 1991, Mr. Codd served as Corporate
Controller of MIPS Computer Systems, Inc. Mr. Codd serves as a director of
Adept Technology, Inc. and Intraware, Inc. Mr. Codd holds a B.S. in Accounting
from the University of California, Berkeley and an M.M. from the J.L. Kellogg
Graduate School of Management, Northwestern University.
Promod Haque has been a director of the Company since March 1993. Dr. Haque
joined Norwest Venture Partners, L.P., a venture capital firm, in November
1990 and is Managing General Partner of Norwest Venture Partners VII, L.P., a
General Partner of Norwest Venture Partners VI, L.P., a General Partner of
Norwest Equity Partners V, L.P. and a General Partner of Norwest Equity
Partners IV, L.P. Dr. Haque serves as a director of Extreme Networks, Inc.,
Transaction Systems Architects, Inc. and several privately held companies. Dr.
Haque holds a Ph.D.E.E. and a M.S.E.E. from Northwestern University, an M.M.
from the J.L. Kellogg Graduate School of Management, Northwestern University,
and a B.S.E.E. from the University of Delhi, India.
Donald R. Hollis has been a director of the Company since August 1996. Mr.
Hollis is President of DRH Strategic Consulting, Inc., a consulting firm,
where he has been employed since March 1996. Prior to January 1996, Mr. Hollis
served as an Executive Vice President of First Chicago Corporation/First
National Bank of Chicago. Mr. Hollis serves as a director of Deluxe
Corporation, Teltrend, Inc., Edify, Inc. and Open Port Technology. Mr. Hollis
holds a B.B.A. from Kent State University.
Richard L. Tanler has been Chairman of the Board of Directors and Senior
Vice President, Strategic Planning and Marketing since May 1995. Mr. Tanler is
a founder of the Company and served as President and Chief Executive Officer
from June 1992 through May 1995. Prior to this position, Mr. Tanler served as
Director of Services, Business Unit at Metaphor Computer Systems, Inc., a
software company. Mr. Tanler holds a B.S. in Business Quantitative Systems
from Arizona State University.
William H. Younger, Jr. has been a director of the Company since July 1995.
Since 1983, Mr. Younger has been a managing director of Sutter Hill Ventures,
LLP, a venture capital management firm. Mr. Younger serves as a director of
Oacis Healthcare Systems, Inc., Forte Software, Inc. and several privately
held companies. Mr. Younger holds a B.S.E.E. from the University of Michigan
and an M.B.A. from Stanford University.
S-3
<PAGE>
Executive Officers
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<C> <C> <S>
Larry J. Ford............ 58 President, Chief Executive Officer and Director
Richard L. Tanler........ 48 Chairman of the Board and Senior Vice President,
Strategic Planning and Marketing
Kurt L. Betcher.......... 39 Vice President and Chief Financial Officer
Mark Furtney............. 53 Vice President, Engineering
Richard S. Parker........ 43 Vice President, Marketing
Robin L. Pederson........ 40 Vice President, Worldwide Sales
Rory C. (Butch) Terrien.. 38 Senior Vice President, Research and Development
Mary K. Trick............ 44 Vice President, Worldwide Customer Service
</TABLE>
Larry J. Ford and Richard L. Tanler--See "Directors."
Kurt L. Betcher has been Vice President and Chief Financial Officer since
January 1999. Prior to joining the Company, he was Senior Vice President and
Chief Financial Officer of ValueRx, a pharmacy benefit management and
information services firm, from December 1996 to June 1998. From November 1995
to December 1996, Mr. Betcher was Corporate Controller of Cowles Media
Company, a diversified media content provider. From February 1993 to November
1995, Mr. Betcher was Vice President and Controller of EBP HealthPlans, a
healthcare transaction processing company. Mr. Betcher holds a B.B.A. from the
University of Wisconsin and is a Certified Public Accountant.
Mark Furtney has been Vice President, Engineering since July 1997. From 1988
to July 1997, Dr. Furtney worked for Cray Research, Inc., a supercomputer
supplier, in a variety of positions, including Senior Director of Technology.
Dr. Furtney holds a Ph.D. in Computer Science from the University of Virginia,
an M.S. in Nuclear Engineering from the Massachusetts Institute of Technology
and a B.S. in Mechanical Engineering from Clarkson University.
Richard S. Parker has been Vice President, Marketing since January 1994. He
is a founder of the Company and served as Director of Marketing from April
1990 through December 1993. From September 1984 to April 1990, Mr. Parker was
employed with Metaphor in a variety of positions, including Director of Data
Management, Marketing Manager and Manager of Business Development for the
Metaphor Consulting Group. Mr. Parker attended the University of Minnesota,
majoring in Business Administration.
Robin L. Pederson has been Vice President, Worldwide Sales for the Company
since April 1996. From June 1995 to April 1996, Mr. Pederson was Senior Vice
President, Worldwide Sales, Marketing and Support for Great Plains Software,
Inc., a financial applications software company. From October 1990 to June
1995, Mr. Pederson worked for Banyan Systems, Inc., a network software
provider, in a variety of positions including Vice President, Americas. Mr.
Pederson holds a B.S. in Business Administration from the University of North
Dakota.
Rory C. (Butch) Terrien has been Senior Vice President, Research and
Development since June 1992. Prior to joining the Company, Mr. Terrien was
employed with Metaphor as the Development Manager for the Metaphor Consulting
Group. Mr. Terrien holds a B.S. in both Mechanical Engineering and Computer
Science from Northwestern University and an M.S. in Mechanical Engineering
from the University of Minnesota.
Mary K. Trick has been Vice President, Worldwide Customer Service since June
1995. From November 1992 to July 1995, Ms. Trick was employed by Keane, Inc.,
a technical consulting firm, in a variety of positions including Branch
Manager for the Minneapolis Branch. From October 1980 to November 1992, Ms.
Trick was employed by Wang Laboratories, a hardware and software firm, in a
variety of positions including business consultant, presales, Practice Manager
and Services Director for various regions. Ms. Trick attended the University
of Minnesota.
S-4
<PAGE>
Board Meetings and Committees
The Board of Directors held a total of nine meetings during the fiscal year
ended January 31, 1999 ("fiscal year 1999"). No director attended fewer than
75% of the total number of meetings of the Board of Directors or committees of
the Board of Directors held in fiscal year 1999. The Board of Directors has
established Audit and Compensation Committees, both of which consist of only
non-employee directors. The Board of Directors has not established a
Nominating Committee.
The Audit Committee, which consists of Messrs. Codd, Wein and Younger, held
two meetings during fiscal year 1999. This committee makes recommendations to
the Board of Directors regarding the selection of independent accountants,
reviews the results and scope of audit and other services provided by the
Company's independent accountants and reviews and evaluates the Company's
audit and control functions.
The Compensation Committee, which consists of Dr. Haque and Mr. Hollis, held
six meetings during fiscal year 1999. This committee makes recommendations
regarding the Company's 1997 Equity Incentive Plan, administers the 1997
Employee Stock Purchase Plan and makes decisions concerning salaries and
incentive compensation for employees and consultants of the Company. Dr.
Boswell, a former director of the Company, served on the Compensation
Committee until his retirement from the Board of Directors in August 1998.
Director Compensation
Directors do not receive any cash compensation from the Company for their
service as members of the Board of Directors, although members are reimbursed
for certain expenses in connection with attendance at Board of Directors and
committee meetings.
Messrs. Hollis and Wein, non-employee directors of the Company, serve as
part-time consultants to the Company. During fiscal year 1999, Mr. Hollis
received an option grant for 20,000 shares of Common Stock in connection with
such services. During fiscal year 1999, Mr. Wein was not compensated for such
services.
Non-employee directors receive periodic option grants under the Company's
1997 Equity Incentive Plan. Each non-employee director receives a one-time
option grant for 8,000 shares of Common Stock upon first taking office. This
option becomes exercisable with respect to 20% of the shares upon the
completion of 12 months of Board service and with respect to the balance of
the shares in equal installments on a monthly basis thereafter for the next
four years of service. Upon the conclusion of each regular annual meeting of
stockholders, each non-employee director who continues to serve as a Board
member will receive an option for 1,600 shares of Common Stock, except that a
non-employee director will not receive an annual grant of 1,600 shares in the
same year he or she receives the one-time option grant for 8,000 shares. The
option for 1,600 shares will become exercisable upon the completion of 60
months of Board service from the grant date. The exercisability of each 8,000-
share or 1,600-share option granted to a non-employee director will accelerate
in the event of the optionee's death, disability or retirement at age 65 and
may accelerate in the event of a change in control (as defined in the 1997
Equity Incentive Plan).
The Board may decide to implement a program that allows a non-employee
director to elect to receive his or her annual retainer payments and meeting
fees from the Company, if any such payments and fees are authorized in the
future, in the form of cash, options, restricted shares, stock units or a
combination thereof. The number and term of such options, restricted shares or
stock units to be granted to a non-employee director in lieu of annual
retainers and meeting fees will be calculated in a manner determined by the
Board.
Compensation Committee Interlocks and Insider Participation
No member of the Company's Compensation Committee was an officer, former
officer or employee of the Company or any subsidiary during fiscal year 1999.
No executive officer of the Company served as a member of the compensation
committee or the board of directors of another entity, one of whose executive
officers served on the Company's Compensation Committee or the Company's Board
of Directors during fiscal year 1999.
S-5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid
by the Company for services rendered to the Company by the Chief Executive
Officer and the four other highest paid executive officers (collectively, the
"Named Executive Officers") during fiscal years 1999, 1998 and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------
Annual Compensation Awards
------------------------- -----------------------
Securities All Other
Fiscal Salary Bonus Underlying Compensation
Year ($) ($) Options ($) (1)
------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Larry J. Ford....................... 1999 $ 191,000 $ 80,000 171,600 $ 0
President, Chief Executive Officer 1998 175,000 72,500 92,000 0
and Director 1997 175,000 74,100 0 25,000
Richard L. Tanler................... 1999 161,000 39,000 85,800 0
Chairman of the Board and Senior
Vice 1998 150,000 35,567 46,000 0
President, Strategic Planning and
Marketing 1997 150,000 42,400 0 0
Donald W. Anderson (2).............. 1999 116,400 39,000 15,000 0
Vice President and Chief Financial 1998 126,000 20,194 0 0
Officer 1997 19,385 0 80,000 0
Robin L. Pederson (3)............... 1999 150,000 79,500 60,000 0
Vice President, Worldwide Sales 1998 150,000 73,916 48,000 0
1997 119,423 56,250 172,000 15,612
Mary K. Trick....................... 1999 135,800 40,075 40,000 0
Vice President, Customer Services 1998 125,000 34,666 16,000 0
1997 120,000 29,375 38,000 0
</TABLE>
- --------
(1) Consists of moving expenses.
(2) Mr. Anderson's employment commenced on November 25, 1996 at an annual base
salary of $126,000. Mr. Anderson passed away on December 22, 1998.
(3) Mr. Pederson's employment commenced on April 18, 1996 at an annual base
salary of $150,000.
S-6
<PAGE>
Grants of Stock Options
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options during fiscal
year 1999 to each of the Named Executive Officers. No SARs were granted during
such fiscal year.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Option Term ($)
Individual Grants (4)
----------------------------------------------------- -----------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (1) Fiscal 1999(2) ($/share) (3) Date 5% 10%
- ---- ----------- ---------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford........... 86,600 5.2% $6.250 02/19/08 $340,389 $862,613
85,000 5.1 5.625 11/19/08 300,690 762,008
Richard L. Tanler....... 43,300 2.6 6.250 02/19/08 170,195 431,307
42,500 2.5 5.625 11/19/08 150,345 381,004
Donald W. Anderson (5).. 15,000 0.9 6.250 02/19/08 58,959 149,413
Robin L. Pederson....... 30,000 1.8 6.250 02/19/08 117,918 298,827
30,000 1.8 5.625 11/19/08 106,126 268,944
Mary K. Trick........... 20,000 1.2 6.250 02/19/08 78,612 199,218
20,000 1.2 5.625 11/19/08 70,751 179,296
</TABLE>
- --------
(1) Generally, 20% of these options vest on the first anniversary of the date
of grant; and an additional 20% of these options vest on each anniversary
of the date of grant occurring in 2000, 2001, 2002 and 2003. These options
have a ten-year term, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
(2) Based on an aggregate of 1,673,220 shares subject to options granted to
employees under the Company's stock option plans.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or any other method
approved by the Board.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation of 5%
and 10% is assumed pursuant to rules promulgated by the SEC and does not
represent the Company's prediction of its stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
assuming that the exercise price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at
the appreciated price.
(5) Mr. Anderson passed away on December 22, 1998.
S-7
<PAGE>
Option Values
The following table sets forth information concerning options to purchase
Common Stock exercised by the Named Executive Officers during fiscal year 1999
and the number and value of the unexercised options that are held by the Named
Executive Officers as of the end of fiscal year 1999. No SARs were exercised
by the Named Executive Officers in fiscal year 1999 or were outstanding at the
end of that fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Options at FY-End at FY-End ($) (1)
------------------------- -------------------------
Value
Shares Realized
Name Acquired ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Ford........... 11,000 $118,250 382,402 333,179 $4,110,822 $2,755,349
Richard L. Tanler....... 20,300 220,925 182,654 174,337 1,963,531 1,460,960
Donald W. Anderson (2).. 0 0 63,000 0 600,375 0
Robin L. Pederson....... 0 0 44,400 201,200 472,050 1,826,900
Mary K. Trick........... 8,500 91,375 19,500 86,800 203,325 715,400
</TABLE>
- --------
(1) Value realized is based on the January 29, 1999 closing price of $11.875
per share of Common Stock as listed on the Nasdaq National Market less the
exercise price for such shares.
(2) Mr. Anderson passed away on December 22, 1998.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
The Company has employment contracts and severance agreements in effect with
the following executive officers: Richard L. Tanler, Chairman of the Board and
Senior Vice President, Strategic Planning and Marketing; Larry J. Ford,
President and Chief Executive Officer; Kurt L. Betcher, Vice President and
Chief Financial Officer; Richard S. Parker, Vice President, Marketing; Robin
L. Pederson, Vice President, Worldwide Sales; and Rory C. (Butch) Terrien,
Senior Vice President, Research and Development. The Company had an employment
contract and severance agreement in effect with Donald W. Anderson, Vice
President and Chief Financial Officer until his death on December 22, 1998.
The Company has severance agreements in effect with the following executive
officers: Mark Furtney, Vice President, Engineering and Mary K. Trick, Vice
President, Worldwide Customer Service. Each severance agreement provides for
the acceleration of all unvested stock options of the officer following a
change in control if either (a) his or her employment by the Company is
terminated without cause, or (b) he or she voluntarily terminates his or her
employment as a result of a reduction in authority or responsibility as an
employee of the Company.
The Company and Mr. Tanler are parties to an employment agreement and an
amendment thereto dated June 11, 1992 and April 27, 1995, respectively,
governing his employment with the Company. The agreement sets forth Mr.
Tanler's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Tanler's employment is voluntary and may be terminated by the
Company or Mr. Tanler at any time with 30 days prior written notice, provided
however, that if the Company terminates Mr. Tanler's employment without cause,
Mr. Tanler shall receive an amount equal to his base salary per month at the
end of each of the six months immediately following the date of termination
but in no event shall he receive any such payments after he gains employment
elsewhere. The Company may immediately terminate Mr. Tanler's employment for
cause upon written notice with no further obligation to Mr. Tanler.
The Company and Mr. Ford are parties to an employment agreement and an
amendment thereto dated April 19, 1995 and May 23, 1995, respectively,
governing his employment with the Company. The agreement sets forth Mr. Ford's
compensation level and eligibility for salary increases, bonuses, benefits and
option grants under stock option plans. Mr. Ford's employment with the Company
under the agreement is voluntary and may be terminated by the Company or Mr.
Ford at any time with 30 days prior written notice, provided that if the
S-8
<PAGE>
Company terminates Mr. Ford's employment for reasons other than cause, the
Company shall pay to Mr. Ford a sum equal to his current base salary for a
period of six months following such termination. Notwithstanding the
foregoing, if Mr. Ford's employment is terminated (for reasons other than
cause) due to a change in control of the Company (defined to mean the
acquisition by a person not currently a stockholder of the Company of shares
of Company stock representing more than 50% of the voting power of the
outstanding shares), Mr. Ford shall receive a sum equal to his then current
base salary for an additional 12 month period. The Company may terminate Mr.
Ford's employment for cause without notice and without any further obligation
to Mr. Ford. The agreement also provides for full acceleration of vesting of
his unvested stock options or shares if one of the following events shall
occur: (a) the sale by the Company of all or substantially all of its assets
and the discontinuance of its business; or (b) a change in control of the
Company (as defined above) resulting in the termination of Mr. Ford's
employment with the Company, a substantial change in the scope of Mr. Ford's
employment responsibilities or job relocation.
Parent has reached an oral understanding with Larry Ford, President and
Chief Executive Officer of the Company, with respect to Larry Ford's
employment with the Company. Such oral understanding will be reflected in an
agreement between Mr. Ford and the Company. In the event Mr. Ford does not
come to an agreement with the Company with respect to his role with the
Company following the Merger, the agreement will provide that (i) Mr. Ford
will remain an employee of the Company and the Company will pay Mr. Ford his
then current base salary and on-target bonus (a total of $310,000 per year)
over a two year period based on the Company's regular payroll practice; (ii)
Parent will provide Mr. Ford and anyone entitled to claim under or through him
with benefits under the applicable employee benefit plans (to the extent
legally permissible) of Parent until such time as he is no longer an employee
of the Company; (iii) Company will reimburse Mr. Ford up to a maximum of
$5,000 per month for his office, secretarial support and related expenses
until the earlier of the period ending two years following the Effective Time
or his acceptance of other employment; and (iv) all of Mr. Ford's outstanding
options will accelerate upon his ceasing to be an employee, unless such
options are to be sooner accelerated under existing agreements between the
Company and Mr. Ford. In the event Mr. Ford comes to an alternative agreement
with the Company regarding his employment following the Closing and his
position is thereafter terminated by the Company for any reason within one
year after the Closing, the agreement will provide that he will receive the
payments and benefits from the Company following such termination as set forth
in (i), (ii) and (iv) above. Parent also may enter into severance agreements
with certain other executive officers of the Company. The specific terms of
such new severance agreements have not yet been determined.
The Company and Mr. Betcher are parties to an employment agreement dated
January 8, 1999 governing his employment with the Company. The agreement sets
forth Mr. Betcher's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Betcher's employment is voluntary and may be terminated by the
Company at any time with 30 days prior written notice, provided however, that
if the Company terminates Mr. Betcher's employment without cause, the Company
shall pay to Mr. Betcher a sum equal to his current base salary for a period
of six months following such termination. The Company may immediately
terminate Mr. Betcher's employment for cause without notice with no further
obligation to Mr. Betcher.
The Company and Mr. Parker are parties to an employment agreement dated June
11, 1992 governing his employment with the Company. The agreement sets forth
Mr. Parker's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Parker's employment is voluntary and may be terminated by the
Company or Mr. Parker at any time with 30 days prior written notice, provided
however, that if the Company terminates Mr. Parker's employment without cause,
Mr. Parker shall receive an amount equal to his base salary per month at the
end of each of the six months immediately following the date of termination,
but in no event shall he receive any such payments after he gains employment
elsewhere. The Company may immediately terminate Mr. Parker's employment for
cause upon written notice with no further obligation to Mr. Parker.
The Company and Mr. Pederson are parties to a letter agreement dated March
6, 1996 governing his employment with the Company. The agreement sets forth
Mr. Pederson's compensation level and eligibility for
S-9
<PAGE>
salary increases, bonuses, benefits and option grants under stock option
plans. Pursuant to the agreement, Mr. Pederson is entitled to receive, in the
event of termination of Mr. Pederson's employment with the Company (for
reasons other than cause) or if Mr. Pederson is not employed in a capacity
comparable to his then current position due to a change in ownership of the
Company, a sum equal to 12 months of base compensation. The agreement also
provides for accelerated vesting of any unvested stock options or shares in
the event of a change in ownership of the Company. If Mr. Pederson is employed
by the acquiring or surviving entity in a capacity comparable to his then
current position, 50% of his unvested stock options or shares shall
immediately vest; the remaining 50% shall vest over the subsequent 24 months
at a rate of 50% per year. Conversely, if Mr. Pederson's employment with the
acquiring or surviving entity is terminated (for reasons other than cause) or
if Mr. Pederson is not retained by such acquiring or surviving entity in a
capacity comparable to his then current position with the Company, all his
unvested stock options shall immediately vest, up to a maximum gain to Mr.
Pederson of $4.0 million.
The Company and Mr. Terrien are parties to an employment agreement dated
June 11, 1992 governing his employment with the Company. The agreement sets
forth Mr. Terrien's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Terrien's employment is voluntary and may be terminated by the
Company or Mr. Terrien at any time with 30 days prior written notice,
provided, however, that if the Company terminates Mr. Terrien's employment
without cause, Mr. Terrien shall receive an amount equal to his base salary
per month at the end of each of the six months immediately following the date
of termination but in no event shall he receive any such payments after he
gains employment elsewhere. The Company may immediately terminate Mr.
Terrien's employment for cause upon written notice to Mr. Terrien.
The Company and Mr. Anderson were parties to a letter agreement executed on
November 4, 1996 governing his employment with the Company. The agreement set
forth Mr. Anderson's compensation level and eligibility for salary increases,
bonuses, benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Anderson was entitled to receive, in the event of termination
of employment for reasons other than cause or if Mr. Anderson was not employed
in a capacity comparable to his then current position due to a change of
ownership of the Company, a sum equal to 12 months of base compensation. The
agreement also provided for accelerated vesting of unvested stock options if a
change of ownership of the Company had occurred. If the change of ownership
had occurred within the first two years of Mr. Anderson's first day of
employment with the Company, all his unvested options would have immediately
vested. Mr. Anderson passed away on December 22, 1998.
REPORT OF THE COMPENSATION COMMITTEE
The following is the Report of the Compensation Committee of the Board of
Directors of the Company, describing the compensation policies and rationale
applicable to the Company's executive officers with respect to the
compensation paid to such executive officers for fiscal year 1999. The
information contained in the report shall not be deemed to be "soliciting
material" or to be "filed" with the SEC nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, except
to the extent that the Company specifically incorporates it by reference into
such filing.
The Committee makes recommendations regarding the Company's 1997 Equity
Incentive Plan and makes decisions concerning salaries and incentive
compensation for employees and consultants of the Company. In fiscal year
1999, the members of the Committee were Dr. Haque and Mr. Hollis, both of whom
are non-employee directors of the Company. Dr. Boswell, a former director of
the Company, served on the Compensation Committee until his retirement from
the Board of Directors in August 1998.
The Company's executive compensation programs are designed to attract and
retain executives who will contribute to the Company's long-term success, to
reward executives for achieving the Company's financial goals, and to link
executive compensation and stockholder interests through equity-based plans.
The Committee
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<PAGE>
believes that strong financial performance, on a sustained basis, is the most
certain avenue through which the Company can positively affect long-term
stockholder return. Furthermore, the Company believes that, in order to
attract and retain the most qualified executives in the industry, its
compensation policies must be competitive with other companies in the software
industry, particularly those of smaller or similar size.
The Company's executive compensation programs consist of base salary, annual
cash incentive compensation, long-term incentive compensation in the form of
stock options, and various benefits, including medical and savings plans
generally available to all employees of the Company. In addition, the
Company's executives are eligible to participate in the Company's 401(k) plan.
This plan allows participants to defer up to 20% of compensation, subject to
the Code, which in turn may be invested in a broad range of investment
alternatives. Under this plan, the Company may provide both matching and
discretionary profit sharing contributions. A matching contribution in the
amount of 6% of employees' elective deferrals was implemented in September
1998. Matching contributions vest at the rate of 20% for each year of service.
Compensation is reviewed and adjusted annually based principally on an
evaluation of individual contributions to corporate goals, comparable market
salary data, growth in the Company's size and complexity, internal
compensation equity considerations and the Company's performance. In
particular, the Committee considered the intense competition between similarly
situated technology companies for qualified employees. Based on this review,
Mr. Ford's base pay was kept at the same level in fiscal year 1998 and
increased by 9.1% in fiscal year 1999 and the base pay of the other Named
Executive Officers was increased by 0.9% in fiscal year 1998 and increased by
2.2% in fiscal year 1999.
The Company's annual management incentive bonuses are based on a combination
of the Company's revenue, earnings and certain other financial measures. In
setting such targets, the Company considers its historical performance, its
underlying business model, and internal expectations related to financial
performance. Bonuses for fiscal year 1999 were determined by the Company's
Chief Executive Officer, Larry J. Ford, except for his bonus which was
determined by the Committee.
Grants of stock options may be awarded to individual executives based on
their actual and potential contributions to the achievement of the Company's
long-term goals. In fiscal year 1999, options to purchase an aggregate of
372,400 shares of Common Stock were granted to the Chief Executive Officer and
the other Named Executive Officers.
In fiscal year 1999, Mr. Ford earned a base salary of $191,000 and cash
incentives of $80,000. Cash incentives for fiscal year 1999 approximated 41.9%
of his base salary and were based on attaining the goals described above. Mr.
Ford received 10.3% of the options granted in fiscal year 1999. These grants
were primarily based on the performance of the Company and Mr. Ford's
significant contribution to that performance in terms of both leadership and
strategic vision.
Compensation Committee
Promod Haque
Donald R. Hollis
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of July 14, 1999, by (a)
each person who is known to the Company to own beneficially more than five
percent of the Company's Common Stock, (b) each of the Company's directors and
nominees for director, (c) each executive officer named in the "Summary
Compensation Table" below, and (d) all current executive officers and
directors as a group. Except as otherwise noted below, the Company knows of no
agreements among its stockholders which relate to voting or investment power
with respect to its Common Stock.
<TABLE>
<CAPTION>
Number of
Shares Percent
Beneficially Beneficially
Name and Address of Beneficial Owner (1) Owned (1)(2) Owned (1)(2)
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Sterling Software, Inc. (3)..................... 6,305,846 24.8%
300 Crescent Court
Suite 1200
Dallas, TX 75201
Entities affiliated with Norwest Equity Partners
(4) ........................................... 3,188,232(15) 12.6
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Entities affiliated with St. Paul Venture
Capital, Inc. (5).............................. 2,472,519(15) 9.7
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, MN 55437
Estate of Donald W. Anderson (6)................ 115,500 *
Larry J. Ford (7)............................... 513,817(15) 2.0
Robin L. Pederson (8)........................... 159,296(15) *
Richard L. Tanler (9)........................... 271,942(15) 1.1
Mary K. Trick (10).............................. 73,400(15) *
Ronald E.F. Codd (11)........................... 11,200(15) *
Promod Haque (4)................................ 3,188,232(15) 12.6
Donald R. Hollis (12)........................... 50,000(15) *
Jay H. Wein..................................... 327,359(15) 1.3
William H. Younger, Jr. (13).................... 836,528(16) 3.3
All directors and executive officers as a group
(14 persons) (14).............................. 5,705,574 21.6%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to securities. Unless
otherwise indicated, the address for each listed stockholder is c/o
Information Advantage, Inc., 7905 Golden Triangle Drive, Suite 190, Eden
Prairie, Minnesota 55344-7227. To the Company's knowledge, except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares. The number of shares
beneficially owned includes shares issuable pursuant to warrants and stock
options that are exercisable within 60 days of July 14, 1999.
(2) Percentage of beneficial ownership is based on 25,381,011 shares
outstanding as of July 14, 1999. Shares issuable pursuant to warrants and
stock options are deemed outstanding for computing the percentage of the
person holding such warrants or options but are not deemed outstanding for
computing the percentage of any other person.
(3) Includes 6,305,846 Shares owned by certain stockholders of the Company
(the "Selling Stockholders") which are subject to Stockholders Agreements
dated July 15, 1999 by and among the Parent, the Purchaser and the Selling
Stockholders. Pursuant to the Stockholders' Agreements, upon the terms and
subject to the conditions therein, the Selling Stockholders have indicated
that they intend to validly tender and not
S-12
<PAGE>
withdraw Shares owned by such Selling Stockholders pursuant to the Offer
and have granted to Parent: (i) an irrevocable proxy to vote for approval
of transactions contemplated by the Merger Agreement and to vote against
any action or agreement intended or expected to interfere with such
transactions and certain extraordinary corporate actions of the Company;
and (ii) an option, exercisable in limited circumstances, to purchase all
of their Shares.
(4) Includes 1,930,795 shares held by Norwest Equity Partners IV, a Minnesota
Limited Partnership, and 1,248,053 shares held by Norwest Equity Partners
V, a Minnesota Limited Partnership. Includes 9,384 shares issuable upon
the exercise of a warrant. Dr. Haque is a partner of Itasca Partners and
Itasca Partners V, which are the General Partners of Norwest Equity
Partners IV and Norwest Equity Partners V, respectively. Dr. Haque
disclaims beneficial ownership of the shares held by Norwest Equity
Partners IV, a Minnesota Limited Partnership and Norwest Equity Partners
V, a Minnesota Limited Partnership, except to the extent of his pecuniary
interest therein arising from his partnership interests in Itasca Partners
and Itasca Partners V.
(5) Includes 2,163,129 shares held by St. Paul Fire and Marine Insurance
Company and 301,788 shares held by St. Paul Venture Capital IV, L.L.C.
Includes 7,602 shares issuable upon the exercise of a warrant.
(6) Mr. Anderson passed away on December 22, 1998.
(7) Includes 462,317 shares issuable upon the exercise of stock options.
(8) Includes 122,400 shares issuable upon the exercise of stock options.
(9) Includes 226,749 shares issuable upon the exercise of stock options.
(10) Includes 53,200 shares issuable upon the exercise of stock options.
(11) Includes 7,200 shares issuable upon the exercise of stock options.
(12) Includes 40,000 shares held by the Hollis Family Limited Partnership I
and 10,000 shares issuable upon the exercise of stock options.
(13) Includes 749,395 shares held by Sutter Hill Ventures, LLP, a California
Limited Partnership ("Sutter Hill"), 87,133 shares held by Mr. Younger as
Trustee of a living trust, and 424,487 shares held of record for 15 other
individuals and entities associated with Sutter Hill. Mr. Younger is a
General Partner of Sutter Hill and shares voting and investment power
with respect to the shares held by Sutter Hill. Mr. Younger disclaims
beneficial ownership of the shares held by Sutter Hill and the
individuals and entities associated with Sutter Hill, except as to the
shares held of record in his name and as to his partnership interest in
Sutter Hill.
(14) Includes 1,041,466 shares issuable upon the exercise of stock options.
(15) Pursuant to the Stockholder Agreements, Parent and Purchaser also have
beneficial ownership of these Shares.
(16) Pursuant to a Stockholder Agreement, Parent and Purchaser also have
beneficial ownership of 87,133 Shares held by Mr. Younger as Trustee of a
living trust.
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
In April 1996, the Company loaned $70,000 to Richard L. Tanler, the
Company's Chairman of the Board and Senior Vice President, Strategic Planning
and Marketing. In connection with the loan, Mr. Tanler issued a promissory
note to the Company for $70,000, bearing interest at the rate of 5.33% per
annum. Such note is payable 60 days after demand by the Company and is secured
by certain shares of Common Stock owned by Mr. Tanler. In December 1998, the
Company advanced Mr. Tanler an additional $5,000 and another the promissory
note was executed on the same terms. As of January 31, 1999, there had been no
payments on the loans and the aggregate indebtedness under the loans was
$86,040.
The Company has granted stock options to certain of its executive officers.
Such options are described further in "Executive Compensation."
The Company has employment contracts and severance agreements in effect with
the following executive officers: Messrs. Tanler, Ford, Betcher, Parker,
Pederson and Terrien. The Company had an employment contract and severance
agreement in effect with Mr. Anderson until his death on December 22, 1998.
The Company has severance agreements in effect with the following executive
officers: Mr. Furtney and Ms. Trick. The employment contracts and severance
agreements are described in "Executive Compensation."
S-13
<PAGE>
The Company believes that the transactions set forth herein were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans (if any),
between the Company and its officers, directors, and principal stockholders
and their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested Outside Directors,
and will be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
Indemnification
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the General
Corporation Law of the State of Delaware. Such limitation of liability does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has entered into indemnification agreements with its
officers and directors containing provisions that may require the Company,
among other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers (other than liabilities arising from willful misconduct of a
culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
Pursuant to the Merger Agreement, the officers and directors of the Company
are given additional indemnification rights. The Merger Agreement is attached
as an exhibit to the Schedule 14D-9.
Other Business Relationships
In January 1999, the Company entered into a strategic partnership agreement
with PeopleSoft, Inc., a software development and marketing company. The
three-year agreement provides for annual license fees to be paid to the
Company, in exchange for a license granting the right to PeopleSoft to embed
the Company's products within PeopleSoft's software products. Although he was
not involved in negotiating such agreement, Ronald E.F. Codd, a director of
the Company, worked at PeopleSoft from September 1991 to December 1998. Mr.
Codd's positions at PeopleSoft included Senior Vice President of Finance and
Administration and Chief Financial Officer.
Dr. Fredric R. (Rick) Boswell, a former director of the Company, is the
Executive Vice President of St. Paul Venture Capital, Inc., which is an
affiliate of St. Paul Fire and Marine Insurance Company and a managing member
of St. Paul Venture Capital IV, L.L.C. As of April 1, 1999, entities
affiliated with St. Paul Venture Capital, Inc. beneficially owned in excess of
5% of the Company's Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Commission and to provide the Company with
copies of all such reports. To the Company's knowledge, based solely on its
review of copies of reports filed with the Commission during fiscal year 1998,
all applicable Section 16(a) filing requirements were satisfied, except that
(1) one report on Form 3, setting forth the appointment of Kurt L. Betcher as
Vice President and Chief Financial Officer on January 8, 1999, was not filed
on a timely basis and (2) each of the following individuals failed to timely
file one report on Form 5 setting forth the November 19, 1998 grant of options
to purchase common stock under the Company's 1997 Equity Incentive Plan:
Richard L. Tanler, Larry J. Ford, Richard S. Parker, Robin L. Pederson, Rory
C. (Butch) Terrien, and Mary K. Trick.
S-14
<PAGE>
ANNEX A
July 15, 1999
Board of Directors
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344-7227
Members of the Board:
We understand that Information Advantage, Inc. (the "Company"), Sterling
Software, Inc. ("Acquiror") and Sterling Software Acquisition Corp. (a wholly
owned subsidiary of Acquiror, "Merger Sub") are proposing to enter into an
Agreement and Plan of Merger (the "Agreement") which will provide, among other
things, for the Offer and the Merger (as such terms are defined below). Under
the terms, and subject to the conditions, set forth in a draft of the
Agreement dated July 15, 1999 (the "Draft Agreement"), (i) Merger Sub will
commence a tender offer (the "Offer") to purchase all of the outstanding
shares of common stock of the Company, par value $.01 per share ("Company
Common Stock"), for $6.50 per share net to the seller in cash, and (ii)
following the Offer, Merger Sub will be merged with and into the Company (the
"Merger"). Pursuant to the Merger, the Company will become a wholly owned
subsidiary of Acquiror and each share of Company Common Stock (other than
shares of Company Common Stock held in treasury or owned by Acquiror or any of
its subsidiaries or as to which dissenters' rights have been properly
exercised ("Dissenting Shares")) shall be converted into the right to receive
$6.50 in cash or any higher price for each Share in the Offer, without
interest. The terms and conditions of the Offer and the Merger are set out
more fully in the Agreement.
You have asked us whether, in our opinion, the cash consideration to be paid
in the Offer and the Merger is fair from a financial point of view and as of
the date hereof to the "Holders of Company Common Stock". The "Holders of
Company Common Stock" shall be defined as all holders of Company Common Stock
other than Acquiror, Merger Sub, any affiliates of Acquiror or Merger Sub and
any holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the Company's
management;
(iii) reviewed certain financial forecasts and other forward looking
financial information prepared by the Company's management;
(iv) held discussions with the management of the Company concerning the
business, past and current operations, financial condition and
future prospects of the Company;
(v) reviewed the financial terms and conditions set forth in the Draft
Agreement;
(vi) reviewed the stock price and trading history of the Company;
(vii) compared the financial performance of the Company and the prices
and trading activity of Company Common Stock with that of certain
other publicly traded companies comparable with the Company;
(viii) compared the financial terms of the Offer and the Merger with the
financial terms, to the extent publicly available, of other
transactions that we deemed relevant;
(ix) reviewed and considered in the analysis, information prepared by
members of management of the Company with respect to the Company
and publicly available information with respect to
A-1
<PAGE>
Acquiror (including publicly available estimates for Acquiror by
research analysts) relating to the relative contributions of the
Company and Acquiror in the combined company;
(x) prepared a discounted cash flow analysis of the Company;
(xi) participated in discussions and negotiations among representatives
of the Company and Acquiror and their financial and legal advisors;
and
(xii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information provided to us (including information furnished to us orally
or otherwise discussed with us by the Company's management) or publicly
available and have neither attempted to verify, nor assumed responsibility for
verifying, any of such information. We have relied upon the assurances of the
Company's management that it is not aware of any facts that would make such
information inaccurate or misleading. Furthermore, we did not obtain or make,
or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent
or otherwise) of the Company, nor were we furnished with any such evaluation
or appraisal. With respect to the financial forecasts and projections (and the
assumptions and bases therefor) for the Company that we have reviewed, upon
the advice of the Company's management, we have assumed that such forecasts
and projections have been reasonably prepared in good faith on the basis of
reasonable assumptions and reflect the best currently available estimates and
judgments as to the future financial condition and performance of the Company
and we have further assumed that such projections and forecasts will be
realized in the amounts and in the time periods currently estimated. With
respect to publicly available forecasts and projections for the Acquiror that
we have reviewed, we have assumed that such forecasts and projections have
been reasonably prepared on the basis of reasonable assumptions and reflect
the best currently available estimates and judgments as to the future
financial condition and performance of the Acquiror and we have further
assumed that such projections and forecasts will be realized in the amounts
and in the time periods currently estimated.
We have assumed that the Offer and the Merger will be consummated upon the
terms set forth in the Draft Agreement without material alteration thereof. In
addition, we have assumed that the historical financial statements of the
Company and Acquiror reviewed by us have been prepared and fairly presented in
accordance with U.S. generally accepted accounting principles consistently
applied. We have relied as to all legal matters relevant to rendering our
opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions
as in effect on, and information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation
to advise any person of any change in any matter affecting this opinion which
may come or be brought to our attention after the date of this opinion. Our
opinion is limited to the fairness, from a financial point of view and as to
the date hereof, to the Holders of Company Common Stock of the cash
consideration to be paid in the Offer and the Merger. We do not express any
opinion as to (i) the value of any employee agreement or other arrangement
entered into in connection with the Offer and the Merger or (ii) any tax or
other consequences that might result from the Offer and the Merger. Our
opinion does not address the relative merits of the Offer and the Merger and
the other business strategies that the Company's Board of Directors has
considered or may be considering, nor does it address the decision of the
Company's Board of Directors to proceed with the Offer and the Merger.
We are acting as financial advisor to the Company in connection with the
Offer and the Merger and will receive (i) a fee contingent upon the delivery
of this opinion and (ii) an additional fee contingent upon the consummation of
the Offer and the Merger. In addition, the Company has agreed to indemnify us
for certain liabilities that may arise out of our engagement. In the past, we
have provided certain investment banking services to the Company for which we
have been paid fees, including acting as lead manager for the Company's
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<PAGE>
initial public offering in 1997 and acting as financial advisor to the Company
in connection with its acquisition of IQ Software in 1998. We maintain a
market in the shares of Company Common Stock. In the ordinary course of
business, we may trade in the Company's securities and Acquiror's securities
for our own account and the account of our customers and, accordingly, may at
any time hold a long or short position in the Company's securities or
Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Offer and
the Merger. Our opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company whether or not to tender
his/her shares of Company Common Stock in the Offer or, if required, how to
vote, or whether or not to take any action, with respect to the Offer and the
Merger. This opinion may not be summarized, described or referred to or
furnished to any party except with our express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the cash consideration to be paid in the Offer
and the Merger is fair to the Holders of Company Common Stock from a financial
point of view.
Very truly yours,
/S/ BANCBOSTON ROBERTSON STEPHENS
INC.
BANCBOSTON ROBERTSON STEPHENS INC.
A-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
(a)(1) Offer to Purchase dated July 21, 1999.*
(a)(2) Letter of Transmittal.*
(a)(3) Press release issued by the Company and Purchaser on July 16, 1999.
(a)(4) Opinion of BancBoston Robertson Stephens Inc. dated July 15, 1999.(5)*
(a)(5) Letter to Stockholders dated July 21, 1999 from Larry J. Ford,
President and Chief Executive Officer of the Company.*
Merger Agreement dated as of July 15, 1999, among Parent, Purchaser
(c)(l) and the Company.
(c)(2) Form of Stockholders Agreement dated as of July 15, 1999 among
Purchaser and certain stockholders of the Company (together with a
schedule indicating the number of Shares owned by each stodckholder
who entered into a Stockholder Agreement).
Exclusivity Agreement, dated July 7, 1999, by and between the Company
(c)(3) and Parent.
(c)(4) Form of Indemnification Agreement.(2)
Article 9 of the Company's Certificate of Incorporation, as amended to
(c)(5) date.
(c)(6) Article V of the Bylaws of the Company.
(c)(7) 1992 Stock Option Plan, as amended.(2)
(c)(8) 1997 Equity Incentive Plan, as amended.(2)
(c)(9) 1997 Employee Stock Purchase Plan, as amended.(3)
Employment Agreement between the Company and Larry J. Ford, as
(c)(10) amended, dated May 23, 1995.(2)
Amended and Restated Employment Agreement between the Company and
(c)(11) Richard L. Tanler, dated June 11, 1992.(2)
Employment Agreement between the Company and Richard S. Parker, dated
(c)(12) June 11, 1992.(2)
Employment Agreement between the Company and Rory C. (Butch) Terrien,
(c)(13) dated June 11, 1992.(2)
(c)(14) Offer Letter to Robin L. Pederson, dated March 6, 1996.(2)
(c)(15) Offer Letter to Donald W. Anderson, executed November 4, 1996.(2)
Severance Agreement between the Company and Larry J. Ford, dated
(c)(16) November 10, 1997.(2)
(c)(17) Form of Severance Agreement between the Company and Richard L. Tanler,
Robin L. Pederson, Rory C. Butch Terrien, Donald W. Anderson, Richard
S. Parker, Mark Furtney, Mary K. Trick, Keith Deane and Michael Gaard,
dated November 10, 1997.(2)
(c)(18) Employment Agreement between the Company and Charles R. Chitty.(2)
Employment Agreement between the Company and Kurt L. Betcher, dated
(c)(19) January 8, 1999.(4)
(c)(20) The Company's Information Statement pursuant to Section 14(F) of the
Exchange Act and Rule 14F-1 thereunto. (6)*
(c)(21) First Amendment dated July 15, 1999 to Rights Agreement, dated as of
March 1, 1999, between Company and Norwest Bank, National Association,
a national banking association.
</TABLE>
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* Included in copies mailed to stockholders.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-62079), filed on August 21, 1998.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-37707), filed on October 10, 1997.
(3) Incorporated by reference to the Company's Definitive Schedule 14A (Proxy
Statement) filed May 19, 1998.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K,
filed on April 28, 1999.
(5) Attached hereto as Annex A.
(6) Attached hereto as Schedule I.
<PAGE>
EXHIBIT (a)(1)
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(Including the Associated Preferred Stock Purchase Rights)
of
Information Advantage, Inc.
at
$6.50 Net Per Share
by
Sterling Software Acquisition Corp.
a wholly owned subsidiary of
Sterling Software, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, AUGUST 17, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED
AS OF JULY 15, 1999, BY AND AMONG STERLING SOFTWARE, INC. ("PARENT"), STERLING
SOFTWARE ACQUISITION CORP. ("PURCHASER") AND INFORMATION ADVANTAGE, INC. (THE
"COMPANY"). THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY (WITH ONE
DIRECTOR ABSENT) (1) HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER (EACH AS DEFINED
HEREIN), (2) HAS DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE AND
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND (3)
RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES (AS
DEFINED HEREIN) PURSUANT TO THE OFFER.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN)
THAT NUMBER OF SHARES WHICH, WHEN ADDED TO THE SHARES BENEFICIALLY OWNED BY
PARENT, PURCHASER OR ANY SUBSIDIARY OF PARENT, REPRESENTS AT LEAST A MAJORITY
OF THE SHARES OUTSTANDING (ON A FULLY DILUTED BASIS) ON THE DATE SHARES ARE
ACCEPTED FOR PAYMENT. THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET
FORTH IN THIS OFFER TO PURCHASE. THE OFFER IS NOT SUBJECT TO A FINANCING
CONDITION. SEE SECTION 14.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (i) complete and sign the enclosed Letter of Transmittal
(or facsimile thereof) in accordance with the Instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed (if required
by Instruction 1 to the Letter of Transmittal), mail or deliver the Letter of
Transmittal (or a facsimile thereof) and any other required documents to the
Depositary (as defined herein) and either deliver the certificates for such
Shares to the Depositary or tender such Shares pursuant to the procedure for
book-entry transfer set forth in Section 3 of this Offer to Purchase or (ii)
request such stockholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such stockholder. Any stockholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply
with the procedures for book-entry transfer on a timely basis, or who cannot
deliver all required documents to the Depositary prior to the expiration of
the Offer, may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3 of this Offer to Purchase.
Questions and requests for assistance may be directed to the Dealer Manager
or the Information Agent at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other tender offer materials may be directed to the
Dealer Manager or the Information Agent or brokers, dealers, commercial banks
or trust companies.
The Dealer Manager for the Offer is:
DEUTSCHE BANC ALEX. BROWN
July 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
THE OFFER................................................................... 4
1. Terms of the Offer...................................................... 4
2. Acceptance for Payment and Payment...................................... 6
3. Procedures for Tendering Shares......................................... 7
4. Withdrawal Rights....................................................... 9
5. Certain Federal Income Tax Consequences................................. 10
6. Price Range of the Shares; Dividends.................................... 11
7. Effect of the Offer on the Market for the Shares; NASDAQ
Quotation; Exchange Act Registration; Margin Regulations.................. 12
8. Certain Information Concerning the Company.............................. 13
9. Certain Information Concerning Parent and Purchaser..................... 17
10. Sources and Amount of Funds............................................. 18
11. Background of the Offer; Purpose of the Offer and the Merger; the
Merger Agreement and Certain Other Agreements............................. 18
12. Plans for the Company; Other Matters.................................... 32
13. Dividends and Distributions............................................. 34
14. Conditions to the Offer................................................. 34
15. Certain Legal Matters................................................... 35
16. Fees and Expenses....................................................... 37
17. Miscellaneous........................................................... 38
SCHEDULE I: Information Concerning Directors and Executive Officers of
Parent and Purchaser....................................................... S-1
</TABLE>
i
<PAGE>
To the Holders of Common Stock of
Information Advantage, Inc.:
INTRODUCTION
Sterling Software Acquisition Corp., a Delaware corporation ("Purchaser")
and wholly owned subsidiary of Sterling Software, Inc., a Delaware corporation
("Parent"), hereby offers to purchase all outstanding shares of common stock,
par value $.01 per share (the "Common Stock"), including the associated Series
A Junior Participating Preferred Stock Purchase Rights issued pursuant to the
Rights Agreement (as defined below) (the "Rights" and, together with the
Common Stock, the "Shares"), of Information Advantage, Inc., a Delaware
corporation (the "Company"), at a price of $6.50 per Share, net to the seller
in cash, without interest (the "Offer Price"), upon the terms and subject to
the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal (which, as amended or supplemented from time to time,
collectively constitute the "Offer").
Tendering stockholders of record who tender Shares directly will not be
obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, stock transfer taxes on the
purchase of Shares by Purchaser pursuant to the Offer. Stockholders who hold
their Shares through a bank or broker should check with such institution as to
whether they will charge any service fees. Purchaser will pay all fees and
expenses of Deutsche Bank Securities Inc., which is acting as the dealer
manager for the Offer (in such capacity, the "Dealer Manager"), Harris Trust
Company of New York, which is acting as the depositary for the Offer (in such
capacity, the "Depositary") and Georgeson Shareholder Communications Inc.,
which is acting as information agent for the Offer (in such capacity, the
"Information Agent"), incurred in connection with the Offer and in accordance
with the terms of the agreements entered into between Purchaser and/or Parent
and each such person. See Section 16.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") UNANIMOUSLY
(WITH ONE DIRECTOR ABSENT) (1) HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, (2) HAS
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE ADVISABLE AND FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND THE COMPANY'S STOCKHOLDERS
AND (3) RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
BancBoston Robertson Stephens Inc., financial advisor to the Company, has
delivered to the Company Board its opinion, dated July 15, 1999 (the
"Financial Advisor Opinion"), to the effect that, as of such date and based
upon and subject to the considerations set forth in the Financial Advisor
Opinion, the cash consideration to be paid in the Offer and the Merger is fair
to the holders of Common Stock, other than Purchaser, Parent or any of their
respective affiliates and any Dissenting Stockholders (as defined herein),
from a financial point of view. A copy of the Financial Advisor Opinion is
attached as an exhibit to the Company's Solicitation/Recommendation Statement
on Schedule 14D-9 (the "Schedule 14D-9"), which has been filed by the Company
with the Securities and Exchange Commission (the "Commission") in connection
with the Offer and which is being mailed to holders of Shares herewith.
Holders of Shares are urged to, and should, read the Financial Advisor Opinion
carefully.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN)
THAT NUMBER OF SHARES WHICH, WHEN ADDED TO THE SHARES BENEFICIALLY OWNED BY
PARENT, PURCHASER OR ANY SUBSIDIARY OF PARENT, REPRESENTS AT LEAST A MAJORITY
OF THE SHARES OUTSTANDING (ON A FULLY DILUTED BASIS) ON THE DATE SHARES ARE
ACCEPTED FOR PAYMENT (THE "MINIMUM CONDITION"). THE OFFER IS
<PAGE>
ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE
SECTION 14. As used in this Offer to Purchase, "fully diluted basis" takes
into account the exercise of all outstanding options, warrants and other
rights and securities exercisable for shares of Common Stock whether or not
vested or then exercisable and the purchase of all Shares issuable under
employee stock purchase or similar benefit plans. The Company has represented
and warranted to Parent and Purchaser that, as of July 15, 1999, (a) there
were 25,381,011 Shares issued and outstanding, (b) the Company expects that
not more than 225,000 Shares would be issued pursuant to the Company's 1997
Employee Stock Purchase Plan (the "ESPP") prior to the Effective Time (as
defined herein), (c) 4,765,810 Shares were issuable pursuant to the exercise
of options to purchase Shares ("Options") granted under the Company's 1992
Stock Option Plan, 1997 Equity Incentive Plan, IQ 1993 Stock Option Plan, IQ
1987 Stock Option Plan and IQ 1994 Non-Employee Directors Stock Option Plan,
as each of such plans have been amended from time to time (collectively, the
"Company Option Plans"), (d) 30,000 Shares were issuable pursuant to the
exercise of outstanding warrants (the "Warrants"), (e) no Shares of preferred
stock, par value $.01 per Share (the "Preferred Stock"), were issued and
outstanding, and (f) 500,000 shares of Series A Junior Participating Preferred
Stock were reserved for issuance upon exercise of the Rights. The Merger
Agreement provides, among other things, that the Company will not, without the
prior written consent of Parent, issue any additional Shares (except upon the
exercise of outstanding Options and Warrants and pursuant to the ESPP).
Pursuant to separate but similar Stockholder Agreements (as defined herein)
entered into by Parent and Purchaser with certain significant stockholders of
the Company and certain of the senior executive officers and all of the
directors of the Company, Parent and Purchaser have the right to purchase from
such Stockholders at a price of $6.50 per Share, or any higher price paid or
to be paid pursuant to the Offer, an aggregate of 6,305,846 Shares (or
approximately 20.7% of the Shares on a fully diluted basis). The stockholders
entering into the Stockholder Agreements have advised Parent that they intend
to tender their Shares pursuant to the Offer. Based on the foregoing and
assuming the issuance of 225,000 Shares pursuant to the ESPP and the exercise
of all outstanding Options and Warrants, Purchaser believes that the Minimum
Condition will be satisfied if 15,200,911 Shares (including Shares subject to
the Stockholder Agreements) are validly tendered and not withdrawn prior to
the Expiration Date. Accordingly, Purchaser believes that if 8,895,065 Shares
are validly tendered and not withdrawn prior to the Expiration Date by holders
of Shares other than the stockholders entering into the Stockholder
Agreements, the Minimum Condition will be satisfied.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 15, 1999 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company. Pursuant to the Merger Agreement and the Delaware General
Corporation Law, as amended (the "DGCL"), as soon as practicable, but not
later than the second business day, after the completion of the Offer and
satisfaction or waiver, if permissible, of all conditions to the Merger (as
defined below), including the purchase of Shares pursuant to the Offer
(sometimes referred to herein as the "consummation" of the Offer) and the
approval and adoption of the Merger Agreement by the stockholders of the
Company (if required by applicable law), Purchaser shall be merged with and
into the Company (the "Merger") and the Company will be the surviving
corporation in the Merger (the "Surviving Corporation"). At the effective time
of the Merger (the "Effective Time"), each Share then outstanding (other than
Shares held by (i) the Company or any of its subsidiaries, (ii) Parent or any
of its subsidiaries, including Purchaser, and (iii) stockholders ("Dissenting
Stockholders") who properly perfect their dissenters' rights under the DGCL)
will be converted into the right to receive $6.50 in cash or any higher price
per Share paid in the Offer (the "Merger Consideration"), without interest.
The Merger Agreement is more fully described in Section 11.
The Merger Agreement provides that, promptly after (i) the purchase of and
payment for any Shares by Purchaser or any of its affiliates as a result of
which Purchaser and its affiliates own beneficially at least a majority of the
then outstanding Shares and (ii) compliance with Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-
1 promulgated thereunder, whichever shall occur later, Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Company Board as is equal to the product of the total number of
directors on the Company Board (giving effect to any increase in the size of
such Board) multiplied by the percentage that the number of Shares
beneficially owned by Purchaser at such time (including Shares accepted for
payment) bears to the total number of Shares
2
<PAGE>
then outstanding (such persons, the "Parent Designees"). In furtherance
thereof, the Company shall, upon request of Parent, use its best efforts
promptly either to increase the size of the Company Board or to secure the
resignations of such number of its incumbent directors, or both, as is
necessary to enable the Parent Designees to be so elected or appointed to the
Company Board, and the Company shall take all actions available to the Company
to cause such designees of Parent to be so elected or appointed. At such time,
the Company shall, if requested by Parent, also take all action necessary to
cause persons designated by Parent to constitute at least the same percentage
(rounded up to the next whole number) as Parent is entitled to designate on
the Company Board of (i) each committee of the Company Board, (ii) each board
of directors (or similar body) of each subsidiary of the Company and (iii)
each committee (or similar body) of each such board. Notwithstanding the
foregoing, Purchaser, Parent and the Company have agreed to use their
respective reasonable best efforts to ensure that at least two of the members
of the Company Board shall, at all times prior to the Effective Time, be
persons who were directors of the Company on the date of the Merger Agreement
(the "Continuing Directors"). In addition, from and after the time, if any,
that the Parent Designees constitute a majority of the Company Board and prior
to the Effective Time, any amendment or modification of the Merger Agreement,
any amendment to the Company's Second Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") or By-Laws inconsistent
with the Merger Agreement, any termination of the Merger Agreement by the
Company, any extension of time for performance of any of the obligations of
Parent or Purchaser thereunder, any waiver of any condition to the Company's
obligations thereunder or any of the Company's rights thereunder or other
action by the Company thereunder may be effected only by the action of a
majority of the Continuing Directors of Company, which action shall be deemed
to constitute the action of any committee specifically designated by the
Company Board to approve the actions contemplated hereby and the full Company
Board; provided, that, if there shall be no Continuing Directors, such actions
may be effected by majority vote of the entire Company Board.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of stockholders of the Company of
the Merger Agreement, if required by the DGCL, other applicable law or the
Company's Certificate of Incorporation. Under the DGCL and pursuant to the
Certificate of Incorporation, the affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of any class or series of
the Company's capital stock that would be necessary to approve the Merger
Agreement and the Merger at any required meeting of the Company's
stockholders. If the Minimum Condition is satisfied and as a result of the
purchase of Shares by Purchaser pursuant to the Offer (and, if necessary, the
Stockholder Agreements), Purchaser and its affiliates will own at least a
majority of the outstanding Shares, and Purchaser will be able to effect the
Merger without the affirmative vote of any other stockholder. Pursuant to the
Merger Agreement, Parent and Purchaser have agreed to vote the Shares acquired
by them pursuant to the Offer or otherwise in favor of the Merger. See Section
12. The Merger Agreement is more fully described in Section 11.
Under Section 253 of the DGCL, if a corporation owns at least 90% of the
outstanding shares of each class of a subsidiary corporation, the corporation
holding such stock may merge such subsidiary into itself, or itself into such
subsidiary, without any action or vote on the part of the board of directors
or the stockholders of such other corporation (a "short-form merger"). In the
event that Purchaser acquires in the aggregate at least 90% of the outstanding
Shares pursuant to the Offer or otherwise, then, at the election of Parent, a
short-form merger could be effected without any further approval of the
Company Board or the stockholders of the Company. The Company has agreed in
the Merger Agreement that, in the event that Purchaser or any other subsidiary
of Parent acquires at least 90% of the outstanding Shares in the Offer, it
will, at the request of Purchaser, take all necessary actions to cause the
Merger to become effective as soon as practicable after the expiration of the
Offer, without a meeting of the stockholders of the Company. Even if Purchaser
does not own 90% of the outstanding Shares following consummation of the
Offer, Parent or Purchaser could seek to purchase additional Shares in the
open market or otherwise in order to reach the 90% threshold and employ a
short-form merger. The per Share consideration paid for any Shares so acquired
in open market purchases may be greater or less than the Offer Price. Parent
presently intends to effect a short-form merger, if permitted to do so under
the DGCL, pursuant to which Purchaser will be merged with and into the
Company. See Section 12.
As a condition and inducement to Parent's and Purchaser's entering into the
Merger Agreement and incurring the liabilities therein, certain stockholders
of the Company, Norwest Equity Partners IV, Norwest Equity Partners V, St.
Paul Fire and Marine Insurance Company, St. Paul Venture Capital IV, L.L.C.,
and
3
<PAGE>
certain of the senior executive officers and all of the directors of the
Company (each, a "Stockholder") who collectively have voting power and
dispositive power with respect to an aggregate of 6,305,846 Shares,
concurrently with the execution and delivery of the Merger Agreement entered
into separate but similar Stockholder Agreements (the "Stockholder
Agreements"), dated as of July 15, 1999, with Parent and Purchaser. Pursuant
to the Stockholder Agreements, the Stockholders have agreed, among other
things, to grant Parent an irrevocable proxy with respect to the voting of
their Shares in favor of the Merger upon the terms and subject to the
conditions set forth therein. The Stockholders have also granted to Parent an
option to purchase the Shares subject to the Stockholder Agreements, at an
option price of $6.50 per Share, or any higher price paid or to be paid
pursuant to the Offer, subject to certain time limitations. The Stockholders
have advised Parent that they intend to tender all of their Shares pursuant to
the Offer. The Stockholder Agreements are more fully described in Section 11.
The Merger Agreement provides that at the Effective Time of the Merger, each
outstanding option to purchase Shares will be assumed by Parent and will
constitute an option to acquire shares of Parent's common stock based on a
conversion formula designed to preserve the economic value of such options.
See Section 11, "Background of the Offer; Purpose of the Offer and the Merger;
the Merger Agreement and Certain Other Agreements--Merger Agreement--Options."
The Company has distributed one Right for each outstanding Share pursuant to
the Rights Agreement, dated as of March 1, 1999, between the Company and
Norwest Bank Minnesota N.A., as Rights Agent, as amended (the "Rights
Agreement"). The Company has represented in the Merger Agreement that it has
taken all action which may be necessary under the Rights Agreement so that (i)
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement and the Stockholder Agreements shall be Company-Approved
Transactions (as defined in the Rights Agreement) under the Rights Agreement,
(ii) the Rights will be inoperative with respect to the acquisition of Shares
by Parent, Purchaser or their affiliates pursuant to the Merger Agreement, the
Offer and/or the Stockholder Agreements, (iii) the execution and delivery of
the Merger Agreement and the Stockholder Agreements (and any amendments
thereto) and the consummation of the Merger and the other transactions
contemplated thereby will not cause (w) Parent and/or Purchaser to constitute
an Acquiring Person (as defined in the Rights Agreement), (x) the Rights to
become exercisable, (y) a Distribution Date, Section 11(a)(ii) Event or Shares
Acquisition Date (as each such term is defined in the Rights Agreement) to
occur, or (z) Section 13 of the Rights Agreement to become operative, and (iv)
the Rights shall not become exercisable upon or at any time after the
acceptance for payment of Shares pursuant to the Offer and/or the purchase of,
or the right to acquire, Shares pursuant to the Stockholder Agreements and/or
the consummation of the Merger.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
THE OFFER
1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not withdrawn in accordance with
Section 4. The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on Tuesday, August 17, 1999, unless and until Purchaser, in accordance
with the terms of the Merger Agreement, shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by
Purchaser, shall expire. In the Merger Agreement, Parent and Purchaser have
agreed that if all conditions to Purchaser's obligation to accept for payment
and pay for Shares pursuant to
4
<PAGE>
the Offer are not satisfied on the scheduled Expiration Date, Purchaser may,
in its sole discretion, extend the Offer for additional periods; provided,
however, that Purchaser may not extend the Offer beyond October 31, 1999
without the consent of the Company.
The Offer is conditioned upon the satisfaction of the Minimum Condition, the
expiration or termination of all waiting periods imposed by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the
other conditions set forth in Section 14. If such conditions are not satisfied
prior to the Expiration Date, Purchaser reserves the right, subject to the
terms of the Merger Agreement and subject to complying with applicable rules
and regulations of the Commission, to (i) decline to purchase any Shares
tendered in the Offer and terminate the Offer and return all tendered Shares
to the tendering stockholders, (ii) waive any or all conditions to the Offer
(except the Minimum Condition) and, to the extent permitted by applicable law,
purchase all Shares validly tendered, (iii) extend the Offer and, subject to
the right of stockholders to withdraw Shares until the Expiration Date, retain
all Shares which have been tendered during the period or periods for which the
Offer is extended, or (iv) subject to the next paragraph, amend the Offer.
The Merger Agreement provides that, without the prior written consent of the
Company, Purchaser shall not (and Parent shall cause Purchaser not to) (i)
decrease or change the form of the consideration to be paid in the Offer or
decrease the number of Shares sought pursuant to the Offer, (ii) impose
additional conditions to the Offer, (iii) extend the expiration date of the
Offer beyond the initial Expiration Date of the Offer, except (A) as required
by applicable law, (B) that if, immediately prior to the Expiration Date of
the Offer (as it may be extended), the Shares tendered and not withdrawn
pursuant to the Offer constitute more than 75% and less than 90% of the
outstanding Shares, Purchaser may extend the Offer for one or more periods not
to exceed an aggregate of 15 business days, notwithstanding that all
conditions to the Offer are satisfied as of such Expiration Date of the Offer
and (C) that if any condition to the Offer has not been satisfied or waived,
Purchaser may, in its sole discretion, extend the Expiration Date of the Offer
for one or more periods, provided that the Expiration Date of the Offer may
not be extended beyond October 31, 1999, (iv) waive the Minimum Condition, or
(v) amend any term or other condition of the Offer in any manner materially
adverse to holders of Shares; provided, however, that, except as set forth
above and subject to applicable legal requirements, Purchaser may waive any
condition to the Offer other than the Minimum Condition in its sole discretion
and; provided, further, that the Offer may be extended in connection with an
increase in the consideration to be paid pursuant to the Offer so as to comply
with applicable rules and regulations of the Commission.
The Merger Agreement requires Purchaser to accept for payment and pay for
all Shares validly tendered and not withdrawn pursuant to the Offer if all
conditions to the Offer are satisfied on the Expiration Date. As used in this
Offer to Purchase, "business day" has the meaning set forth in Rule 14d-1
under the Exchange Act.
Any extension, amendment or termination of the Offer will be followed as
promptly as practicable by public announcement thereof, the announcement in
the case of an extension to be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
in accordance with Rules 14d-4(c), 14d- 6(d) and 14e-1(d) under the Exchange
Act. Without limiting the obligation of Purchaser under such Rules or the
manner in which Purchaser may choose to make any public announcement,
Purchaser currently intends to make announcements by issuing a press release
to the Dow Jones News Service.
If Purchaser extends the Offer, or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its purchase of, or payment
for, Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of Purchaser, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to withdrawal rights as described in Section 4. However, the ability of
Purchaser to delay the payment for Shares which Purchaser has accepted for
payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by, or on behalf of, holders of securities promptly after the termination or
withdrawal of the Offer.
5
<PAGE>
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Commission has stated its view that an offer must remain
open for a minimum period of time following a material change in the terms of
the Offer and that waiver of a material condition, such as the Minimum
Condition, is a material change in the terms of the Offer. The release states
that an offer should remain open for a minimum of five (5) business days from
the date a material change is first published, or sent or given to security
holders and that, if material changes are made with respect to information not
materially less significant than the offer price and the number of shares
being sought, a minimum of ten (10) business days may be required to allow
adequate dissemination and investor response. The requirement to extend the
Offer will not apply to the extent that the number of business days remaining
between the occurrence of the change and the then-scheduled Expiration Date
equals or exceeds the minimum extension period that would be required because
of such amendment. If, prior to the Expiration Date, Purchaser increases the
consideration offered to holders of Shares pursuant to the Offer, such
increased consideration will be paid to all holders whose Shares are purchased
in the Offer whether or not such Shares were tendered prior to such increase.
The Company has provided Purchaser with the Company's stockholder lists and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed to record holders of Shares and will be furnished
to brokers, dealers, banks and similar persons whose names, or the names of
whose nominees, appear on the stockholder lists or, if applicable, who are
listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
2. Acceptance for Payment and Payment.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and will pay for, as soon as
practicable after the Expiration Date, all Shares validly tendered prior to
the Expiration Date and not properly withdrawn in accordance with Section 4.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to Purchaser and not
withdrawn, if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares. Payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from Purchaser and
transmitting payment to tendering stockholders. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after
timely receipt by the Depositary of (i) certificates for such Shares (or a
timely Book Entry Confirmation (as defined below) with respect thereto), (ii)
a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or, in the case of a book-
entry transfer, an Agent's Message (as defined below), and (iii) any other
documents required by the Letter of Transmittal. Accordingly, payment may be
made to tendering stockholders at different times if delivery of the Shares
and other required documents occur at different times. The per share
consideration paid to any holder of Shares pursuant to the Offer will be the
highest per share consideration paid to any other holder of such Shares
pursuant to the Offer. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE
PURCHASE PRICE TO BE PAID BY PURCHASER FOR THE SHARES, REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
Purchaser expressly reserves the right, in its sole discretion, to delay
acceptance for payment of, or payment for, Shares in order to comply in whole
or in part with any applicable law. If Purchaser is delayed in its acceptance
for payment of, or payment for, Shares or is unable to accept for payment or
pay for Shares pursuant to the Offer for any reason, then, without prejudice
to Purchaser's rights under the Offer (including such rights as are set forth
in Sections 1 and 14) (but subject to compliance with Rule 14e-1(c) under the
Exchange Act),
6
<PAGE>
the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to exercise, and duly exercise, withdrawal rights as
described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted representing more Shares than are
tendered, certificates evidencing Shares not tendered or not accepted for
purchase will be returned to the tendering stockholder, or such other person
as the tendering stockholder shall specify in the Letter of Transmittal, as
promptly as practicable following the expiration, termination or withdrawal of
the Offer. In the case of Shares delivered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility (as defined in
Section 3) pursuant to the procedures set forth in Section 3, such Shares will
be credited to such account maintained at the Book-Entry Transfer Facility as
the tendering stockholder shall specify in the Letter of Transmittal, as
promptly as practicable following the expiration, termination or withdrawal of
the Offer. If no such instructions are given with respect to Shares delivered
by book-entry transfer, any such Shares not tendered or not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility
designated in the Letter of Transmittal as the account from which such Shares
were delivered.
Purchaser reserves the right to transfer or assign, in whole or, from time
to time, in part, to one or more of its affiliates, the right to purchase
Shares tendered pursuant to the Offer, but any such transfer or assignment
will not relieve Purchaser of its obligations under the Offer and will in no
way prejudice the rights of tendering stockholders to receive payment for
Shares validly tendered and accepted for payment pursuant to the Offer.
3. Procedures for Tendering Shares.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date
and either certificates evidencing tendered Shares must be received by the
Depositary at one of such addresses or such Shares must be delivered to the
Depositary pursuant to the procedures for book-entry transfer set forth below
and a Book-Entry Confirmation (as defined below) must be received by the
Depositary, in each case prior to the Expiration Date, or (ii) the tendering
stockholder must comply with the guaranteed delivery procedures described
below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two (2) business days after the
date of this Offer to Purchase. Any financial institution that is a
participant in the Book-Entry Transfer Facility's system may make book-entry
delivery of Shares by causing the Book-Entry Transfer Facility to transfer
such Shares into the Depositary's account in accordance with such Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery
of Shares may be effected through book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message, and any other required documents
must, in any case, be transmitted to, and received by, the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase prior
to the Expiration Date, or the tendering stockholder must comply with the
guaranteed delivery procedures described below. The confirmation of a book-
entry transfer of Shares into the Depositary's account at the Book-Entry
Transfer Facility as described above is referred to herein as a "Book-Entry
Confirmation." DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against such participant.
7
<PAGE>
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES
WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION).
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant
in the Book Entry Transfer Facility's systems whose name appears on a security
position listing as the owner of the Shares) of Shares tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
the Letter of Transmittal or (ii) if such Shares are tendered for the account
of a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution" and, collectively, "Eligible Institutions"). In all
other cases, all signatures on Letters of Transmittal must be guaranteed by an
Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal.
If the certificates for Shares are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made, or
certificates for Shares not tendered or not accepted for payment are to be
returned, to a person other than the registered holder of the certificates
surrendered, then the tendered certificates for such Shares must be endorsed
or accompanied by appropriate stock powers, in either case, signed exactly as
the name or names of the registered holders or owners appear on the
certificates, with the signatures on the certificates or stock powers
guaranteed as aforesaid. See Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for (or a Book-Entry Confirmation with respect to)
such Shares, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, and any other
required documents, are received by the Depositary within three (3) trading
days after the date of execution of such Notice of Guaranteed Delivery. A
"trading day" is any day on which the NASDAQ National Market (the "NASDAQ
National Market"), operated by the National Association of Securities
Dealers, Inc. (the "NASD"), is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, facsimile transmission or mailed to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery.
Binding Agreement. The valid tender of Shares pursuant to one of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the
conditions of the Offer.
8
<PAGE>
Appointment. By executing the Letter of Transmittal as set forth above
(including delivery through an Agent's Message), the tendering stockholder
will irrevocably appoint designees of Parent as such stockholder's attorneys-
in-fact and proxies in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted
for payment by Purchaser and with respect to any and all non-cash dividends,
distributions, rights, other Shares or other securities issued or issuable in
respect of such Shares on or after the date of the Merger Agreement
(collectively, "Distributions"). All such proxies will be considered coupled
with an interest in the tendered Shares. Such appointment will be effective
if, as and when, and only to the extent that, Purchaser accepts for payment
Shares tendered by such stockholder as provided herein. All such powers of
attorney and proxies will be irrevocable and will be deemed granted in
consideration of the acceptance for payment by Purchaser of Shares tendered in
accordance with the terms of the Offer. Upon such appointment, all prior
powers of attorney, proxies and consents given by such stockholder with
respect to such Shares (and any and all Distributions) will, without further
action, be revoked and no subsequent powers of attorney, proxies, consents or
revocations may be given by such stockholder (and, if given, will not be
deemed effective). The designees of Parent will thereby be empowered to
exercise all voting and other rights with respect to such Shares (and any and
all Distributions), including, without limitation, in respect of any annual or
special meeting of the Company's stockholders (and any adjournment or
postponement thereof), actions by written consent in lieu of any such meeting
or otherwise, as each such attorney-in-fact and proxy or his substitute shall
in his sole discretion deem proper. Purchaser reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon
Purchaser's acceptance for payment of such Shares, Purchaser must be able to
exercise full voting, consent and other rights with respect to such Shares
(and any and all Distributions), including voting at any meeting of
stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser, in its sole discretion,
which determination will be final and binding. Purchaser reserves the absolute
right to reject any or all tenders of any Shares determined by it not to be in
proper form or the acceptance for payment of which, or payment for which, may,
in the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves
the absolute right, in its sole discretion, subject to the provisions of the
Merger Agreement, to waive any defect or irregularity in any tender of Shares
of any particular stockholder, whether or not similar defects or
irregularities are waived in the case of other stockholders. No tender of
Shares will be deemed to have been validly made until all defects or
irregularities relating thereto have been cured or waived. None of Purchaser,
Parent, the Depositary, the Dealer Manager, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Subject to the terms of the Merger Agreement, Purchaser's
interpretation of the terms and conditions of the Offer in this regard
(including the Letter of Transmittal and the instructions thereto) will be
final and binding.
Backup Withholding. Under the "backup withholding" provisions of federal
income tax law, unless a tendering registered holder, or its assignee (in
either case, the "Payee"), satisfies the conditions described in Instruction
10 of the Letter of Transmittal or is otherwise exempt, the cash payable as a
result of the Offer may be subject to backup withholding tax at a rate of 31%
of the gross proceeds. To prevent backup withholding, each Payee should
complete and sign the Substitute Form W-9 provided in the Letter of
Transmittal. See Instruction 10 to the Letter of Transmittal.
4. Withdrawal Rights.
Except as otherwise provided in this Section 4 or as provided by applicable
law, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn pursuant to the procedures set forth below at any time prior
to the Expiration Date and, unless theretofore accepted for payment and paid
for by Purchaser pursuant to the Offer, may also be withdrawn at any time
after September 18, 1999.
9
<PAGE>
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses
set forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of the Shares to be withdrawn, if different from the name of the person
who tendered the Shares. If certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares have
been tendered by an Eligible Institution, the signatures on the notice of
withdrawal must be guaranteed by an Eligible Institution. If Shares have been
delivered pursuant to the procedures for book-entry transfer as set forth in
Section 3, any notice of withdrawal must also specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's
procedures.
Withdrawals of tendered Shares may not be rescinded, and any Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of
the procedures described in Section 3 at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
which determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Dealer Manager, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. Certain Federal Income Tax Consequences.
The following is a general summary of certain federal income tax
consequences of the Offer and the Merger relevant to a beneficial holder of
Shares whose Shares are tendered and accepted for payment pursuant to the
Offer or whose Shares are converted to cash in the Merger (a "Holder"). This
discussion is for general information only and does not purport to consider
all aspects of federal income taxation that may be relevant to holders of
Shares. The discussion is based on the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), existing regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as in effect as
of the date hereof and all of which are subject to change (possibly with
retroactive effect). This discussion applies only to Holders that hold Shares
as "capital assets" within the meaning of Section 1221 of the Code (generally,
property held for investment), and does not apply to Shares acquired pursuant
to the exercise of employee stock options or otherwise as compensation, Shares
held as part of a "straddle," "hedge," "conversion transaction," "synthetic
security" or other integrated investment, or to certain types of Holders
(including, without limitation, financial institutions, insurance companies,
tax-exempt organizations and dealers in securities) that may be subject to
special rules. This discussion does not address the federal income tax
consequences to a Holder that, for federal income tax purposes, is a non-
resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust, nor does it consider the effect of any state, local,
foreign or other tax laws.
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF THE SALE OF ITS SHARES, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE CHANGES IN
TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local and foreign income and other tax
laws. For federal income tax purposes, a Holder that sells Shares pursuant to
the Offer or receives cash in exchange for Shares pursuant to the Merger will
generally recognize capital gain or loss equal to the difference (if any)
between the amount of cash received and the Holder's adjusted tax basis in
Shares sold or surrendered. Gain or loss must be determined separately for
each block of Shares tendered pursuant to the Offer or surrendered
10
<PAGE>
for cash pursuant to the Merger (for example, Shares acquired at the same cost
in a single transaction). Such capital gain or loss will be long-term capital
gain or loss if the Holder has held such Shares for more than one year at the
time of the consummation of the Offer or the Merger. For federal income tax
purposes, net capital gain recognized by individuals (or an estate or certain
trusts) from the sale of property held for more than twelve months will
generally be taxed at a maximum tax rate of 20% (or 10% if the capital gain
would be taxed at only a 15% tax rate if such gain were treated as ordinary
income). There are limitations on the deductibility of capital losses.
Payments in connection with the Offer or Merger may be subject to "backup
withholding" at a rate of 31% unless a Holder of Shares (i) provides a correct
taxpayer identification number ("TIN") (which, for an individual Holder, is
the Holder's social security number) and any other required information, or
(ii) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, and otherwise complies with applicable
requirements of the backup withholding rules. A Holder that does not provide a
correct TIN may be subject to penalties imposed by the Internal Revenue
Service (the "IRS"). Shareholders may prevent backup withholding by completing
and signing the Substitute Form W-9 included as part of the Letter of
Transmittal. Any amount paid as backup withholding does not constitute an
additional tax and will be creditable against the Holder's federal income tax
liability, provided that the required information is given to the IRS. Each
Holder should consult its tax advisor as to such Holder's qualification for
exemption from backup withholding and the procedure for obtaining such
exemption.
6. Price Range of the Shares; Dividends.
The Shares have been traded on the NASDAQ National Market under the symbol
"IACO"since the completion of the Company's initial public offering on
December 17, 1997. The following table sets forth, for each of the fiscal
quarters indicated, the high and low reported sales price per Share on the
NASDAQ National Market. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
Common Stock
-------------------
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended January 31, 1998
Fourth Quarter ended January 31, 1998................. $ 6 1/2 $ 5 7/16
Fiscal Year Ended January 31, 1999
First Quarter ended April 30, 1998.................... 4 5/8 6
Second Quarter ended July 31, 1998.................... 10 1/8 5 7/8
Third Quarter ended October 31, 1998.................. 6 5/8 3
Fourth Quarter ended January 31, 1999................. 12 11/16 5 5/16
Fiscal Year Ending January 31, 2000
First Quarter ended April 30, 1999.................... 14 1/4 4 7/16
Second Quarter ending July 31, 1999 (through July 20,
1999)................................................ 6 5/16 2 3/4
</TABLE>
On July 15, 1999, the last full trading day prior to the public announcement
of the execution of the Merger Agreement by the Company, Parent and Purchaser,
the last reported sales price of the Shares on the NASDAQ National Market was
$5 1/2 per Share. On July 20, 1999, the last full trading day prior to the
commencement of the Offer, the last reported sales price of the Shares on the
NASDAQ National Market was $6 1/4 per Share. Stockholders are urged to obtain
a current market quotation for the Shares.
The Company did not declare or pay any cash dividends during any of the
periods indicated in the above table. In addition, under the terms of the
Merger Agreement, the Company is not permitted to declare or pay dividends
with respect to the Shares without the prior written consent of Parent, and
Parent does not intend to consent to any such declaration or payment.
11
<PAGE>
7. Effect of the Offer on the Market for the Shares; NASDAQ Quotation;
Exchange Act Registration; Margin Regulations.
Market for the Shares. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of holders of Shares and the number of Shares
that might otherwise trade publicly and, which, depending upon the number of
Shares so purchased, could adversely affect the liquidity and market value of
the remaining Shares held by the public. Purchaser cannot predict whether the
reduction in the number of Shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for, or marketability
of, the Shares or whether it would cause future market prices to be greater or
less than the Offer Price.
NASDAQ Quotation. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements of the NASD for
continued inclusion on the NASDAQ National Market, which requires that an
issuer either (i) have at least 750,000 publicly held shares, held by at least
400 round lot shareholders, with a market value of at least $5,000,000, have
at least 2 market makers, have net tangible assets of at least $4 million, and
have a minimum bid price of $1 or (ii) have at least 1,100,000 publicly held
shares, held by at least 400 round lot shareholders, with a market value of at
least $15,000,000, have a minimum bid price of $5, have at least 4 market
makers and have either (A) a market capitalization of at least $50,000,000 or
(B) total assets and revenues each of at least $50,000,000. If the NASDAQ
National Market were to cease to publish quotations for the Shares, it is
possible that the Shares would continue to trade in the over-the-counter
market and that price or other quotations would be reported by other sources.
The extent of the public market for such Shares and the availability of such
quotations would depend, however, upon such factors as the number of
stockholders and/or the aggregate market value of such securities remaining at
such time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below, and other factors. Purchaser cannot predict whether
the reduction in the number of Shares that might otherwise trade publicly
would have an adverse or beneficial effect on the market price for, or
marketability of, the Shares or whether it would cause future market prices to
be greater or lesser than the Offer Price.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more
holders of record. Termination of registration of the Shares under the
Exchange Act would substantially reduce the information required to be
furnished by the Company to its stockholders and to the Commission and would
make certain provisions of the Exchange Act no longer applicable to the
Company, such as the short-swing profit recovery provisions of Section 16(b),
the requirement of furnishing a proxy statement pursuant to Section 14(a) in
connection with stockholders' meetings and the related requirement of
furnishing an annual report to stockholders and the requirements of Rule 13e-3
under the Exchange Act with respect to "going private" transactions.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant
to Rule 144 or Rule 144A promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), may be impaired or eliminated.
Margin Regulations. The Shares are presently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of the Shares. Depending
upon factors similar to those described above regarding stock exchange listing
and market quotations, it is possible that, following the Offer, the Shares
would no longer constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers. In addition, if registration of the
Shares under the Exchange Act were terminated, the Shares would no longer
constitute "margin securities."
Purchaser currently intends to seek delisting of the Shares from the NASDAQ
National Market and the termination of the registration of the Shares under
the Exchange Act as soon after the completion of the Offer as the requirements
for such delisting and termination are met. If the NASDAQ National Market
listing and the
12
<PAGE>
Exchange Act registration of the Shares are not terminated prior to the
Merger, then the Shares will be delisted from the NASDAQ National Market and
the registration of the Shares under the Exchange Act will be terminated
following the consummation of the Merger.
8. Certain Information Concerning the Company.
General. The information concerning the Company contained in this Offer to
Purchase, including that set forth below under the caption "Selected Financial
Information," has been furnished by the Company or has been taken from or
based upon publicly available documents and records on file with the
Commission and other public sources. None of Parent, Purchaser, the Dealer
Manager or the Information Agent assumes responsibility for the accuracy or
completeness of the information concerning the Company contained in such
documents and records or for any failure by the Company to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Parent, Purchaser, the Dealer Manager or
the Information Agent.
The Company develops, markets and supports a comprehensive suite of
enterprise scalable business Intelligence software. MyEureka!, the Company's
Internet-based Business Intelligence solution, combines the industry's first
Business Intelligence portal with powerful, robust and flexible reporting and
analysis capabilities to provide easy access to all business information and
transform raw data into meaningful information. MyEureka! enables
organizations to leverage e-commerce activities and become closer to their
customers at all levels, thereby creating an "intelligent enterprise," capable
of quickly identifying and reacting to market opportunities. MyEureka!
supports UNIX and Windows NT operating systems, includes an extensive and
configurable set of Business Intelligence components for information access,
analysis and distribution, and is based on a secure and scalable architecture.
The Company's principal offices are located at 7905 Golden Triangle Drive,
Suite 190, Eden Prairie, Minnesota 55344-7227 and its telephone number is
(612) 833-3700.
The Company's revenues are derived from (a) one-time perpetual licenses for
the right to use its software products, and (b) licenses to resellers which
authorize the sale of the Company's software as a component of the resellers'
software. License fees from resellers are generally determined on the basis of
the number of servers, the number of users and the size of databases in the
application. The Company's service revenues, which have accounted for
approximately 40 percent of the Company's total revenues for the past three
years, include fees for maintenance, training and consulting services.
The Company licenses its software though its direct sales force and through
indirect channels, including solution development partners, sales affiliates
and marketing partners. Revenues from indirect channels were approximately
13.3%, 17.4% and 24.4% of the Company's license revenues for fiscal years
1999, 1998 and 1997, respectively. The Company has international sales and
support offices in Toronto, Canada; London, England; Cologne, Germany; Paris,
France; Amsterdam, Holland; and Sydney, Australia. To date, most of the
Company's international revenues have been derived from the United Kingdom,
Germany and Canada.
Selected Financial Information. Set forth on the following page is certain
selected consolidated financial information with respect to the Company,
excerpted or derived from the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 and its Quarterly Report on Form 10-Q for
the quarter ended April 30, 1999, each as filed with the Commission pursuant
to the Exchange Act.
More comprehensive financial information is included in such reports and in
other documents filed by the Company with the Commission. The following
summary is qualified in its entirety by reference to such reports and other
documents and all of the financial information (including any related notes)
contained therein. Such reports, documents and financial information may be
inspected and copies may be obtained from the Commission in the manner set
forth below.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
INFORMATION ADVANTAGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
April 30 January 31,
-------------------- -------------------------------------------
1999 1998 1999 1998 1997 1996 1995
--------- --------- ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License................ $ 5,183 $ 8,621 $42,283 $28,970 $23,676 $18,268 $17,140
Service................ 7,597 6,650 28,407 21,325 12,749 9,229 6,774
--------- --------- ------- ------- ------- ------- -------
Total revenues......... 12,780 15,271 70,690 50,295 36,425 27,497 23,914
--------- --------- ------- ------- ------- ------- -------
Cost of revenues:
License................ 394 504 1,601 1,564 1,446 1,055 691
Service................ 3,382 3,153 12,854 11,113 6,724 4,835 3,687
--------- --------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 3,776 3,657 14,455 12,677 8,170 5,890 4,378
--------- --------- ------- ------- ------- ------- -------
Gross margin............ 9,004 11,614 56,235 37,618 28,255 21,607 19,536
--------- --------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 11,307 7,199 34,636 28,497 23,198 14,564 11,281
Research and
development........... 2,665 2,083 9,065 7,582 5,333 4,883 4,872
General and
administrative........ 1,977 1,579 6,500 6,083 5,764 4,716 4,192
Non-recurring charges.. -- -- 6,502 -- -- 4,868 1,002
--------- --------- ------- ------- ------- ------- -------
Total operating
expenses.............. 15,949 10,861 56,703 42,162 34,295 29,031 21,347
--------- --------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (6,945) 753 (468) (4,544) (6,040) (7,424) (1,811)
Other income (expense)
Other income, primarily
investment earnings... 244 412 1,491 506 398 601 268
Interest expense....... (4) (12) -- -- -- -- --
--------- --------- ------- ------- ------- ------- -------
Total other income
(expense)............. 240 400 1,491 506 398 601 268
Income (loss) before
provision for (benefit
from) income taxes..... (6,705) 1,153 1,023 (4,038) (5,642) (6,823) (1,543)
Provision for (benefit
from) income taxes..... (2,053) 325 (5,644) 506 669 (139) 1,115
--------- --------- ------- ------- ------- ------- -------
Net income (loss)....... $ (4,652) $ 828 $ 6,667 $(4,544) $(6,311) $(6,684) $(2,658)
========= ========= ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic.................. $ (0.19) $ 0.03 $ 0.27 $ (0.38) $ (0.63) $ (0.71) $ (0.29)
Diluted................ $ (0.19) $ 0.03 $ 0.25 $ (0.38) $ (0.63) $ (0.71) $ (0.29)
Shares used in computing
income (loss) per
share:
Basic.................. 25,054 24,666 24,776 12,030 10,011 9,414 9,093
Diluted................ 25,054 26,644 26,880 12,030 10,011 9,414 9,093
CONSOLIDATED BALANCE
SHEET DATA:
Working capital........ $ 37,337 $ 38,324 $44,708 $37,256 $15,177 $14,752 $13,196
Total assets........... 64,090 59,252 71,207 59,246 31,213 26,445 23,916
Total liabilities...... 16,702 14,242 19,350 15,177 11,290 6,895 6,993
Convertible redeemable
preferred stock....... -- -- -- -- 17,410 12,487 5,337
Stockholders' equity... 47,388 45,010 51,857 44,069 2,513 7,063 11,586
</TABLE>
Certain Information Provided by the Company. In the course of the
discussions described in "Section 11--Background of the Offer; Purpose of the
Offer and the Merger; the Merger Agreement and Certain Other Agreements"
below, the Company provided Parent with certain business and financial
information which was not publicly available. Such information included, among
other things, forecasted results of operations for the Company's fiscal years
ending January 31, 2000 and January 31, 2001 prepared by the management of the
Company (the "Company Forecasts"). The Company Forecasts do not take into
account, and have not been adjusted to reflect, any of the potential effects
of the Offer or the Merger.
14
<PAGE>
The information from the Company Forecasts summarized below is included in
this Offer to Purchase solely because such information was provided to Parent
in connection with its evaluation of the Company. Parent did not rely on the
Company Forecasts to any significant degree in formulating the price or other
material terms of the Merger Agreement or the transactions contemplated
thereby. As a matter of course, the Company does not make public projections
or forecasts of its anticipated financial position or results of operations.
Accordingly, the Company does not anticipate that it will, and it disclaims
any obligation to, furnish updated forecasts or projections to any person,
cause such information to be included in documents required to be filed with
the Commission, or otherwise make such information public (irrespective in any
such case of whether the Company Forecasts, in light of events or developments
occurring after the time at which they were originally prepared, shall have
ceased to have a reasonable basis).
The Company Forecasts were prepared by the Company in early May, 1999
immediately following the close of its first fiscal quarter. The Company has
advised Parent that as a result of various risk factors, including but not
limited to the lengthy sales cycles being experienced by the Company, internal
changes affecting the Company's sales force, and the potential impact of Year
2000-related purchasing slowdowns by the Company's customers, the ultimate
achievement of the Company Forecasts is difficult to predict with certainty.
As a result, the Company indicated that the operating results contained in the
Company Forecasts may not be achieved.
The inclusion herein of the summary of the Company Forecasts should not be
regarded as an indication that the Company, Parent, Purchaser or any other
person considers such information to be an accurate prediction of future
events and should not be relied on as such. While presented with numerical
specificity, the information from the Company Forecasts summarized below is
based upon a variety of assumptions relating to general economic conditions
and the business of the Company which may not be realized and is subject to
significant uncertainties and contingencies, many of which are beyond the
control of the Company. One cannot predict whether the assumptions used in
preparing the Company Forecasts will be accurate, and, accordingly, there can
be no assurance, and no representation or warranty is made, that actual
results will not vary materially from those set forth in the Company
Forecasts.
The Company Forecasts were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants.
The information from the Company Forecasts should be evaluated in
conjunction with the historical financial statements and other information
regarding the Company contained elsewhere in this Offer to Purchase and in the
Company's public filings with the Commission. In light of the foregoing
factors and the uncertainties inherent in the Company Forecasts, holders of
Shares are cautioned not to place undue, if any, reliance thereon. A summary
of the Company Forecasts is set forth below.
15
<PAGE>
Company Forecasts
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Ending January 31, Ending January 31,
2000 2001
------------------ ------------------
<S> <C> <C>
REVENUE
License................................. $52,208 $80,368
Maintenance............................. 16,140 20,501
Services................................ 20,960 27,150
------- -------
Gross Revenue......................... 89,308 128,019
Warranty Installation Reserve........... 53 --
------- -------
Net Revenue........................... 89,255 128,019
COST OF REVENUE
Cost of Revenue -- License.............. 2,159 2,716
Cost of Revenue -- Services............. 15,630 21,422
------- -------
Cost of Revenue....................... 17,789 24,139
======= =======
Gross Margin.......................... 71,466 103,880
OPERATING EXPENSES
Sales................................... 40,657 52,640
Marketing............................... 7,595 9,546
General and Administrative.............. 8,173 9,832
Software Development Costs.............. 10,752 12,616
------- -------
Total Operating Expenses.............. 67,177 84,634
======= =======
Operating Income...................... 4,289 19,246
Interest Expense (Income), Net........ (918) (840)
======= =======
Income before Income Taxes............ 5,207 20,086
Income Taxes.......................... 1,639 7,834
======= =======
Net Income................................ $ 3,568 $12,253
Earnings Per Share........................ $ 0.14 $ 0.44
</TABLE>
Available Information. The Company is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports, proxy statements and other information with the Commission
relating to its business, financial condition and other matters. Information
as of particular dates concerning the Company's directors and officers, their
remuneration, options granted to them, the principal holders of the Company's
securities and any material interests of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, Suite 1300, New York, NY 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
information should be obtainable by mail, upon payment of the Commission's
customary charges, by writing to the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a
website on the internet at http://www.sec.gov that contains reports, proxy
statements and other information relating to the Company which have been filed
via the Commission's EDGAR System.
16
<PAGE>
9. Certain Information Concerning Parent and Purchaser.
Parent and Purchaser.
Purchaser is a Delaware corporation that has not carried on any significant
activities other than in connection with the Offer and the Merger. All of the
outstanding capital stock of Purchaser is owned directly by Parent. Until
immediately prior to the time Purchaser purchases Shares pursuant to the
Offer, it is not anticipated that Purchaser will have any significant assets
or liabilities or engage in any significant activities other than those
incident to its formation and capitalization and the transactions contemplated
by the Offer and the Merger.
Parent was founded in 1981 and became a publicly owned corporation in 1983.
Parent is a worldwide developer and supplier of application development,
information management and systems management software products and services,
as well as a supplier of specialized information technology ("IT") services
for sectors of the federal government. Parent's customer base includes 91 of
the 100 largest U.S. industrial and service corporations, as ranked by 1997
revenues in Fortune magazine. Parent's business segments are as follows:
. The application management business segment provides solutions for both
enterprise-scale application development and information management.
Application development solutions include products and services for
business modeling through code generation. These solutions provide
customers the ability to build component-based applications through
model-based code generation using traditional and object-oriented
techniques, to reuse what they have built through components and to
protect their investment in legacy assets. Information management
solutions include products and services that enable customers to
facilitate enterprise information access and to extend the life and
usefulness of legacy applications. These solutions help enterprises
address issues related to complex implementation challenges such as data
warehousing, intranets and application management, using technologies
that enhance business intelligence, integrate applications and improve
information access through web browsers.
. The systems management business segment provides solutions that enable
customers to simplify the use of multiple computing environments and to
increase the productivity of information systems, ultimately ensuring
that the systems meet the business needs of the organization. These
solutions include enterprise-level network management products,
enterprise-level storage management products and comprehensive VM
systems management products.
. The federal systems business segment provides specialized IT services
for sectors of the federal government, as well as state and local
governments.
At June 30, 1999, Parent employed approximately 3,700 employees in 90
offices worldwide. Parent has direct sales offices in 22 countries and
distributors and agents in an additional 38 countries.
For certain information concerning the executive officers and directors of
Purchaser and Parent, see Schedule I.
The principal offices of Parent and Purchaser are located at 300 Crescent
Court, Suite 1200, Dallas, Texas 75201. The telephone number of Parent and
Purchaser at such location is (214) 981-1000.
Except as set forth in this Offer to Purchase, none of Purchaser or Parent,
or, to the best knowledge of Purchaser or Parent, any of the persons listed on
Schedule I, or any associate or majority owned subsidiary of any of the
foregoing, beneficially owns or has a right to acquire any Shares, and none of
Purchaser or Parent or, to the best knowledge of Purchaser or Parent, any of
the persons or entities referred to above, or any of the respective executive
officers, directors or subsidiaries of any of the foregoing, has effected any
transaction in the Shares during the past sixty (60) days.
Except as set forth in this Offer to Purchase, neither Purchaser nor Parent
has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including,
17
<PAGE>
but not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any securities of the Company, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of Purchaser or Parent,
any of their respective affiliates, nor, to the best knowledge of Purchaser or
Parent, any of the persons listed on Schedule I, has had, since January 31,
1996, any business relationships or transactions with the Company or any of
its executive officers, directors or affiliates that would be required to be
reported under the rules of the Commission. Except as set forth in this Offer
to Purchase, since January 31, 1996 there have been no contacts, negotiations
or transactions between Purchaser or Parent, any of their respective
affiliates or, to the best knowledge of Purchaser or Parent, any of the
persons listed on Schedule I, and the Company or its affiliates concerning a
merger, consolidation or acquisition, tender offer or other acquisition of
securities, election of directors or a sale or other transfer of a material
amount of assets.
Available Information. Parent is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports, proxy statements and other information with the Commission
relating to its business, financial condition and other matters. Information
as of particular dates concerning Parent's directors and officers, their
remuneration, options granted to them, the principal holders of Parent's
securities and any material interests of such persons in transactions with
Parent is required to be disclosed in proxy statements distributed to Parent's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Copies of such information
should be obtainable by mail, upon payment of the Commission's customary
charges, by writing to the Commission's principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements and other
information relating to Parent which have been filed via the EDGAR System.
Certain of the materials should also be available at the offices of the New
York Stock Exchange ("NYSE"), 20 Broad Street, New York, NY 10005.
10. Sources and Amount of Funds.
The Offer is not conditioned upon Purchaser obtaining financing. The total
amount of funds required by Purchaser to consummate the Offer and the Merger
(assuming that all outstanding Options will be converted into options to
acquire shares of Parent common stock and all outstanding Warrants will be
exercised or cashed out in the Merger and the issuance of 225,000 Shares
pursuant to the ESPP), and pay the fees and expenses of the Offer and the
Merger expected to be incurred by Parent, is estimated to be approximately
$169.7 million. Purchaser will obtain all such funds from Parent, either
directly or indirectly, in the form of capital contributions and/or loans.
Parent will provide such funds, either directly or indirectly, through its
cash and cash equivalents on hand.
11. Background of the Offer; Purpose of the Offer and the Merger; the Merger
Agreement and Certain Other Agreements.
Background of the Offer.
On June 8, 1999, Steve Wilkinson, Vice President of Business Development of
Parent's Information Management Group, telecopied a letter to Mr. Larry Ford,
Chief Executive Officer and President of the Company, expressing a desire to
set up a meeting to discuss the mutual interests of Parent and the Company.
On June 9, 1999, in anticipation of a business review of the Company, Parent
and the Company entered into a confidentiality agreement for the purpose of
permitting Parent to review certain non-public information relating to the
Company in connection with Parent's evaluation of the Company.
18
<PAGE>
On June 10, 1999, certain senior executives of Parent's Information
Management Group met with several senior executives of the Company in
Minneapolis, Minnesota to conduct a high level business review of the Company.
The Company also advised Parent that it was in the process of seeking
indications of interest from third parties relating to a possible sale of the
Company and would ask its financial advisor to include Parent in this process.
By letter dated June 11, 1999, BancBoston Robertson Stephens Inc.
("Robertson Stephens"), the Company's financial advisor, notified Parent that
the Company was pursuing various strategic alternatives, including a possible
sale of the Company, and sought an indication of interest from Parent in such
a transaction.
Over the weekend of June 26-27, 1999, the Company's senior management team
and representatives of the Company's financial advisor met at Parent's
headquarters in Dallas, Texas with certain senior executives of Parent,
executives of Parent's Information Management Group and representatives of
Parent's financial advisor, Deutsche Banc Alex. Brown, for the purpose of
conducting an in-depth business and operations review of the Company. During
such meetings, the Company provided to Parent certain confidential information
regarding the Company, including certain financial projections with respect to
the operations of the Company. See Section 8, "Certain Information Concerning
the Company--Certain Information Provided by the Company," above.
On June 29, 1999, Parent sent a letter to the Company's financial advisor
indicating its interest in acquiring the Company at a price in the range of
$5.75 to $6.00 per Share in cash, subject to satisfactory completion of a
business and legal due diligence review of the Company and negotiation of
definitive documentation.
On June 30, 1999, the Company's financial advisor requested that all parties
that had indicated an interest in acquiring the Company submit revised
indications of interest with such parties' "best and final" offer prices on or
before Friday, July 2, 1999 so that the Company could select one party to
negotiate with and conduct more extensive due diligence. Mr. Ford also
conveyed this same message to Mr. Geno Tolari, Parent's Executive Vice
President and Chief Operating Officer. On Friday, July 2nd, a representative
of the Company's financial advisor advised Parent that the Company had
extended the deadline for revised indications of interest to Tuesday, July 6th
in view of the July 4th holiday weekend and that the Company Board was
scheduled to meet on Tuesday, July 6th to discuss the revised indications of
interest. The Company's financial advisor informed Parent that such revised
indications of interest were to also describe how options granted under the
Company Option Plans would be treated in an acquisition by Parent.
On July 6, 1999, Parent delivered to the Company's financial advisor a
letter indicating, among other things, its interest in acquiring the Company
at a price of $6.50 per Share in cash, again subject to satisfactory
completion of a business and legal due diligence review of the Company and
negotiation of definitive documentation. Parent also indicated that Company
Options would be converted into options to purchase Parent common stock, and
proposed that Parent and the Company enter into an agreement granting Parent a
period of 15 days to negotiate exclusively with the Company.
In the evening on July 6, 1999, the Company Board met to discuss the revised
indications of interest submitted to the Company. Following the Company Board
meeting, the Company's financial advisor advised Parent that the Company had
determined to permit Parent to conduct more extensive due diligence and to
proceed with negotiations with Parent.
On Wednesday, July 7, 1999, Parent delivered to the Company a draft Merger
Agreement, form of Stockholder Agreement and exclusivity letter agreement
(the"Exclusivity Agreement"). The Exclusivity Agreement provided that until
the earlier of 5:00 p.m., Dallas, Texas time, on July 22, 1999 and the
execution of a definitive agreement relating to a potential acquisition of the
Company, the Company would discontinue any solicitation efforts, discussions
or negotiations with respect to an acquisition proposal with any person other
than Parent. The Exclusivity Agreement was executed by representatives of
Parent and the Company late in the day on July 7, 1999 and telecopied on July
8, 1999.
19
<PAGE>
On Friday, July 9, 1999, representatives of Parent and its advisors
commenced a more detailed due diligence review of the Company, including a
review of the Company's business, operations, technology and prospects, as
well as a detailed legal due diligence review. From time to time thereafter,
representatives of Parent requested and received certain additional
information from the Company.
On Saturday, July 10, 1999, representatives of Parent and the Company and
their respective counsel commenced negotiations with respect to the Merger
Agreement. Such negotiations continued until July 15, 1999.
On July 13, 1999, Parent began negotiating the terms of the Stockholder
Agreements with representatives of the Stockholders, which negotiations
continued until July 15, 1999.
On July 15, 1999, Parent's Board of Directors approved the proposed Merger
Agreement, the Stockholder Agreements and related transactions.
On July 15, 1999, Parent was advised that the Company Board had met and
received a fairness opinion from Robertson Stephens, had approved the Merger
Agreement, the Stockholder Agreements and the transactions contemplated
thereby and had authorized the execution of the Merger Agreement. During the
evening of July 15, 1999, the Merger Agreement was executed and delivered by
Parent, Purchaser and the Company, and Parent, Purchaser and the Stockholders
entered into the Stockholder Agreements.
On July 16, 1999, Parent and the Company issued a joint press release
announcing the execution of the Merger Agreement. On July 21, 1999, pursuant
to the terms of the Merger Agreement, Parent and Purchaser commenced the
Offer.
Purpose of the Offer and the Merger. The purpose of the Offer and the Merger
is to enable Parent to acquire control of, and the entire equity interest in,
the Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected. The
purpose of the Merger is to acquire all of the outstanding Shares not
purchased pursuant to the Offer.
Stockholders of the Company who sell their Shares in the Offer will cease to
have any equity interest in the Company or any right to participate in its
earnings and future growth. If the Merger is consummated, non-tendering
stockholders will no longer have an equity interest in the Company and instead
will have only the right to receive cash consideration pursuant to the Merger
Agreement or to exercise statutory appraisal rights under Section 262 of the
DGCL. See Section 12. Similarly, after selling their Shares in the Offer or
the subsequent Merger, stockholders of the Company will not bear the risk of
any decrease in the value of the Company.
The primary benefits of the Offer and the Merger to the stockholders of the
Company are that such stockholders are being afforded an opportunity to sell
all of their Shares for cash at a price which represents a premium of
approximately 18.2% over the closing sales price of the Shares on July 15,
1999, the last full trading day prior to the initial public announcement that
the Company, Purchaser and Parent had executed the Merger Agreement, and a
premium of approximately 58% over the trailing 30-day average closing sales
price of the Shares prior to the execution of the Merger Agreement.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full
text of the Merger Agreement filed with the Commission as an exhibit to the
Schedule 14D-1 and is incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Merger
Agreement. The Merger Agreement may be examined, and copies obtained, as set
forth in Section 9 of this Offer to Purchase.
20
<PAGE>
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries,
authority to enter into the Merger Agreement, no conflicts between the Merger
Agreement and the certificate of incorporation and bylaws of the Company,
certain agreements to which the Company or its assets may be subject and
applicable law, required consents, capital stock, options or other rights to
acquire Shares, filings with the Commission, financial statements, absence of
certain changes or events, undisclosed liabilities, disclosures in proxy
statement and tender offer documents, real property, software, Year 2000
compliance of the Company's software products, intellectual property, material
contracts, litigation, compliance with applicable laws, environmental matters,
tax matters, benefit plans, absence of changes in benefit plans, labor
matters, brokers' and finders' fees, receipt of the Financial Advisor Opinion,
votes required to approve the Merger Agreement, and the Rights Agreement.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
no conflicts between the Merger Agreement and the certificate of incorporation
and by-laws of Parent and Purchaser, certain agreements to which Purchaser or
Parent or their assets may be subject and applicable law, required consents,
disclosures in proxy statements and tender offer documents and financing.
Certain representations and warranties in the Merger Agreement are qualified
as to "materiality" or "Material Adverse Effect." For the purposes of the
Merger Agreement and this Offer to Purchase, "Material Adverse Effect" with
respect to any person means any event, change, occurrence, effect, fact or
circumstance having, or which would reasonably be expected to have, a material
adverse effect on (i) the ability of such person to perform its obligations
under the Merger Agreement or to consummate the transactions contemplated
thereby or (ii) the condition (financial or otherwise), assets, liabilities,
properties, results of operations, cash flows, value or business of such
person and its subsidiaries taken as a whole.
Conditions to the Merger. The respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction of each of the following conditions,
any and all of which may be waived in whole or in part by the Company, Parent
or Purchaser, as the case may be, to the extent permitted by applicable law:
(i) Purchaser shall have purchased Shares pursuant to the Offer; provided,
that neither Parent nor Purchaser may invoke this condition if Purchaser shall
have failed to purchase Shares tendered in the Offer in violation of the terms
of the Offer or the Merger Agreement; (ii) the Merger Agreement shall have
been approved and adopted by the requisite vote of the holders of Shares, if
required by applicable law or the Certificate of Incorporation, in order to
consummate the Merger; (iii) no temporary restraining order, preliminary or
permanent injunction, or other order, legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that the parties to the Merger Agreement shall have used commercially
reasonable efforts to lift or remove such order, injunction, restraint or
prohibition; and (iv) any waiting period applicable to the Merger under the
HSR Act shall have expired or been earlier terminated. In addition, the
obligation of Parent and/or Purchaser to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the
following condition: no outstanding Option shall entitle the holder thereof,
at the Effective Time or thereafter, to purchase any capital stock of the
Company.
The Company Board. Promptly after (i) the purchase of and payment for any
Shares by Purchaser or any of its affiliates pursuant to the Offer as a result
of which Purchaser and its affiliates own beneficially at least a majority of
the then outstanding Shares and (ii) compliance with Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder, whichever shall occur
later, Parent shall be entitled to designate such number of directors, rounded
up to the next whole number, on the Company Board as is equal to the product
of the total number of directors on such Board (after giving effect to any
resulting increase in the size of such Board pursuant to Section 1.4 of the
Merger Agreement) multiplied by the percentage that the number of Shares
beneficially owned by Purchaser at such time (including Shares so accepted for
payment) bears to the total number of Shares then outstanding (such persons,
the "Parent Designees"). In furtherance thereof, the Company shall, upon
request of Parent, use its best efforts promptly either to increase the size
of its Board of Directors or to secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable the Parent
Designees to be so elected or appointed to the Company Board, and the Company
shall take all actions available
21
<PAGE>
to the Company to cause such designees of Parent to be so elected or
appointed. At such time, the Company shall, if requested by Parent, also take
all action necessary to cause persons designated by Parent to constitute at
least the same percentage (rounded up to the next whole number) as Parent is
entitled to designate on the Company Board of (i) each committee of the
Company Board, (ii) each board of directors (or similar body) of each
subsidiary of the Company and (iii) each committee (or similar body) of each
such board.
The Merger Agreement provides that the Company shall promptly take all
actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under the Merger
Agreement, including mailing to stockholders the information required by such
Section 14(f) and Rule 14f-1 (or including such information in the Schedule
14D-9 initially filed with the Commission and distributed to the stockholders
of the Company) as is necessary to enable the Parent Designees to be elected
to the Company Board. Parent or Purchaser will supply to the Company in
writing and be solely responsible for any information with respect to either
of them and their nominees, officers, directors and affiliates required by
such Section 14(f) and Rule 14f-1. The Merger Agreement provides that the
foregoing provisions are in addition to and shall not limit any rights which
Purchaser, Parent or any of their affiliates may have as a holder or
beneficial owner of Shares as a matter of applicable law with respect to the
election of directors or otherwise.
Notwithstanding the foregoing, the parties to the Merger Agreement shall use
their respective reasonable best efforts to ensure that at least two of the
members of the Board shall, at all times prior to the Effective Time, be
directors of the Company who were directors of the Company on the date of the
Merger Agreement (the "Continuing Directors"), provided, that, if the number
of Continuing Directors shall be reduced below two for any reason, the
remaining Continuing Director may designate a person to fill such vacancy who
shall be deemed to be a Continuing Director for all purposes of the Merger
Agreement, or if no Continuing Directors then remain, the other directors of
the Company then in office shall designate two persons to fill such vacancies
who will not be officers or employees or affiliates of the Company, Parent or
either of their subsidiaries and such persons shall be deemed to be Continuing
Directors for all purposes of the Merger Agreement. From and after the time,
if any, that Parent's designees constitute a majority of the Company Board and
prior to the Effective Time, any amendment or modification of the Merger
Agreement, any amendment to the Company's Certificate of Incorporation or By-
Laws inconsistent with the Merger Agreement, any termination of the Merger
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or Purchaser under the Merger Agreement, any waiver of
any condition to the Company's obligations under the Merger Agreement or any
of the Company's rights under the Merger Agreement or other action by the
Company under the Merger Agreement may be effected only by the action of a
majority of the Continuing Directors of the Company, which action shall be
deemed to constitute the action of any committee specifically designated by
the Company Board to approve the actions contemplated by the Merger Agreement
and the Company Board; provided, that, if there shall be no Continuing
Directors, such actions may be effected by majority vote of the entire Company
Board.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law to consummate the Merger, the Company, acting through the
Company Board, shall, in accordance with the DGCL, the Exchange Act and other
applicable laws, its Certificate of Incorporation and By-Laws: (i) as promptly
as practicable following the acceptance for payment and purchase of Shares by
Purchaser pursuant to the Offer, take all action necessary to convene and hold
a special meeting of its stockholders (the "Special Meeting") for the purposes
of considering and voting upon the Merger Agreement and to solicit proxies
pursuant to the Proxy Statement (as defined below) in connection therewith;
(ii) if requested by Parent, prepare and file with the Commission a proxy
statement or information statement relating to the Stockholders Meeting in
accordance with the Exchange Act and the rules and regulations thereunder and
(x) use its reasonable efforts to respond to all comments made by the
Commission with respect to the proxy statement or information statement and,
subject to compliance with Commission rules and regulations, cause a proxy
statement or information statement, including any amendment or supplement
thereto (the "Proxy Statement"), to be mailed to its stockholders at the
earliest practicable date, and (y) recommend that the stockholders of the
Company vote in favor of the adoption of the Merger Agreement at the
Stockholders Meeting and cause such recommendation to be included in the Proxy
Statement. Pursuant to the Merger Agreement, Parent and Purchaser have agreed
to: (i) cause, at the Stockholders
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Meeting, all of the Shares owned by them to be voted in favor of the adoption
of the Merger Agreement; and (ii) promptly supply to the Company in writing,
for inclusion in the Proxy Statement, all information concerning Parent and
Purchaser required under the Exchange Act and the rules and regulations
thereunder to be included in the Proxy Statement.
Options. The Merger Agreement provides that at the Effective Time of the
Merger, each then-outstanding option to purchase Shares (collectively, the
"Options") under the Company Option Plans whether or not then exercisable or
fully vested, shall be assumed by Parent and shall constitute an option (a
"Substitute Option") to acquire, on substantially the same terms and subject
to substantially the same conditions as were applicable under such Option,
including without limitation term, vesting, exercisability, status as an
"incentive stock option" (if applicable) under Section 422 of the Code, and
termination provisions, the number of shares of common stock, par value $0.10
per share, of Parent ("Parent Common Stock"), rounded down to the nearest
whole share, determined by multiplying the number of Shares subject to such
Option immediately prior to the Effective Time by the Conversion Factor (as
defined below), at an exercise price per share of Parent Common Stock
(increased to the nearest whole cent) equal to the exercise price per Share
subject to such Option divided by the Conversion Factor; provided, however,
that in the case of any Option to which Section 421 of the Code applies by
reason of its qualification as an incentive stock option under Section 422 of
the Code, the conversion formula shall be adjusted if necessary to comply with
Section 424(a) of the Code. For purposes of the Merger Agreement, "Conversion
Factor" means the Offer Price divided by the average closing price per share
of Parent Common Stock on the NYSE for the five consecutive trading days
ending on the trading day immediately prior to the Closing Date. In the Merger
Agreement, the Company has agreed to use its best efforts to obtain all
necessary waivers, consents or releases from holders of Options under the
Company Option Plans and take any such other action as may be reasonably
necessary to give effect to the transactions contemplated thereby.
In connection with the foregoing, the Company has agreed in the Merger
Agreement that as soon as practicable following the date of the Merger
Agreement, the Company Board (or, if appropriate, any committee administering
a Company Option Plan) will adopt resolutions and take such actions as may be
required to cause each outstanding Option to be automatically converted, at
the Effective Time, into a Substitute Option and shall make such other changes
to the Company Option Plans as it deems appropriate to give effect to the
Merger (subject to the approval of Parent, which shall not be unreasonably
withheld).
In connection with the foregoing, Parent has agreed in the Merger Agreement
to take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of
Substitute Options. As soon as practicable, but in any event within 15 days,
after the Effective Time the shares of Parent Common Stock subject to
Substitute Options will be covered by an effective registration statement on
Form S-8 (or any successor form) or another appropriate form and Parent shall
use its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as the Substitute Options remain
outstanding. In addition, Parent shall use all reasonable efforts to cause the
shares of Parent Common Stock subject to Substitute Options to be listed on
the NYSE and such other exchanges as Parent shall determine.
Warrants. The Merger Agreement provides that Parent and Purchaser will not
assume or continue any outstanding warrants to purchase Shares (the
"Warrants") and that the parties thereto will take all appropriate action to
provide that, in accordance with the respective terms of the Warrants, at or
prior to the Effective Time, each holder of an outstanding Warrant shall be
entitled to receive an amount in cash equal to the product of (i) the excess,
if any, of the Offer Price over the per share exercise price of such Warrant
and (ii) the number of shares subject to such Warrant (a "Warrant Cash-out
Amount").
In connection with the foregoing, the Company has agreed in the Merger
Agreement that as soon as practicable following the date of the Merger
Agreement, the Company Board (or, if appropriate, any committee administering
any Warrants) will adopt resolutions and take such actions as may be required
to cause each holder of an outstanding Warrant to be automatically entitled to
receive their respective Warrant Cash-out Amount.
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<PAGE>
Employee Stock Purchase Plan. The Company has agreed that the "offering
period" and "accumulation period" (as each such term is defined in the ESPP)
under the Company's ESPP will terminate not later than five business days
prior to the Effective Time, and no further offering period or accumulation
period under the ESPP will be created. In addition, the Company Board will
cause the ESPP to be terminated as of the Effective Time.
Employee Benefit Matters. From and after the Effective Time, Parent has
agreed to honor and provide for payment of all accrued obligations and
benefits under all employee benefit plans of the Company and employment or
severance agreements disclosed to Parent, all in accordance with their
respective terms.
Parent has agreed to provide persons who are employees of the Company at or
prior to the Effective Time ("Covered Employees") who remain in the employ of
the Company or any of its subsidiaries with employee benefits that are
reasonably comparable, in the aggregate, to the employee benefits provided to
similarly situated employees of Parent or any such subsidiary who are not
Covered Employees. To the extent that Covered Employees are included in any
benefit plan of Parent or its subsidiaries, Parent agrees that the Covered
Employees will receive credit under such plan (other than any such plan
providing for sabbaticals) for service prior to the Effective Time with the
Company and its subsidiaries to the same extent such service was counted under
similar plans of the Company for purposes of eligibility, vesting, eligibility
for retirement (but not for benefit accrual) and, with respect to vacation,
disability and severance, benefit accrual. To the extent that Covered
Employees are included in any medical, dental or health plan other than the
plan or plans they participated in at the Effective Time, Parent has agreed
that any such plans shall not include pre-existing condition exclusions,
except to the extent such exclusions were applicable under the similar plan of
the Company at the Effective Time, and shall provide credit for any
deductibles and co-payments applied or made with respect to each Covered
Employee in the calendar year of the change. Except as set forth above,
nothing in the Merger Agreement shall prevent Parent or the Surviving
Corporation from amending or terminating any plan of the Company in accordance
with its terms.
Certain Employment Arrangements. Parent has reached an oral understanding
with Larry Ford, President and Chief Executive Officer of the Company, with
respect to Mr. Ford's employment with the Company. In the event Mr. Ford does
not come to an agreement with the Company with respect to his role with the
Company following the Merger, (i) Mr. Ford will remain an employee of the
Company and the Company will pay Mr. Ford his then current base salary and on-
target bonus (a total of $310,000 per year) over a two year period based on
the Company's regular payroll practice; (ii) Parent will provide Mr. Ford and
anyone entitled to claim under or through him with benefits under the
applicable employee benefit plans (to the extent legally permissible) of the
Company until such time as he is no longer an employee of Parent; (iii) the
Company will reimburse Mr. Ford up to a maximum of $5,000 per month for his
office, secretarial support and related expenses until the earlier of the
period ending two years following the Effective Time or his acceptance of
other employment; and (iv) all of Mr. Ford's outstanding options will
accelerate upon his ceasing to be an employee, unless such options are to be
sooner accelerated under existing agreements between the Company and Mr. Ford.
In the event Mr. Ford does come to an agreement with the Company regarding his
employment following the Merger and his position is thereafter terminated by
the Company for any reason within one year after the Merger, Mr. Ford will
receive the payments and benefits from the Company following such termination
as set forth in (i), (ii) and (iv) above. Parent also may enter into severance
agreements with certain other executive officers of the Company. The specific
terms of such new severance agreements have not yet been determined.
Interim Operations. The Merger Agreement provides that after the date of the
Merger Agreement and prior to the Effective Time, subject to certain
exceptions, the Company shall, and shall cause each of its subsidiaries to,
act and carry on its business only in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current business
organizations, keep available the services of its current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with the Company, and to that end, without limiting the
generality of the foregoing, the Company shall not, and shall not permit any
of its subsidiaries to, without the prior consent of Parent:
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<PAGE>
(a)(i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its outstanding capital stock (other than, with respect to a
subsidiary of the Company, to its corporate parent), (ii) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock, or (iii)
purchase, redeem or otherwise acquire any shares of outstanding capital
stock or any rights, warrants or options to acquire any such shares;
(b) issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options and Warrants
outstanding on the date of the Merger Agreement;
(c) amend its Certificate of Incorporation, By-Laws or other comparable
charter or organizational documents or amend or redeem the Rights
Agreement;
(d) directly or indirectly acquire, make any investment in, or make any
capital contributions to, any person other than in the ordinary course of
business consistent with past practice;
(e) make any new capital expenditure or expenditures in excess of $50,000
individually, or $250,000 in the aggregate, other than the specific capital
expenditures disclosed on a schedule to the Merger Agreement;
(f) amend or terminate any material contract where such amendment or
termination would have a Material Adverse Effect on the Company, or waive,
release or assign any material rights or claims;
(g) directly or indirectly sell, pledge or otherwise dispose of or
encumber any of its properties or assets that are material to its business,
except for sales, pledges or other dispositions or encumbrances in the
ordinary course of business consistent with past practice;
(h)(i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any direct or indirect
wholly owned subsidiary of the Company or (ii) make any loans or advances
to any other person, other than to the Company or to any direct or indirect
wholly owned subsidiary of the Company and other than routine advances to
employees consistent with past practice, except, in the case of clause (i),
for borrowings, in the ordinary course of business consistent with past
practice, under existing credit facilities described in documents filed by
the Company with the Commission and publicly available prior to the date of
the Merger Agreement;
(i) grant or agree to grant to any officer, employee or consultant any
increase in wages or bonus, severance, profit sharing, retirement, deferred
compensation, insurance or other compensation or benefits, or establish any
new compensation or benefit plans or arrangements, or amend or agree to
amend any existing Company Option Plans, except as may be required under
existing agreements or by law;
(j) accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock option,
insurance or other compensation or benefits;
(k) enter into or amend any employment, consulting, severance or similar
agreement with any individual other than consulting agreements entered into
in the ordinary course of business involving payments in the aggregate for
such consulting agreements not in excess of $50,000 in any month and not
with a term in excess of 90 days;
(l) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization or any agreement relating to an Acquisition
Proposal (as defined hereinafter);
(m) make or rescind any tax election or settle or compromise any tax
liability of the Company or of any of its subsidiaries;
(n) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (i) of any such claims,
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<PAGE>
liabilities or obligations in the ordinary course of business and
consistent with past practice or (ii) of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated
financial statements (or the notes thereto) of the Company and its
consolidated subsidiaries;
(o) make any change in any method of accounting or accounting practice or
policy (including any method, practice or policy relating to taxes), except
as required by any changes in generally accepted accounting practices or as
otherwise required by law;
(p) settle any action, suit, claim, investigation or proceeding (legal,
administrative or arbitrative) in an amount in excess of $50,000 (other
than the settlement of the pending class action lawsuit against the Company
(Harvey Altman v. IQ Software Corporation, et al., N.D. Georgia, No. 1-97-
CV3203) consistent with the terms of the Memorandum of Understanding, dated
February 5, 1999);
(q) permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated without notice to Parent,
except in the ordinary course of business and consistent with past
practice;
(r) enter into any agreement, understanding or commitment that restrains,
limits or impedes the Company's ability to compete with or conduct any
business or line of business, including, but not limited to, geographic
limitations on the Company's activities;
(s) plan, announce, implement or effect any reduction in force, lay-off,
early retirement program, severance program or other program or effort
concerning the termination of employment of employees of the Company or its
subsidiaries;
(t) accelerate the collection of any account receivable or delay the
payment of any account payable, or otherwise reduce the assets or increase
the liabilities of the Company or any of its subsidiaries otherwise than in
the ordinary course of business consistent with past practice, in any such
case with the purpose or effect of using the resulting increase in the cash
flow of the Company or any of its subsidiaries to reduce the total
indebtedness of the Company and its subsidiaries for money borrowed;
(u) take any action that would result in (i) any of its representations
and warranties set forth in the Merger Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material
respect or (iii) any of the conditions to the Offer not being satisfied; or
(v) authorize any of, or commit or agree to take any of, the foregoing
actions.
No Solicitation. The Merger Agreement provides that the Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize (and
shall use its best efforts not to permit) any affiliate, officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries relating to, or
the submission of, any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding any Acquisition Proposal, or, in
connection with any Acquisition Proposal, or furnish to any person any
information or data with respect to or access to the properties of the Company
or any of its subsidiaries, or take any other action, to knowingly facilitate
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal or approve or resolve to approve any
Acquisition Proposal; provided, that nothing contained in the Merger Agreement
shall prohibit the Company or the Company Board from (i) taking and disclosing
to the Company's stockholders a position with respect to a tender or exchange
offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act, or (ii) making such disclosure to the Company's stockholders as,
in the good faith judgment of the Company Board, after consultation with
outside counsel, is required under, or is necessary to comply with, applicable
law; provided, further, that the Company may not, except as otherwise
permitted by the Merger Agreement, withdraw or modify, or propose to withdraw
or modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or
enter into any agreement with respect to, any Acquisition Proposal. Upon
execution of the Merger Agreement, the Company agreed to immediately cease any
existing activities, discussions or negotiations with any parties conducted
theretofore with respect to any of the foregoing. Notwithstanding the
26
<PAGE>
foregoing, prior to the time of acceptance of Shares for payment pursuant to
the Offer, the Company may furnish information concerning its business or its
subsidiaries, properties or assets to any person or group and may negotiate
and participate in discussions and negotiations with such person or group
concerning an Acquisition Proposal, provided that such person or group shall
have entered into a confidentiality agreement, the confidentiality provisions
of which shall be no more favorable to such third party than those provided
for in the letter agreement, dated June 9, 1999, between Parent and the
Company with respect to confidentiality and other matters, if: (x) such Person
or group has submitted a Superior Proposal (as defined hereinafter); and (y)
in the opinion of the Company Board, determined only after consulting with
independent legal counsel to the Company, such action is required to discharge
the Company Board's fiduciary duties to the Company's stockholders under
applicable law and the failure to provide such information or access or to
engage in such discussions or negotiations would cause the Company Board to
violate its fiduciary duties to the Company's stockholders under applicable
law.
The Merger Agreement provides that the Company will promptly (but in no case
later than 24 hours) notify Parent in writing of the existence of any
proposal, discussion, negotiation or inquiry received by the Company regarding
any Acquisition Proposal, and the Company will immediately communicate to
Parent the terms of any proposal, discussion, negotiation or inquiry which it
may receive regarding any Acquisition Proposal (and will promptly provide to
Parent copies of any written materials received by the Company in connection
with such proposal, discussion, negotiation or inquiry) and the identity of
the party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other person in connection
with any Acquisition Proposal which was not previously provided to Parent. The
Company will keep Parent informed of the status and details of any such
Acquisition Proposal and of any amendments or proposed amendments to any
Acquisition Proposal and of the status of any discussions or negotiations
relating to any Acquisition Proposal and will promptly (but in no case later
than 24 hours) notify Parent of any determination by the Company Board that a
Superior Proposal has been made.
The Merger Agreement provides that, except as set forth in this paragraph,
neither the Company Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Company Board of the Offer,
the Merger Agreement or the Merger, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) enter into any
agreement with respect to any Acquisition Proposal. Notwithstanding the
foregoing, subject to compliance with applicable provisions of the Merger
Agreement, prior to the time of acceptance for payment of Shares pursuant to
the Offer, the Company Board may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement or the Merger, approve or
recommend a Superior Proposal, or enter into an agreement with respect to a
Superior Proposal, in each case at any time after the third business day
following Parent's receipt of written notice (including by facsimile) from the
Company advising Parent that the Company Board has received a Superior
Proposal which it intends to accept, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal.
The Merger Agreement provides that nothing contained therein, and no action
taken by the Company Board pursuant to the foregoing, will (i) permit the
Company to enter into any agreement providing for any transaction contemplated
by an Acquisition Proposal for as long as the Merger Agreement remains in
effect or (ii) affect in any manner any other obligation of the Company under
the Merger Agreement.
For purposes of the Merger Agreement, "Acquisition Proposal" means any bona
fide offer, proposal or other indication of interest regarding any of the
following (other than the transactions provided for in the Merger Agreement
involving the Company): (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction involving
the Company or any of its subsidiaries; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or a significant
portion of the assets of the Company and its subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any purchase
of, or tender offer or exchange offer for, 15% percent or more of the
outstanding shares of capital stock
27
<PAGE>
of the Company or the filing of a registration statement under the Securities
Act in connection therewith; or (iv) any public announcement of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing. For purposes of the Merger Agreement, "Superior Proposal"
means an unsolicited Acquisition Proposal on terms which the Company Board
determines in good faith to be more favorable to the Company's stockholders
than the Offer and the Merger (based on advice of the Company's independent
financial advisor that the value of the consideration provided for in such
proposal is superior to the value of the consideration provided for in the
Offer and the Merger) for which financing, to the extent required, is then
committed or which, in the good faith reasonable judgment of the Company
Board, based on advice from the Company's independent financial advisor, is
reasonably capable of being financed by such third party and which, in the
good faith reasonable judgment of the Company Board, is reasonably likely to
be consummated within a period of time not materially longer in duration than
the period of time reasonably believed to be necessary to consummate the Offer
and the Merger.
In the Merger Agreement, the Company has further agreed to use its best
efforts to enforce any "standstill" provisions or similar restrictions on
Acquisition Proposals by any third party and, so long as the Merger Agreement
is in effect, not to amend or waive any such "standstill" provision.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of matters presented in connection with the Merger by the
stockholders of the Company:
(a) By the mutual written consent of Parent and the Company; provided,
that if Parent shall have a majority of the directors, such consent of the
Company may only be given if approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting
the transactions contemplated by the Merger Agreement on the terms
contemplated by the Merger Agreement or (ii) any governmental entity shall
have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties to the Merger Agreement
shall use their reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) By either Parent or the Company if the Offer shall not have been
consummated on or before October 31, 1999; provided, that the party seeking
to terminate the Merger Agreement shall not have breached in any material
respect its obligations under the Merger Agreement.
(d) By the Company: (i) if the Company has entered into an agreement with
respect to a Superior Proposal or the Company or has approved or
recommended a Superior Proposal; provided, the Company has complied with
all applicable provisions of the Merger Agreement relating to the
prohibition on solicitation of Acquisition Proposals, including the notice
provisions therein, and that it simultaneously terminates the Merger
Agreement and makes simultaneous payment to Parent of the Termination Fee
(as defined herein) and the Expenses (as defined herein); or (ii) if Parent
or Purchaser shall have terminated the Offer or the Offer expires without
Parent or Purchaser, as the case may be, purchasing any Shares in the
Offer; provided, that the Company may not terminate the Merger Agreement if
the Company is in material breach of the Merger Agreement; or (iii) if
Parent, Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the
initial public announcement of the Offer; provided, that the Company may
not terminate the Merger Agreement if the Company is in material breach of
the Merger Agreement; or (iv) if there shall be a material breach by either
Parent or Purchaser of any of their representations, warranties, covenants
or agreements contained in the Merger Agreement, except where such breach
does not have a material adverse effect on the ability of Parent or
Purchaser to consummate the Offer or the Merger.
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<PAGE>
(e) By Parent or Purchaser: (i) (A) if prior to the purchase of the
Shares pursuant to the Offer, the Company Board shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser, its
approval or recommendation of the Offer, the Merger Agreement or the Merger
or shall have recommended or approved, or taken a neutral position with
respect to, an Acquisition Proposal or upon request of Parent, shall fail
to reaffirm its approval and recommendation of the Offer, the Merger
Agreement or the Merger; or (B) if there shall have been a material breach
by the Company of any provision of the Merger Agreement relating to the
prohibition on solicitation of Acquisition Proposals; or (ii) if Parent or
Purchaser shall have terminated the Offer without Parent or Purchaser
purchasing any Shares due to a failure to satisfy any of the conditions to
the Offer; provided, that Parent or Purchaser may not terminate the Merger
Agreement if Parent or Purchaser is in material breach of the Merger
Agreement; or (iii) if there shall be a material breach by the Company of
any of its representations, warranties, covenants or agreements contained
in the Merger Agreement.
Termination Fee. If (i) Parent or Purchaser terminates the Merger Agreement
pursuant to clauses (e)(i)(A) or (B), or (ii) the Company terminates the
Merger Agreement pursuant to clause (d)(i) under the heading "Termination"
above, then in each case, the Company shall pay, or cause to be paid to
Parent, at the time of termination, an amount equal to $6,500,000 (the
"Termination Fee") plus an amount equal to Parent's and Purchaser's actual and
reasonably documented out-of-pocket expenses incurred by Parent or Purchaser
in connection with the Offer, the Merger, the Merger Agreement and the
consummation of the transactions contemplated thereby in an amount not to
exceed $850,000 (the "Expenses"). In addition, if the Merger Agreement is
terminated by Parent pursuant to clause (e)(iii) under the heading
"Termination" above and if the Company shall within ninety (90) days of such
termination enter into an agreement with respect to an Acquisition Proposal,
then the Company shall pay to Parent the Termination Fee and Expenses
concurrently with entering into any such agreement.
Indemnification. Pursuant to the Merger Agreement, Parent and Purchaser have
agreed that, for a period of six years after the Effective Time, the
provisions with respect to indemnification set forth in the certificate of
incorporation and by-laws of Purchaser as in effect on the date of the Merger
Agreement shall not be amended, repealed or otherwise modified in any manner
that would adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were directors or officers of the Company in
respect of actions or omissions occurring at or prior to the Effective Time
(including without limitation the transactions contemplated by the Merger
Agreement), unless such modification is required by law.
The Merger Agreement also provides that, from and after the Effective Time,
Parent shall, or shall cause the Surviving Corporation to, indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date of the Merger Agreement or who becomes prior to the Effective Time, an
officer or director of the Company (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees
and expenses), liabilities or judgments or amounts that are paid in settlement
with the approval of the indemnifying party (which approval shall not be
unreasonably withheld) incurred in connection with any threatened or actual
action, suit or proceeding based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of
the Company ("Indemnified Liabilities"), including all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out of, the
Merger Agreement or the transactions contemplated thereby, in each case, to
the full extent that a corporation is permitted under the DGCL to indemnify
its own directors or officers, as the case may be. In the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Party, the indemnifying party shall assume and direct all aspects
of the defense thereof, including settlement, and the Indemnified Party shall
cooperate in the vigorous defense of any such matter. The Indemnified Party
shall have a right to participate in (but not control) the defense of any such
matter with its own counsel and at its own expense. The indemnifying party
shall not settle any such matter unless (i) the Indemnified Party gives prior
written consent, which shall not be unreasonably withheld, or (ii) the terms
of the settlement provide that the Indemnified Party shall have no
responsibility for the discharge of any settlement amount and impose no other
obligations or duties on the Indemnified Party and the settlement discharges
all rights against the Indemnified Party with respect to such
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matter. In no event shall the indemnifying party be liable for any settlement
effected without its prior written consent. Any Indemnified Party wishing to
claim indemnification under the Merger Agreement, upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly notify Parent
and the Surviving Corporation (but the failure so to notify shall not relieve
the indemnifying party from any liability which it may have under the Merger
Agreement except to the extent such failure prejudices such indemnifying
party), and shall deliver to Parent and the Surviving Corporation the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified
Parties as a group will be represented by a single law firm with respect to
each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two
or more Indemnified Parties. The rights to indemnification under the Merger
Agreement as set forth in this paragraph shall continue in full force and
effect for a period of six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Indemnified Liabilities
asserted or made within such period shall continue until the disposition of
such Indemnified Liabilities.
The Merger Agreement provides that, for a period of two years after the
Effective Time, Parent shall cause to be maintained in effect policies of
directors' and officers' liability insurance, for the benefit of those persons
who are covered by the Company's directors' and officers' liability insurance
policies at the Effective Time, providing coverage with respect to matters
occurring prior to the Effective Time that is at least equal to the coverage
provided under the Company's current directors' and officers' liability
insurance policies, to the extent that such liability insurance can be
maintained at an annual cost to Parent not greater than 150 percent of the
premium for the current Company directors' and officers' liability insurance;
provided that if such insurance cannot be so maintained at such cost, Parent
shall maintain as much of such insurance as can be so maintained at a cost
equal to 150 percent of the current annual premiums of the Company for such
insurance.
Stockholder Agreements
The following is a summary of certain provisions of the Stockholder
Agreements. This summary is not a complete description of the terms and
conditions of the Stockholder Agreements and is qualified in its entirety by
reference to the full text of the forms of Stockholder Agreement with respect
to certain significant stockholders of the Company, and the form of
Stockholder Agreement with respect to directors and certain executive officers
of the Company, each as filed with the Commission as an exhibit to the
Schedule 14D-1 and incorporated herein by reference. Capitalized terms not
otherwise defined below shall have the meanings set forth in the Merger
Agreement or the Stockholder Agreements, as the context may require. The
Stockholder Agreements may be examined, and copies obtained, as set forth in
Section 9 of this Offer to Purchase.
As a condition and inducement to Parent's entering into the Merger Agreement
and incurring the liabilities therein, the Stockholders, Norwest Equity
Partners IV, Norwest Equity Partners V, St. Paul Fire and Marine Insurance
Company, St. Paul Venture Capital IV, L.L.C., and certain of the senior
executive officers and all of the directors of the Company, who collectively
have voting power and dispositive power with respect to an aggregate of
6,305,846 Shares, concurrently with the execution and delivery of the Merger
Agreement entered into the Stockholder Agreements with Parent. Pursuant to the
Stockholder Agreements, the Stockholders have agreed, among other things, to
grant Parent an irrevocable proxy with respect to the voting of their Shares
in favor of the Merger and against any other Acquisition Proposal with respect
to such Shares upon the terms and subject to the conditions set forth therein.
The Stockholders have also granted to Parent an option to purchase the Shares
subject to the Stockholder Agreements, at an option price of $6.50 per Share
or any higher price paid or to be paid pursuant to the Offer, during the
period (the "Option Period") commencing on the date of the Stockholder
Agreements and continuing through the earlier to occur of (i) the Effective
Time of the Merger, (ii) the six month anniversary of the date, if any, on
which the Merger Agreement is terminated pursuant to clauses (d)(i), (e)(i)(A)
or (e)(i)(B) under the subheading "Termination" under the heading "Merger
Agreement", above, or (iii) 90 days after the date, if any, on which the
Merger Agreement is terminated pursuant to clause (e)(iii) under the
subheading "Termination" under the heading "Merger Agreement", above. The
Stockholders have advised Parent that they intend to tender their Shares
pursuant to the Offer. If Purchaser purchases Shares pursuant to the Offer,
Purchaser intends to exercise its option pursuant to the Stockholder
Agreements to purchase all Shares that are not tendered by any Stockholder.
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During the Option Period, each Stockholder has agreed not to: (A) except
pursuant to the terms of the Stockholder Agreement and for the tender of
Shares in the Offer, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement to do so; (B) except pursuant to the terms of the Stockholder
Agreement, grant any proxies or powers of attorney, deposit any of their
Shares into a voting trust or enter into a voting agreement with respect to
any of their Shares; or (C) take any action that would make any representation
or warranty contained in the Stockholder Agreement untrue or incorrect or have
the effect of impairing the ability of the Stockholder to perform the
Stockholder's obligations under the applicable Stockholder Agreement or
preventing or delaying the consummation of any of the transactions
contemplated by the applicable Stockholder Agreement and the Merger Agreement.
Each of the Stockholders entering into a Stockholder Agreement has agreed to
unconditionally release, as of the Effective Time, any and all claims and
causes of action that such Stockholder may have against the Company or any of
its subsidiaries or any present or former director, officer, employee or agent
of the Company or any of its subsidiaries (collectively, the "Released
Parties") resulting from any act, omission or occurrence prior to the
Effective Time; provided, however, that such release by the Stockholders who
are directors and/or officers of the Company shall not apply to any claim or
cause of action insofar as it relates to rights to indemnification under the
Company's Certificate of Incorporation or Bylaws or any entitlement to
compensation or benefits earned or accrued by or for the benefit of such
Stockholders prior to the Effective Time in respect of services performed by
such Stockholders to the Company, in the ordinary course of business, as a
director or officer of the Company.
Each Stockholder has agreed that, in the capacity as a stockholder, it will
not respond to any inquiries or the making of any proposal by any person or
entity (other than Parent or any affiliate of Parent) concerning any business
combination, merger, tender offer, exchange offer, sale of assets, sale of
shares of capital stock or debt securities or similar transactions involving
the Company or any subsidiary, division or operating or principal business
unit of the Company. If any Stockholder, receives any such inquiry or
proposal, then the Stockholder has agreed to promptly inform Parent of the
existence thereof. Each Stockholder has agreed to immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties previously conducted with respect to any of the foregoing.
Exclusivity Agreement
The following is a summary of certain provisions of the Exclusivity
Agreement. This summary is not a complete description of the terms and
conditions of the Exclusivity Agreement and is qualified in its entirety by
reference to the full text of the Exclusivity Agreement filed with the
Commission as an exhibit to the Schedule 14D-1 and incorporated herein by
reference. Capitalized terms not otherwise defined below shall have the
meanings set forth in the Exclusivity Agreement. The Exclusivity Agreement may
be examined, and copies obtained, as set forth in Section 9 of this Offer to
Purchase.
In connection with the negotiation of the Merger Agreement, on July 7, 1999,
Parent and the Company entered into a letter agreement (the "Exclusivity
Agreement") in order to induce Parent to continue negotiations with the
Company with respect to the terms of a potential acquisition transaction. The
Exclusivity Agreement provided that until the earlier of 5:00 p.m., Dallas,
Texas time, on July 22, 1999 and the execution of a definitive agreement
relating to a potential acquisition of the Company (the "Exclusivity Period"),
the Company and its affiliates and representatives will discontinue any
solicitation efforts, discussions or negotiations with respect to, and will
not directly or indirectly initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any action to facilitate, any
inquiries, expressions of interest or the making of any proposal that
constitutes, or may be reasonably expected to lead to, an acquisition proposal
with any person other than Parent. The Company also agreed during the
Exclusivity Period not to enter into discussions or negotiations with any
other person concerning an acquisition proposal or to endorse such other
proposal. The Exclusivity Agreement terminated upon Parent, Purchaser and the
Company entering into the Merger Agreement.
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12. Plans for the Company; Other Matters.
Plans for the Company
Parent is conducting a detailed review of the Company and its business,
operations, assets, corporate structure, capitalization, properties, policies,
management and personnel with a view towards determining how to optimally
realize the potential synergies that exist between the operations of the
Company and those of Parent's Information Management Group. Following such
review, Parent will consider what, if any, changes would be desirable in light
of the circumstances then existing. Such changes could include, among other
things, changes in the Company's business, corporate structure, certificate of
incorporation, by-laws, capitalization or management. Following the
consummation of the Offer, it is currently anticipated that Parent's
Information Management Group will add a third division comprised of the
Company's domestic operations and the Company's international operations will
be combined with Parent's Information Management Group's international
operations.
Assuming the Minimum Condition is satisfied and Purchaser purchases Shares
pursuant to the Offer, Parent intends to exercise promptly its rights under
the Merger Agreement to obtain majority representation on, and control of, the
Company Board. See "Section 11-Merger Agreement-The Company Board" above.
Parent will exercise such rights by causing the Company to elect to the
Company Board Sterling L. Williams, Geno P. Tolari, R. Logan Wray, and Don J.
McDermett, Jr. Information with respect to such directors is contained in
Schedule I hereto. The Merger Agreement provides that, upon the purchase of
and payment for any Shares by Parent or any of its subsidiaries pursuant to
the Offer, Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board such that the
percentage of its designees on the Company Board shall equal the percentage of
the outstanding Shares beneficially owned by Parent and its affiliates at such
time. See Section 11. The Merger Agreement provides that the directors of
Purchaser and the officers of the Company at the Effective Time of the Merger
will, from and after the Effective Time, be the initial directors and
officers, respectively, of the Surviving Corporation.
Purchaser or an affiliate of Purchaser may, following the consummation or
termination of the Offer, seek to acquire additional Shares through open
market purchases, privately negotiated transactions, a tender offer or
exchange offer or otherwise, upon such terms and at such prices as it shall
determine, which may be more or less than the price to be paid pursuant to the
Offer. Purchaser and its affiliates also reserve the right to dispose of any
or all Shares acquired by them, subject to the terms of the Merger Agreement.
Except as disclosed in this Offer to Purchase, and except as may be effected
in connection with the integration of operations referred to above, neither
Parent nor Purchaser has any present plans or proposals that would result in
an extraordinary corporate transaction, such as a merger, reorganization,
liquidation, relocation of operations, or sale or transfer of a material
amount of assets, involving the Company or any of its subsidiaries, or any
material changes in the Company's capitalization, corporate structure,
business or composition of its management or the Company Board.
Other Matters
Stockholder Approval. Under the DGCL, the approval of the Company Board and
the affirmative vote of the holders of a majority of the outstanding Shares
are required to adopt and approve the Merger Agreement and transactions
contemplated thereby. The Company has represented in the Merger Agreement that
the execution and delivery of the Merger Agreement by the Company and the
consummation by the Company of the transactions contemplated by the Merger
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, subject to the approval of the Merger by the Company's
stockholders in accordance with the DGCL. The Company has also approved the
Merger Agreement and the Stockholder Agreements for purposes of Section 203 of
the DGCL and has represented to Parent and Purchaser that the restrictions on
certain business combinations contained in Section 203 of the DGCL are not
applicable to the Merger Agreement, the Stockholder Agreements and the
transactions contemplated thereby. In addition, the Company has represented
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that the affirmative vote of the holders of a majority of the outstanding
Shares is the only vote of the holders of any class or series of the Company's
capital stock which is necessary to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger. Therefore, unless the
Merger is consummated pursuant to the short-form merger provisions under the
DGCL described below (in which case no further corporate action by the
stockholders of the Company will be required to complete the Merger), the only
remaining required corporate action of the Company will be the approval of the
Merger Agreement and the transactions contemplated thereby by the affirmative
vote of the holders of a majority of the Shares. The Merger Agreement provides
that Parent will vote, or cause to be voted, all of the Shares then owned by
Parent, Purchaser or any of Parent's other subsidiaries and affiliates in
favor of the approval of the Merger and the adoption of the Merger Agreement.
In the event that Parent, Purchaser and Parent's other subsidiaries acquire in
the aggregate at least a majority of the Shares entitled to vote on the
approval of the Merger and the Merger Agreement, they would have the ability
to effect the Merger without the affirmative votes of any other stockholders.
Short-Form Merger. Section 253 of the DGCL provides that, if a corporation
owns at least 90% of the outstanding shares of each class of another
corporation, the corporation holding such stock may merge itself into such
corporation without any action or vote on the part of the board of directors
or the stockholders of such other corporation (a "short-form merger"). In the
event that Parent, Purchaser and any other subsidiaries of Parent acquire in
the aggregate at least 90% of the outstanding Shares, pursuant to the Offer or
otherwise, then, at the election of Parent, a short-form merger could be
effected without any approval of the Company Board or the stockholders of the
Company, subject to compliance with the provisions of Section 253 of the DGCL.
Additionally, if, immediately prior to the Expiration Date of the Offer (as it
may be extended), the Shares tendered and not withdrawn pursuant to the Offer
constitute more than 75% and less than 90% of the outstanding Shares,
Purchaser may extend the Offer for one or more periods not to exceed an
aggregate of 15 business days, notwithstanding that all conditions to the
Offer are satisfied as of such Expiration Date of the Offer, in order to
obtain tenders of a sufficient number of additional Shares to allow it to
effect a short-form merger. Even if Parent and Purchaser do not own 90% of the
outstanding Shares following consummation of the Offer, Parent and Purchaser
could seek to purchase additional Shares in the open market or otherwise in
order to reach the 90% threshold and employ a short-form merger. The per Share
consideration paid for any Shares so acquired may be greater or less than that
paid in the Offer. Parent presently intends to effect a short-form merger if
permitted to do so under the DGCL.
Appraisal Rights. Holders of the Shares do not have appraisal rights in
connection with the Offer. However, if the Merger is consummated, holders of
the Shares at the Effective Time will have certain rights pursuant to the
provisions of Section 262 of the DGCL including the right to dissent and
demand appraisal of, and to receive payment in cash of the fair value of,
their Shares. Under Section 262 of the DGCL, dissenting stockholders of the
Company who comply with the applicable statutory procedures will be entitled
to receive a judicial determination of the fair value of their Shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest thereon, if any. Any such judicial
determination of the fair value of the Shares could be based upon factors
other than, or in addition to, the price per Share to be paid in the Merger or
the market value of the Shares. The value so determined could be more or less
than the price per Share to be paid in the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE DGCL
DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED
BY STOCKHOLDERS DESIRING TO EXERCISE ANY APPRAISAL RIGHTS AVAILABLE UNDER THE
DGCL. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may
under certain circumstances be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer in which
Purchaser seeks to acquire the remaining Shares not held by it. Purchaser
believes, however, that Rule 13e-3 will not be
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applicable to the Merger because it is anticipated that the Merger would be
effected within one year following consummation of the Offer and in the Merger
stockholders would receive the same price per Share as paid in the Offer. If
Rule 13e-3 were applicable to the Merger, it would require, among other
things, that certain financial information concerning the Company, and certain
information relating to the fairness of the proposed transaction and the
consideration offered to minority stockholders in such a transaction, be filed
with the Commission and disclosed to minority stockholders prior to
consummation of the transaction.
13. Dividends and Distributions.
As described above, the Merger Agreement provides that during the period
from the date of the Merger Agreement to the Effective Time, the Company shall
not, and shall not permit any of its subsidiaries to, without the prior
consent of Parent, (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in respect
of, any of its outstanding capital stock (other than, with respect to a
subsidiary of the Company, to its corporate parent), (B) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its outstanding capital stock, or (C) purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any rights,
warrants or options to acquire any such shares.
14. Conditions to the Offer.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may delay
the acceptance for payment of or, subject to the restriction referred to
above, the payment for, any tendered Shares, and may amend the Offer
consistent with the terms of the Merger Agreement or terminate the Offer and
not accept for payment any tendered Shares, if (i) the Minimum Condition is
not satisfied by the Expiration Date, (ii) any applicable waiting period under
the HSR Act has not expired or been terminated, or (iii) at any time on or
after July 15, 1999 and prior to the Expiration Date, any of the following
events shall occur or shall be determined by Parent or Purchaser to have
occurred:
(a) there shall be threatened or pending any suit, action or proceeding
(i) seeking to prohibit or impose any material limitations on Parent's or
Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, (ii) seeking to compel Parent or Purchaser
or their respective subsidiaries and affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or
Parent and their respective subsidiaries, in each case taken as a whole,
(iii) challenging the acquisition by Parent or Purchaser of any Shares
pursuant to the Offer, (iv) seeking to restrain or prohibit the making or
consummation of the Offer or the Merger or the performance of any of the
transactions contemplated by the Merger Agreement, (v) seeking to obtain
from the Company any damages (including damages against the Company's
directors or officers for which they may seek indemnification from the
Company) that would be reasonably likely to have a Material Adverse Effect
on the Company, (vi) seeking to impose material limitations on the ability
of Purchaser, or rendering Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares pursuant to the Offer and the Merger,
(vii) seeking to impose material limitations on the ability of Purchaser or
Parent effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by
Purchaser or Parent on all matters properly presented to the Company's
stockholders, or (viii) which otherwise is reasonably likely to have a
Material Adverse Effect on the Company or, as a result of the transactions
contemplated by the Merger Agreement, Parent and its subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
governmental entity, other than the application to the Offer or the Merger
of applicable waiting periods under the HSR Act, that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (viii) of paragraph (a) above; or
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(c) the representations and warranties of the Company set forth in the
Merger Agreement which are not qualified by "materiality" or "Material
Adverse Effect" shall not be true and accurate in all material respects,
and the representations and warranties that are qualified by "materiality"
or "Material Adverse Effect" shall not be true and accurate in all
respects, in each case as of the date of consummation of the Offer as
though made on or as of such date (except for those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate
as of such date or with respect to such period) or the Company shall have
breached or failed to perform or comply in any material respect with any
material obligation, agreement or covenant required by the Merger Agreement
to be performed or complied with by it; or
(d) there shall have occurred any event, change, occurrence, effect or
circumstance which has had, individually or in the aggregate, a Material
Adverse Effect on the Company other than a Material Adverse Effect
resulting principally from the announcement of the Offer or the Merger;
provided, however, that if the Company's software license revenue
(recognized by the Company in accordance with generally accepted accounting
principles, consistently applied) for the fiscal quarter ending July 31,
1999 ("Current License Revenue") is greater than the software license
revenue publicly reported by the Company for the quarter ended April 30,
1999, then such Current License Revenue shall not be taken into account in
determining whether there is or could be a Material Adverse Effect; or
(e) the Company Board (i) shall have withdrawn, or modified or changed in
a manner adverse to Parent or Purchaser (including by amendment of the
Schedule 14D-9) its recommendation of the Offer, the Merger Agreement or
the Merger, (ii) shall have recommended or remained neutral with respect to
an Acquisition Proposal, (iii) shall have adopted any resolution to effect
any of the foregoing, or (iv) upon request of Parent, shall fail to
reaffirm its approval or recommendation of the Offer, the Merger Agreement
or the Merger; or
(f) the Merger Agreement shall have been terminated in accordance with
its terms; or
(g) the Stockholders shall have failed to comply with their obligations
under the Stockholder Agreements;
which in the sole good faith judgment of Parent or Purchaser, in any such
case, and regardless of the circumstances (including any action or inaction by
Parent or Purchaser) giving rise to such condition, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment
for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may (except for the Minimum Condition) be waived by Parent or Purchaser,
in whole or in part, at any time and from time to time, in the sole discretion
of Parent or Purchaser. The failure by Parent or Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
15. Certain Legal Matters.
General. Except as described in this Section 15, based on information
provided by the Company, none of the Company, Purchaser or Parent is aware of
(i) any license or regulatory permit that appears to be material to the
business of the Company and its subsidiaries, taken as a whole, that might be
adversely affected by the acquisition of Shares by Parent or Purchaser
pursuant to the Offer, the Merger or otherwise, or (ii) except as set forth
herein, any approval or other action by any governmental, administrative or
regulatory agency or authority, domestic or foreign, that would be required
prior to the acquisition of Shares by Purchaser pursuant to the Offer, the
Merger or otherwise. Should any such approval or other action be required,
Purchaser and Parent presently contemplate that such approval or other action
will be sought, except as described below under "State Antitakeover Statutes."
While, except as otherwise described in this Offer to Purchase, Purchaser does
not
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presently intend to delay the acceptance for payment of, or payment for,
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
failure to obtain any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of, or other substantial
conditions complied with, in the event that such approvals were not obtained
or such other actions were not taken or in order to obtain any such approval
or other action. If certain types of adverse action are taken with respect to
the matters discussed below, Purchaser could decline to accept for payment, or
pay for, any Shares tendered. See Section 14 for certain conditions to the
Offer, including conditions with respect to governmental actions.
State Antitakeover Statutes. Section 203 of the DGCL, in general, prohibits
a Delaware corporation, such as the Company, from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers) with an
"Interested Stockholder" (defined generally as a person that is the beneficial
owner of 15% or more of the outstanding voting stock of the subject
corporation) for a period of three years following the date that such person
became an Interested Stockholder unless, prior to the date such person became
an Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder. The provisions of Section 203
of the DGCL are not applicable to any of the transactions contemplated by the
Merger Agreement or the Stockholder Agreements, because the Merger Agreement,
the Stockholder Agreements and the transactions contemplated thereby were
approved by the Company Board prior to the execution thereof.
A number of states have adopted laws and regulations that purport to apply
to attempts to acquire corporations that are incorporated in such states, or
whose business operations have substantial economic effects in such states, or
which have substantial assets, security holders, employees, principal
executive offices or principal places of business in such states. In Edgar v.
MITE Corp., the Supreme Court of the United States (the "Supreme Court")
invalidated on constitutional grounds the Illinois Business Takeover statute,
which, as a matter of state securities law, made certain corporate
acquisitions more difficult. However, in 1987, in CTS Corp. v. Dynamics Corp.
of America, the Supreme Court held that the State of Indiana may, as a matter
of corporate law and, in particular, with respect to those aspects of
corporate law concerning corporate governance, constitutionally disqualify a
potential acquirer from voting on the affairs of a target corporation without
the prior approval of the remaining stockholders. The state law before the
Supreme Court was by its terms applicable only to corporations that had a
substantial number of stockholders in the state and were incorporated there.
Parent and Purchaser do not believe that the antitakeover laws and
regulations of any state other than the State of Delaware will by their terms
apply to the Offer, and, except as set forth above with respect to Section 203
of the DGCL, neither Parent nor Purchaser has attempted to comply with any
state antitakeover statute or regulation. Purchaser reserves the right to
challenge the applicability or validity of any state law purportedly
applicable to the Offer and nothing in this Offer to Purchase or any action
taken in connection with the Offer is intended as a waiver of such right. If
it is asserted that any state antitakeover statute is applicable to the Offer
and an appropriate court does not determine that it is inapplicable or invalid
as applied to the Offer, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer or may be delayed in consummating the
Offer. In such case, Purchaser may not be obligated to accept for payment, or
pay for, any Shares tendered pursuant to the Offer. See Section 14.
Antitrust. The Offer and the Merger are subject to the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied.
Parent filed its Notification and Report Form with respect to the Offer
under the HSR Act on July 20, 1999. The waiting period under the HSR Act with
respect to the Offer will expire at 11:59 p.m., New York City time,
36
<PAGE>
on August 4, 1999, the fifteenth day after the date Parent's form was filed,
unless early termination of the waiting period is granted. However, the DOJ or
the FTC may extend the waiting period by requesting additional information or
documentary material from Parent or the Company. If such a request is made,
such waiting period will expire at 11:59 p.m., New York City time, on the
tenth day after substantial compliance by Parent with such request. Only one
extension of the waiting period pursuant to a request for additional
information is authorized by the HSR Act. Thereafter, such waiting period may
be extended only by court order or with the consent of Parent. In practice,
complying with a request for additional information or material can take a
significant amount of time. In addition, if the DOJ or the FTC raises
substantive issues in connection with a proposed transaction, the parties
frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Purchaser
will not accept for payment Shares tendered pursuant to the Offer unless and
until the waiting period requirements imposed by the HSR Act with respect to
the Offer have been satisfied. See Section 14.
The FTC and the DOJ frequently scrutinize the legality under the Antitrust
Laws (as defined below) of transactions such as Purchaser's acquisition of
Shares pursuant to the Offer and the Merger. At any time before or after
Purchaser's acquisition of Shares, the DOJ or the FTC could take such action
under the Antitrust Laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to
the Offer or otherwise seeking divestiture of Shares acquired by Purchaser or
divestiture of substantial assets of Parent or its subsidiaries. Private
parties, as well as state governments, may also bring legal action under the
Antitrust Laws under certain circumstances. Based upon an examination of
information provided by the Company relating to the businesses in which Parent
and the Company are engaged, Parent and Purchaser believe that the acquisition
of Shares by Purchaser will not violate the Antitrust Laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition
of Shares by Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 14 for certain conditions to the
Offer, including conditions with respect to litigation and certain
governmental actions.
As used in this Offer to Purchase, "Antitrust Laws" shall mean and include
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other Federal and state
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit, restrict
or regulate actions having the purpose or effect of monopolization or
restraint of trade.
Federal Reserve Board Regulations. Regulations G, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or
maintenance of credit for the purpose of buying or carrying margin stock,
including the Shares, if the credit is secured directly or indirectly by
margin stock. Such secured credit may not be extended or maintained in an
amount that exceeds the maximum loan value of all the direct and indirect
collateral securing the credit, including margin stock and other collateral.
16. Fees and Expenses.
Parent has retained Deutsche Bank Securities Inc. ("Deutsche Banc Alex.
Brown") to act as Dealer Manager in connection with the Offer. Parent has also
retained Deutsche Banc Alex. Brown to provide certain financial advisory
services to Parent in connection with its efforts to acquire the Company.
Pursuant to its engagement letter with Deutsche Banc Alex. Brown, Parent has
agreed to pay Deutsche Banc Alex. Brown a fee of $1,630,000 in the event that
Parent consummates an acquisition transaction with respect to the Company,
through purchase, merger, joint venture or otherwise, whether effected in a
single transaction or a series of related transactions, of 50% or more of the
voting power or all or a substantial portion of the business or assets of the
Company (a "Transaction"). Deutsche Banc Alex. Brown will be entitled to the
fees set forth in the preceding sentence if at any time prior to the first
anniversary of the date, if any, of termination of Parent's engagement of
Deutsche Banc Alex. Brown (i) a Transaction is consummated with Parent or (ii)
Parent enters into a definitive
37
<PAGE>
agreement which results in a Transaction. Parent will not pay Deutsche Banc
Alex. Brown any additional fee for acting in its capacity as Dealer Manager in
connection with the Offer. Parent has also agreed to reimburse Deutsche Banc
Alex. Brown, regardless of whether any Transaction is consummated, for all
reasonable fees and disbursements of legal counsel, up to a maximum amount of
$15,000, and reasonable travel and other out-of-pocket expenses incurred in
connection with any actual or proposed Transaction or otherwise arising out of
Deutsche Banc Alex. Brown's engagement, and to indemnify Deutsche Banc Alex.
Brown and its affiliates and control persons, directors, officers, employees
and agents to the full extent lawful against certain liabilities and expenses
in connection with its engagement, including certain liabilities under the
federal securities laws. Deutsche Banc Alex. Brown has rendered various
investment banking services and other advisory services to Parent and its
affiliates in the past and is expected to continue to render such services,
for which they have received and will continue to receive customary
compensation from Parent and its affiliates. In the ordinary course of
business, Deutsche Banc Alex. Brown and its affiliates are engaged in
securities trading and brokerage activities as well as investment banking and
financial advisory services. In the ordinary course of their trading and
brokerage activities, Deutsche Banc Alex. Brown and its affiliates may hold
positions, for their own account or the account of customers, in equity, debt
or other securities of Parent, the Company or any other company that may be
involved in the Transaction.
Purchaser and Parent have retained Georgeson Shareholder Communications Inc.
to serve as the Information Agent and Harris Trust Company of New York to
serve as the Depositary in connection with the Offer. The Dealer Manager and
the Information Agent may contact holders of Shares by personal interview,
mail, telephone, telex, telegraph and other methods of electronic
communication and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward the Offer materials to beneficial
holders. The Information Agent and the Depositary will each receive reasonable
and customary compensation for their services, be reimbursed for certain
reasonable out-of-pocket expenses and be indemnified against certain
liabilities in connection with their services, including certain liabilities
and expenses under the federal securities laws.
Except as set forth above, neither Parent nor Purchaser will pay any fees or
commissions to any broker or dealer or other person or entity in connection
with the solicitation of tenders of Shares pursuant to the Offer (other than
the Dealer Manager and the Information Agent). Brokers, dealers, banks and
trust companies will be reimbursed by Purchaser for customary mailing and
handling expenses incurred by them in forwarding the Offer materials to their
customers.
17. Miscellaneous.
Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of the Shares pursuant thereto,
Purchaser shall make a good faith effort to comply with such statute or seek
to have such statute declared inapplicable to the Offer. If, after such good
faith effort, Purchaser cannot comply with such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by the Dealer Manager
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser and Parent have filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act, together with exhibits,
furnishing certain additional information with respect to the Offer. In
addition, the Company has filed with the Commission the Schedule 14D-9
pursuant to Rule 14d-9 under the
38
<PAGE>
Exchange Act, setting forth its recommendation with respect to the Offer and
the reasons for its recommendation and furnishing certain additional related
information. Such Schedules and any amendments thereto, including exhibits,
should be available for inspection and copies should be obtainable in the same
manner set forth in Section 9 of this Offer to Purchase (except that such
material will not be available at the regional offices of the Commission).
Sterling Software Acquisition Corp.
July 21, 1999
39
<PAGE>
SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND
PURCHASER
1. Directors and Executive Officers of Parent. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years, of
each director and executive officer of Parent. Unless otherwise indicated,
each such person is a citizen of the United States of America and the business
address of each such person is c/o Sterling Software, Inc. 300 Crescent Court,
Suite 1200, Dallas, Texas 75201. Unless otherwise indicated, each occupation
set forth opposite an individual's name refers to employment with Parent.
Unless otherwise indicated, each such person has held his or her present
occupation as set forth below, or has been an executive officer at Parent for
the past five years.
Name Present Principal Occupation or Employment;
Material Positions Held During the Past Five Years
Sam Wyly Mr. Wyly has served as Chairman of the Board of
Directors of Parent since co-founding Parent in
1981. Mr. Wyly currently serves as a director of
Sterling Commerce, Inc., a provider of electronic
commerce software and network services ("Sterling
Commerce"), as Chairman of the Board of Directors
of Michael Stores, Inc., a specialty retail chain
("Michaels"), as Chairman of the Board of Directors
of Scottish Annuity & Life Holdings, Ltd., a
variable life insurance and reinsurance company
("Scottish Annuity"), and as a partner of the
general partner of Maverick Capital. Ltd., an
investment fund management company founded by Mr.
Wyly ("Maverick"). Mr. Wyly is a member of the
Executive Committee and the 1996 and 1999 Stock
Option Committees of the Board of Directors of
Parent.
Charles J. Wyly, Jr. Mr. Wyly has served as a director of Parent since
co-founding Parent in 1981, and as Vice Chairman of
the Board of Directors of Parent since 1984. Mr.
Wyly currently serves as Vice Chairman of the Board
of Directors of Michaels, as a director of Scottish
Annuity and as a director of Sterling Commerce. Mr.
Wyly is a member of the Executive Committee and the
1996 and 1999 Stock Option Committees of the Board
of Directors of Parent.
Sterling L. Williams Mr. Williams has served as President, Chief
Executive Officer and a director of Parent since
co-founding Parent in 1981. Mr. Williams has served
as Chairman of the Board of Directors of Sterling
Commerce since December 1995. Mr. Williams served
as Chief Executive Officer of Sterling Commerce
from December 1995 to October 1996. Mr. Williams is
a member of the Executive Committee and the 1996
and 1999 Stock Option Committees of the Board of
Directors of Parent.
Geno P. Tolari Mr. Tolari has served as an Executive Vice
President of Parent since March 1990 and as Chief
Operating Officer of Parent since April 1996. Mr.
Tolari served as President of Parent's Systems
Management Group from December 1994 to February
1997 and as President of Parent's Federal Systems
Group from October 1985 to December 1994.
M. Gene Konopik Mr. Konopik has served as an Executive Vice
President of Parent and as President of Parent's
Federal Systems Group since December 1994. Mr.
Konopik served as President of Parent's Information
Technology Division from July 1993 to December
1994.
S-1
<PAGE>
Name Present Principal Occupation or Employment;
Material Positions Held During the Past Five Years
John R. Cook Mr. Cook has served as Senior Vice President,
Business Development of Parent since December 1997.
Mr. Cook served as Vice President, Business
Development of Parent's former Applications
Management Group from July 1997 to December 1997.
Mr. Cook served as Vice President and General
Manager-The Americas of the Software Division ("TI
Software") of Texas Instruments Incorporated, an
electronics company ("Texas Instruments"), from
January 1997 to July 1997 and as Vice President-
Strategy and New Business Creation of TI Software
from June 1995 to December 1996. Mr. Cook served as
the Chief Executive Officer of the BankA Enterprise
of Andersen Consulting from October 1993 to June
1995.
F.L. "Mike" Harvey Mr. Harvey has served as a Senior Vice President of
Parent since June 1997 and as President of Parent's
Systems Management Group since October 1998. Mr.
Harvey served as President of Parent's former
Applications Management Group from October 1996 to
October 1998. Mr. Harvey served as President of
Omega Consulting Group Inc., a software consulting
company, from March 1993 to June 1997.
Don J. McDermett, Jr. Mr. McDermett has served as Senior Vice President
and General Counsel of Parent since May 1997 and as
Secretary of Parent since October 1998. Mr.
McDermett served as Vice President, Legal of Parent
from July 1996 to May 1997. Prior to that time Mr.
McDermett was employed by Thompson & Knight, P.C.,
a Dallas-based law firm, having been a senior
shareholder in that firm's corporate practice group
since 1993.
B. Carole Morton Ms. Morton has served as a Senior Vice President of
Parent since October 1996, as President of Parent's
Information Management Group since October 1998 and
as President of Parent's Information Management
Division since October 1995. Ms. Morton served as
President of Parent's former Information Management
Group from October 1996 to June 1997. Ms. Morton
served as President of Parent's former Applications
Engineering Division from December 1994 to October
1995 and as President of Parent's former
Applications Management Division from July 1993 to
November 1994.
Mark A. Theel Mr. Theel has served as a Senior Vice President of
Parent since November 1998, as President of
Parent's Application Development Group since
October 1998 and as President of Parent's
Application Development Division since January
1996. Mr. Theel served as Vice President, Labs of
Parent's Application Development Division from
December 1994 to December 1995 and as Vice
President, Labs of Parent's former Applications
Management Division from July 1993 to November
1994.
R. Logan Wray Mr. Wray has served as Senior Vice President and
Chief Financial Officer of Parent since May 1997.
Prior to that time Mr. Wray was employed by Ernst &
Young LLP, a national accounting firm, having been
a partner in that firm since 1994.
S-2
<PAGE>
Name Present Principal Occupation or Employment;
Material Positions Held During the Past Five Years
Robert J. Donachie Mr. Donachie has served as a director of Parent
since May 1983. Mr. Donachie has been principally
employed as a private business consultant since
March 1981. Mr. Donachie is Chairman of the Audit
Committee and a member of the 1996 Special Stock
Option Committee of the Board of Directors of
Parent. Mr. Donachie's business address is: c/o The
Donachie Company, 4925 Greenville Avenue, Suite
730, Dallas, Texas 75206.
Michael C. French Mr. French has served as a director of Parent since
July 1992. Mr. French currently serves as Chief
Executive Officer, President and a director of
Scottish Annuity. Mr. French is also a partner of
Maverick and a consultant to the international law
firm of Jones, Day, Reavis & Pogue. Mr. French was
a partner of the law firm of Jackson & Walker,
L.L.P. from 1976 to 1995. Mr. French's business
address is: 300 Crescent Court, Suite 1000, Dallas,
Texas 75201.
Donald R. Miller, Jr. Mr. Miller has served as a director of Parent since
September 1993. Mr. Miller has served as Vice
President-Market Development of Michaels since
November 1990 and also serves as a member of the
Board of Directors of Michaels. Mr. Miller's
business address is: c/o Michael's Stores, 8000
Bent Branch Drive, Irving, Texas 75063.
Phillip A. Moore Mr. Moore has served as a director of Parent since
co-founding Parent in 1981. Mr. Moore served as
Executive Vice President of Parent from July 1993
to September 1997, serving also as Chief Technology
Officer of Parent from October 1995 to April 1996.
Alan W. Steelman Mr. Steelman has served as a director of Parent
since February 1997. Mr. Steelman has been a senior
principal of Monitor Company, a leading
international management and consulting firm, since
1993. Mr. Steelman also currently serves as a
director of Aristocrat Leisure Ltd., a software and
machine manufacturing firm based in Sydney,
Australia, on the Advisory Board of Richmont-Parly
Investment Company, a Dallas- and Hong Kong-based
private investment trust devoted to investments in
listed Asian companies and on the Advisory Board of
Asia Information Services, a Beijing-based
information technology company. Mr. Steelman is a
member of the Audit Committee and the 1996 Special
Stock Option Committee of the Board of Directors of
Parent. Mr. Steelman's business address is: 7112
Round Hill Road, McKinney, Texas 75070.
Evan A. Wyly Mr. Wyly has served as a director of Parent since
July 1992. Mr. Wyly has served as the managing
partner of Maverick since 1991. Mr. Wyly also
serves as a director and officer of Michaels and as
a director of Sterling Commerce. Mr. Wyly's
business address is: 300 Crescent Court, Suite
1000, Dallas, Texas 75201.
S-3
<PAGE>
2. Directors and Executive Officers of Purchaser. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years, of
each director and executive officer of Purchaser. Unless otherwise indicated,
each such person is a citizen of the United States of America, and the
business address of each such person is c/o Sterling Software, Inc., 300
Crescent Court, Suite 1200, Dallas, Texas 75201. Unless otherwise indicated,
each occupation set forth opposite an individual's name refers to employment
with Parent. Unless otherwise indicated, each such person has held his or her
present occupation as set forth below, or has been an executive officer at
Parent, or the organization indicated, for the past five years.
Name Present Principal Occupation or Employment;
Material Positions Held During the Past Five Years
Sterling L. Williams Director and President of the Purchaser. See Part 1
of this Schedule I.
Don J. McDermett, Jr. Director, Vice President and Secretary of the
Purchaser. See Part 1 of this Schedule I.
B. Carole Morton Vice President of the Purchaser. See Part I of this
Schedule I.
Caroline Y. L. Rook Vice President and Assistant Secretary of the
Purchaser. Ms. Rook has served as Vice President,
Finance & Administration of Sterling Software's
Information Management Group since October 1998 and
as Vice President, Finance & Administration of the
Information Management Division since January 1996.
From October 1996 to June 1997, she also served as
Vice President, Finance and Administration of the
former Information Management Group. Prior to
January 1996, she served as Vice President, Finance
and Administration of Sterling Software's former
Distributor Division.
Mark H. Kleinman Vice President and Assistant Secretary of the
Purchaser. Mr. Kleinman has served as Assistant
General Counsel of Sterling Software since May
1996. Prior to that time he was a shareholder in
Stanley, Mandel & Kleinman, P.C., a Dallas, Texas-
based law firm.
Geno P. Tolari Vice President of the Purchaser. See Part 1 of this
Schedule I.
Susan D. Tiholiz Treasurer of the Purchaser. Ms. Tiholiz has served
as Treasurer of the Company since November 1997.
She served as Director of Treasury from June 1996
to November 1997 and as a consultant to the Company
from December 1995 to June 1996. Prior to joining
the Company, Ms. Tiholiz was employed for 17 years
by Atlantic Richfield Company (ARCO), a global
energy company, serving in various capacities
within finance, treasury and human resources, most
recently as a financial manager in its domestic
natural gas marketing unit.
R. Logan Wray
Vice President and Assistant Treasurer of the
Purchaser. See Part 1 of this Schedule I.
S-4
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each
stockholder of the Company or his broker, dealer, commercial bank, trust
company or other nominee to the Depositary, at the applicable address set
forth below:
The Depositary for the Offer is:
Harris Trust Company of New York
By Mail: By Hand/Overnight Delivery:
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, New York 10268-1023 88 Pine Street, 19th Floor
New York, New York 10005
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
the other tender offer materials may be directed to the Dealer Manager or the
Information Agent at their respective address and telephone number set forth
below. Stockholders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[LOGO OF GEORGESON APPEARS HERE]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Dealer Manager for the Offer is:
Deutsche Banc Alex. Brown
101 California Street, 48th Floor
San Francisco, California 94111
Banks and Brokers Call Collect: (415) 617-2800
All Others Call Toll Free: (800) 334-2640
<PAGE>
EXHIBIT (a)(2)
<PAGE>
Letter of Transmittal
To Tender Shares of Common Stock
(Including the Associated Preferred Stock Purchase Rights)
of
Information Advantage, Inc.
Pursuant to the Offer to Purchase
Dated July 21, 1999
by
Sterling Software Acquisition Corp.
a wholly owned subsidiary of
Sterling Software, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON TUESDAY, AUGUST 17, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
Harris Trust Company of New York
By Mail: By Hand/Overnight Delivery:
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, New York 10268-1023 88 Pine Street, 19th Floor
New York, New York 10005
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
Delivery of this Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via facsimile to a number other than as
set forth above, will not constitute a valid delivery to the depositary.
The instructions contained within this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
This Letter of Transmittal is to be used by stockholders of Information
Advantage, Inc. if certificates for Shares (as such term is defined below) are
to be forwarded herewith or, unless an Agent's Message (as defined in
Instruction 2 below) is utilized, if delivery of Shares is to be made by book-
entry transfer to an account maintained by the Depositary at the Book-Entry
Transfer Facility (as defined in, and pursuant to the procedures set forth in,
Section 3 of the Offer to Purchase). Stockholders who deliver Shares by book-
entry transfer are referred to herein as "Book-Entry Stockholders" and other
stockholders who deliver Shares are referred to herein as "Certificate
Stockholders."
<PAGE>
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver either the certificates for, or a Book-Entry Confirmation
(as defined in Section 3 of the Offer to Purchase) with respect to, their
Shares and all other documents required hereby to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender
their Shares pursuant to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents
to the book-entry transfer facility will not constitute delivery to the
depositary.
[_]Check here if Tendered Shares are being delivered by Book-Entry Transfer to
the Depositary's account at the Book-Entry Transfer Facility and complete
the following (only participants in the book-entry transfer facility may
deliver shares by book-entry transfer):
Name of Tendering Institution:
---------------------------------------------------------
Account Number:
------------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------------
[_]Check here if Tendered Shares are being delivered pursuant to a Notice of
Guaranteed Delivery previously sent to the Depositary and complete the
following:
Name(s) of Registered Owner(s):
-------------------------------------------------------
Window Ticket Number (if any):
-------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------------------
Name of Institution which Guaranteed Delivery:
--------------------------------------------
If delivered by Book-Entry Transfer, check box: [_]
Account Number:
------------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s)
(Please Fill In, If Blank,
Exactly as Name(s)
Appear(s) on Share Shares Tendered
Certificate(s)) (Attach Additional Signed List if Necessary)
- ---------------------------------------------------------------------------------
Total Number
of Shares
Represented by Number
Certificate Share of Shares
Number(s)(1) Certificate(s)(1) Tendered(2)
--------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total Shares
- ---------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares
represented by Share certificates delivered to the Depositary are being
tendered hereby. See Instruction 4.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Sterling Software Acquisition Corp., a
Delaware corporation ("Purchaser") and a wholly owned subsidiary of Sterling
Software, Inc., a Delaware corporation ("Parent"), the above-described shares
of common stock, par value $.01 per share (the "Common Stock"), including the
associated preferred stock purchase rights (the "Rights" and, together with
the Common Stock, the "Shares"), of Information Advantage, Inc., a Delaware
corporation (the "Company"), pursuant to Purchaser's offer to purchase all of
the outstanding Shares at a price of $6.50 per Share, net to the seller in
cash, without interest thereon (the "Offer Price") upon the terms and subject
to the conditions set forth in the Offer to Purchase dated July 21, 1999 and
in this Letter of Transmittal (which, together with any amendments or
supplements thereto or hereto, collectively constitute the "Offer"). The
undersigned understands that Purchaser reserves the right to transfer or
assign, in whole at any time, or in part from time to time, to one or more of
its affiliates, the right to purchase all or any portion of the Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer. Receipt of
the Offer is hereby acknowledged.
The Company has distributed one Right for each outstanding Share pursuant to
the Rights Agreement (as defined in the Offer to Purchase). The Rights are
currently evidenced by and trade with certificates evidencing the Common
Stock. The Company has taken such action so as to make the Rights Agreement
inapplicable to Parent, Purchaser and their respective affiliates and
associates in connection with the transactions contemplated by the Merger
Agreement and the Stockholder Agreements (as such terms are defined in the
Offer to Purchase).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 15, 1999 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company.
Upon the terms and subject to the conditions of the Offer (and if the Offer
is extended or amended, the terms of any such extension or amendment), subject
to, and effective upon, acceptance for payment of, and payment for, the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby (and any and all non-cash dividends, distributions, rights, other
Shares or other securities issued or issuable in respect thereof on or after
the date of the Merger Agreement (collectively, "Distributions")) and
irrevocably constitutes and appoints the Depositary the true and lawful agent
and attorney-in-fact of the undersigned with respect to such Shares (and all
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
certificates for such Shares (and any and all Distributions), or transfer
ownership of such Shares (and any and all Distributions) on the account books
maintained by the Book-Entry Transfer Facility, together, in any such case,
with all accompanying evidences of transfer and authenticity, to or upon the
order of Purchaser, (ii) present such Shares (and any and all Distributions)
for transfer on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
and all Distributions), all in accordance with the terms of the Offer.
By executing this Letter of Transmittal, the undersigned hereby irrevocably
appoints Sterling L. Williams and Don J. McDermett, Jr. in their respective
capacities as officers of Purchaser, and any individual who shall thereafter
succeed to any such office of Purchaser, and each of them, as the attorneys-
in-fact and proxies of the undersigned, each with full power of substitution
and resubstitution, to vote at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof or otherwise in such
manner as each such attorney-in-fact and proxy or his substitute shall in his
sole discretion deem proper with respect to, to
<PAGE>
execute any written consent concerning any matter as each such attorney-in-
fact and proxy or his substitute shall in his sole discretion deem proper with
respect to, and to otherwise act as each such attorney-in-fact and proxy or
his substitute shall in his sole discretion deem proper with respect to, all
of the Shares (and any and all Distributions) tendered hereby and accepted for
payment by Purchaser. This appointment will be effective if and when, and only
to the extent that, Purchaser accepts such Shares for payment pursuant to the
Offer. This power of attorney and proxy are irrevocable and are granted in
consideration of the acceptance for payment of such Shares in accordance with
the terms of the Offer. Such acceptance for payment shall, without further
action, revoke any prior powers of attorney and proxies granted by the
undersigned at any time with respect to such Shares (and any and all
Distributions), and no subsequent powers of attorney, proxies, consents or
revocations may be given by the undersigned with respect thereto (and, if
given, will not be deemed effective). Purchaser reserves the right to require
that, in order for Shares (or other Distributions) to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares (and any and all Distributions), including voting at
any meeting of the Company's stockholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that the undersigned owns the Shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the
tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when
the same are accepted for payment by Purchaser, Purchaser will acquire good,
marketable and unencumbered title thereto and to all Distributions, free and
clear of all liens, restrictions, charges and encumbrances and the same will
not be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Depositary or
Purchaser to be necessary or desirable to complete the sale, assignment and
transfer of the Shares tendered hereby and all Distributions. In addition, the
undersigned shall remit and transfer promptly to the Depositary for the
account of Purchaser all Distributions in respect of the Shares tendered
hereby, accompanied by appropriate documentation of transfer, and, pending
such remittance and transfer or appropriate assurance thereof, Purchaser shall
be entitled to all rights and privileges as owner of each such Distribution
and may withhold the entire purchase price of the Shares tendered hereby or
deduct from such purchase price, the amount or value of such Distribution as
determined by Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase this tender is
irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchase and in
the Instructions hereto will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer (and if the Offer is extended or amended, the terms or conditions of any
such extension or amendment). Without limiting the foregoing, if the price to
be paid in the Offer is amended in accordance with the Merger Agreement, the
price to be paid to the undersigned will be the amended price notwithstanding
the fact that a different price is stated in this Letter of Transmittal. The
undersigned recognizes that under certain circumstances set forth in the Offer
to Purchase, Purchaser may not be required to accept for payment any of the
Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of all Shares purchased and/or return
any certificates for Shares not tendered or accepted for payment in the
name(s) of the registered holder(s) appearing above under "Description of
Shares Tendered." Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail the check for the purchase price of all
Shares purchased and/or return any certificates for Shares not tendered or not
accepted for payment (and any accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing above under "Description of
Shares Tendered." In the event that the boxes entitled "Special Payment
Instructions"
<PAGE>
and "Special Delivery Instructions" are both completed, please issue the check
for the purchase price of all Shares purchased and/or return any certificates
evidencing Shares not tendered or not accepted for payment (and any
accompanying documents, as appropriate) in the name(s) of, and deliver such
check and/or return any such certificates (and any accompanying documents, as
appropriate) to, the person(s) so indicated. Unless otherwise indicated herein
in the box entitled "Special Payment Instructions," please credit any Shares
tendered herewith by book-entry transfer that are not accepted for payment by
crediting the account at the Book-Entry Transfer Facility designated above.
The undersigned recognizes that Purchaser has no obligation, pursuant to the
"Special Payment Instructions," to transfer any Shares from the name of the
registered holder thereof if Purchaser does not accept for payment any of the
Shares so tendered.
<PAGE>
[_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SHARES THAT YOU OWN
HAVE BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
Number of the Shares represented by lost, destroyed or stolen certificates:
SPECIAL PAYMENT INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS
Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the To be completed ONLY if certifi-
check for the purchase price of cates for the Shares not tendered
the Shares accepted for payment or not accepted for payment
is to be issued in name of some- and/or the check for the purchase
one other than the undersigned, price of Shares accepted for pay-
if certificates for the Shares ment is to be sent to someone
not tendered or not accepted for other than the undersigned or to
payment are to be issued in the the undersigned at an address
name of someone other than the other than that shown under "De-
undersigned. scription of Shares Tendered."
Issue check and/or the Share cer- Mail check and/or the Share cer-
tificate(s) to: tificates to:
Name _____________________________ Name _____________________________
(Please Print) (Please Print)
Address __________________________ Address __________________________
__________________________________ __________________________________
(Include Zip Code) (Include Zip Code)
__________________________________
(Taxpayer Identification or
Social Security Number)
(See Substitute Form W-9)
<PAGE>
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
.....................................................................
.....................................................................
(Signature(s) of Stockholder(s)
Dated .............................., 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s)
on the Share certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates
and documents transmitted herewith. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity, please provide the following information and see
Instruction 5.)
Name(s)..............................................................
............................................................
(Please Print)
Name of Firm.........................................................
Capacity (full title)................................................
(see Instruction 5)
Address..............................................................
............................................................
(Include Zip Code)
Area Code and Telephone Number.......................................
Taxpayer Identification or Social Security No. ......................
(See Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature.................................................
Name(s)..............................................................
............................................................
(Please Print)
Title................................................................
Name of Firm.........................................................
Address..............................................................
(Include Zip Code)
Area Code and Telephone Number.......................................
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Instruction 1, includes
any participant in any of the Book-Entry Transfer Facility's systems whose
name appears on a security position listing as the owner of the Shares) of
Shares tendered herewith, unless such registered holder(s) has completed
either the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (b) if such
Shares are tendered for the account of a financial institution (including most
commercial banks, savings and loan associations and brokerage houses) that is
a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders of
the Company either if Share certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if delivery of Shares is to be made by
book-entry transfer pursuant to the procedures set forth herein and in Section
3 of the Offer to Purchase. For a stockholder to validly tender Shares
pursuant to the Offer, either (a) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), together with any required
signature guarantees or an Agent's Message (in connection with book-entry
transfer) and any other required documents, must be received by the Depositary
at one of its addresses set forth herein prior to the Expiration Date and
either (i) certificates for tendered Shares must be received by the Depositary
at one of such addresses prior to the Expiration Date or (ii) Shares must be
delivered pursuant to the procedures for book-entry transfer set forth herein
and in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must
be received by the Depositary prior to the Expiration Date or (b) the
tendering stockholder must comply with the guaranteed delivery procedures set
forth herein and in Section 3 of the Offer to Purchase.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot comply with the book-
entry transfer procedures on a timely basis may tender their Shares by
properly completing and duly executing the Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedure set forth herein and in Section
3 of the Offer to Purchase.
Pursuant to such guaranteed delivery procedures, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
Purchaser, must be received by the Depositary prior to the Expiration Date and
(iii) the certificates for all tendered Shares, in proper form for transfer
(or a Book-Entry Confirmation with respect to all tendered Shares), together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), with any required signature guarantees, or, in the case of
a book-entry transfer, an Agent's Message, and any other required documents
must be received by the Depositary within three trading days after the date of
execution of such Notice of Guaranteed Delivery. A "trading day" is any day on
which the NASDAQ National Market is open for business.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against the participant.
The signatures on this Letter of Transmittal cover the Shares tendered
hereby.
<PAGE>
The method of delivery of the Shares, this Letter of Transmittal and all
other required documents, including delivery through the Book-Entry Transfer
Facility, is at the election and risk of the tendering stockholder. The shares
will be deemed delivered only when actually received by the Depositary
(including, in the case of a Book-Entry Transfer, by Book-Entry confirmation).
if delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. In all cases, sufficient time should be
allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. All tendering stockholders, by executing
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the number of Shares tendered and the Share
certificate numbers with respect to such Shares should be listed on a separate
signed schedule attached hereto.
4. Partial Tenders. (Not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In any such case, new certificate(s) for the remainder of the
Shares that were evidenced by the old certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date or the
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise
indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are held of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Share certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of the authority of such person so
to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share certificates or
separate stock powers are required unless payment or certificates for Shares
not tendered or not accepted for payment are to be issued in the name of a
person other than the registered holder(s). Signatures on any such Share
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by certificates listed and
transmitted hereby, the Share certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the Share certificates. Signature(s) on any
such Share certificates or stock powers must be guaranteed by an Eligible
Institution.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the transfer and
sale of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or if
certificates for Shares
<PAGE>
not tendered or not accepted for payment are to be registered in the name of,
any person other than the registered holder(s), or if tendered certificates
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such other person) payable on account of the
transfer to such other person will be deducted from the purchase price of such
Shares purchased unless evidence satisfactory to Purchaser of the payment of
such taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share certificates evidencing the
Shares tendered hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares accepted for payment is to be issued in the name of,
and/or Share certificates for Shares not accepted for payment or not tendered
are to be issued in the name of and/or returned to, a person other than the
signer of this Letter of Transmittal or if a check is to be sent, and/or such
certificates are to be returned, to a person other than the signer of this
Letter of Transmittal, or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Any
stockholder(s) delivering Shares by book-entry transfer may request that
Shares not purchased be credited to such account maintained at the Book-Entry
Transfer Facility as such stockholder(s) may designate in the box entitled
"Special Payment Instructions." If no such instructions are given, any such
Shares not purchased will be returned by crediting the account at the Book-
Entry Transfer Facility designated above as the account from which such Shares
were delivered.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent or the Dealer Manager at their respective
addresses and phone numbers set forth below, or from brokers, dealers,
commercial banks or trust companies.
9. Waiver of Conditions. Subject to the Merger Agreement, Purchaser reserves
the absolute right in its sole discretion to waive, at any time or from time
to time, any of the specified conditions of the Offer (other than the Minimum
Condition), in whole or in part, in the case of any Shares tendered.
10. Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash pursuant to the Offer, a stockholder
surrendering Shares in the Offer must, unless an exemption applies, provide
the Depositary with such stockholder's correct taxpayer identification number
("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify,
under penalties of perjury, that such TIN is correct and that such stockholder
is not subject to backup withholding.
Backup withholding is not an additional income tax. Rather, the amount of
the backup withholding can be credited against the federal income tax
liability of the person subject to the backup withholding, provided that the
required information is given to the IRS. If backup withholding results in an
overpayment of tax, a refund can be obtained by the stockholder upon filing an
income tax return.
The stockholder is required to give the Depositary the TIN (i.e., social
security number or employer identification number) of the record owner of the
Shares. If the Shares are held in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN
is provided to the Depositary. However, such amounts will be refunded to such
stockholder if a TIN is provided to the Depositary within 60 days.
<PAGE>
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign the main signature
form and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup withholding. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for more instructions.
11. Lost, Destroyed or Stolen Share Certificates. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary by checking the box immediately preceding the
special payment/special delivery instructions and indicating the number of
Shares lost. The stockholder will then be instructed as to the steps that must
be taken in order to replace the Share certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Share certificates have been followed.
Important: This Letter of Transmittal (or facsimile hereof) together with
any required signature guarantees, or, in the case of a book-entry transfer,
an Agent's Message, and any other required documents, must be received by the
Depositary prior to the Expiration Date and either certificates for tendered
Shares must be received by the Depositary or Shares must be delivered pursuant
to the procedures for book-entry transfer, in each case prior to the
Expiration Date, or the tendering stockholder must comply with the procedures
for guaranteed delivery.
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
such stockholder's correct taxpayer identification number on Substitute Form
W-9 below. If such stockholder is an individual, the taxpayer identification
number is his or her social security number. If a tendering stockholder is
subject to backup withholding, such stockholder must cross out item (2) of the
Certification box on the Substitute Form W-9. If the Depositary is not
provided with the correct taxpayer identification number, the stockholder may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, payments that are made to such stockholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding.
Certain stockholders (including, among others, all corporations, and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary. Exempt stockholders, other than foreign
individuals, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below, and sign, date and return the Substitute Form W-9
to the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct taxpayer
identification number by completing the form contained herein certifying that
the taxpayer identification number provided on Substitute Form W-9 is correct
(or that such stockholder is awaiting a taxpayer identification number).
What Number to Give the Depositary
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future,
such stockholder should write "Applied For" in the space provided for in the
TIN in Part 1, and sign and date the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 31% on all payments of the purchase price
until a TIN is provided to the Depositary.
<PAGE>
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
Part 1--PLEASE PROVIDE
SUBSTITUTE YOUR TIN IN THE BOX AT ---------------------
Form W-9 RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW. (If awaiting TIN write
Department of "Applied For")
the Treasury
Internal OR
Revenue
Service ---------------------
Employer Identification
Number
(If awaiting TIN write
Payer's Request "Applied For")
for Taxpayer
Identification ---------------------------------------------------------
Number (TIN) Part 2--CERTIFICATE--Under penalties of perjury,
I certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued for me),
and
(2) I am not subject to backup withholding
because: (a) I am exempt from backup
withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (c) the IRS has notified me
that I am no longer subject to backup
withholding.
---------------------------------------------------------
Certification Instructions--You
must cross out item (2) above if
you have been notified by the IRS
that you are currently subject to
backup withholding because of un-
der-reporting interest or divi-
dends on your tax returns. Howev-
er, if after being notified by the
IRS that you are subject to backup Part III
withholding, you receive another Awaiting
notification from the IRS that you TIN [_]
are no longer subject to backup
withholding, do not cross out such
item (2). (Also see instructions
in the enclosed Guidelines).
Signature: ____________ Date: _____
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a Taxpayer Identification Number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an
application in the near future. I understand that if I do not provide
a Taxpayer Identification Number to the Depositary by the time of
payment, 31% of all reportable payments made to me thereafter will be
withheld, but that such amounts will be refunded to me if I provide a
certified Taxpayer Identification Number to the Depositary within
sixty (60) days.
- ----------------------------------- -----------------------------------
Signature Date
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent or the Dealer Manager as set forth below:
The Information Agent for the Offer is:
[LOGO OF GEORGESON APPEARS HERE]
Wall Street Plaza
New York, NY 10005
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
The Dealer Manager for the Offer is:
Deutsche Banc Alex. Brown
101 California Street, 48th Floor
San Francisco, California 94111
Banks and Brokers Call Collect: (415) 617-2800
All Others Call Toll Free: (800) 334-2640
<PAGE>
EXHIBIT (a)(3)
<PAGE>
[LOGO OF STERLING SOFTWARE APPEARS HERE]
NEWS RELEASE
Sterling Software to Acquire Information Advantage
Industry pioneer developed first business intelligence portal
DALLAS, TX and MINNEAPOLIS, MN, (July 16, 1999) - Sterling Software, Inc.
----------------------
(SSW-NYSE), one of the 20 largest independent software companies in the world,
and Information Advantage, Inc. (IACO-NASDAQ), a leading provider of web-based
and enterprise business intelligence software, today announced that they have
entered into a definitive agreement for Sterling Software to acquire Information
Advantage.
The transaction is valued at approximately $163 million and will be
structured as a $6.50 per share cash tender offer, followed by a second-step
merger at the same price per share. The offer price represents a 58% premium
over the 30-day trailing average of Information Advantage's shares. The
transaction was approved by Information Advantage's board of directors, and the
holders of approximately 25% of Information Advantage's outstanding shares have
endorsed the acquisition by signing stockholder agreements with Sterling
Software.
Based in Minneapolis, Information Advantage develops, markets and supports
scalable enterprise business intelligence software. The company's MyEureka!
business intelligence suite was the industry's first business intelligence
portal, giving users access to corporate information from a single point of
entry. With MyEureka!, users can find and access a broad variety of business
intelligence resources, including queries, reports, On-Line Analytical
Processing (OLAP) analyses, spreadsheets, and multimedia presentations, either
on the organization's intranet or anywhere on the Internet. MyEureka! also lets
users tailor their personal portal according to their specific information needs
and visual preferences. With revenues of $70.7 million last year, Information
Advantage has approximately 500 employees in 27 offices around the world.
"The acquisition of Information Advantage brings together two powerful
software companies who shares not only a common vision but also complementary
products and technologies," said Sterling L. Williams, president and chief
executive officer of Sterling Software. "Information Advantage pioneered the
enterprise information portal, and is recognized as the leader in this dynamic
and rapidly growing market. Combined with Sterling Software's Java-based next
generation query and reporting technology, we'll be positioned to harness the
Internet like never before." Mr. Williams also noted that the acquisition of
Information Advantage was expected to be accretive to Sterling Software's
earnings per share.
Larry J. Ford, president and chief executive officer of Information
Advantage, said: "The combination of Information Advantage's leading-edge
business intelligence portal technology and Sterling Software's strength as one
of the largest independent software companies in the world is unmatched. This
union creates a significant force in the business intelligence market. It's a
great opportunity and I am tremendously excited for both our customers and our
employees."
The tender offer is scheduled to begin on July 21, 1999, and the companies
anticipate closing the transaction in late August. The tender offer will be
conditioned, among other things, on the valid tender of Information Advantage
shares which, together with shares subject to certain stockholder agreements or
owned by Sterling Software, represent a majority of Information Advantage's
outstanding shares on a fully diluted basis, and the expiration or termination
of the Hart-Scott-Rodino Act's waiting period.
A-7-1
<PAGE>
Information Advantage is a leading provider of business intelligence
solutions that are designed to accelerate and improve enterprise-wide decision
making. MyEureka! offers solutions for information portals, enterprise reporting
and data warehousing and can enhance customer relationship management (CRM) and
enterprise resource planning (ERP) systems with reporting and analysis. For more
information, visit the company's Web site at www.infoadvan.com.
-----------------
Sterling Software is a leading provider of software and services for the
application development, information management, systems management and federal
systems markets. The Company is ranked among Business Week's 1998 "Info Tech
100" as one of the world's best performing information technology companies.
Headquartered in Dallas, Sterling Software has a worldwide installed base of
more than 20,000 customer sites and 3,700 employees in more than 90 offices
worldwide. For more information on Sterling Software, visit the company's Web
site at www.sterling.com.
----------------
####
This news release contains certain forward-looking statements that reflect
the current views and expectations of Sterling Software and Information
Advantage with respect to future events. Such statements are subject to a
number of risks, uncertainties and assumptions, including those mentioned in the
two companies' filings with the Securities and Exchange Commission. Actual
results may vary significantly.
MyEureka! is a trademark of Information Advantage, Inc.
Contact Information:
Financial Contacts Media Contacts
Julie Kupp Cindy Foor
VP, Investor Relations Director, Corporation Communications
Sterling Software, Inc. Sterling Software, Inc.
(214) 981-1000 (214) 981-1000
[email protected] [email protected]
- ----------------------- -----------------------
Tony Carideo Rick Parker
Director, Investor Relations VP, Marketing
Information Advantage, Inc. Information Advantage, Inc.
(612) 833-3720 (612) 833-3847
[email protected] [email protected]
- -------------------------- -------------------------
A-7-2
<PAGE>
EXHIBIT (a)(5)
<PAGE>
[LOGO]
July 21, 1999
To Our Stockholders:
On behalf of the Board of Directors of Information Advantage, Inc. (the
"Company"), we wish to inform you that on July 15, 1999, the Company entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Sterling
Software, Inc. and Sterling Software Acquisition Corp., its wholly owned
subsidiary, pursuant to which Sterling Software Acquisition Corp. today has
commenced a cash tender offer (the "Offer") to purchase all of the outstanding
shares (the "Shares") of the Common Stock of the Company at $6.50 per share.
Under the Merger Agreement, the Offer will be followed by a merger (the
"Merger") in which any remaining shares of the Common Stock of the Company will
be converted into the right to receive $6.50 per share in cash, without
interest (except any Shares as to which the holder has properly exercised
dissenter's rights of appraisal). Stockholders owning approximately 24.8% of
the Company's outstanding Shares have agreed to endorse the transaction.
Your Board of Directors has unanimously (with one director absent) determined
that the Offer and Merger are fair and in the best interests of the Company and
its stockholders and has approved the Offer and Merger; and the Board of
Directors recommends that the stockholders of the Company accept the Offer and
tender their Shares pursuant to the Offer.
In arriving at its recommendation, the Board of Directors gave
careful consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board of Directors considered the opinion of its financial
advisor, BancBoston Robertson Stephens, Inc., that the consideration to be
received by the holders of Shares in the Offer and Merger is fair to such
holders from a financial point of view.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase dated July 21, 1999, together with related materials, including a
Letter of Transmittal to be used for tendering your certificates representing
Shares in the Offer. These documents state the terms and conditions of the
Offer and the Merger and provide instructions as to how to tender your Shares.
We urge you to read these documents carefully in making your decision with
respect to tendering your shares pursuant to the Offer.
On behalf of the Board of Directors
/s/ Larry J. Ford
-----------------
Larry J. Ford
President and Chief Executive
Officer
<PAGE>
EXHIBIT (c)(1)
<PAGE>
________________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
among
Sterling Software, Inc.
Sterling Software Acquisition Corp.
and
Information Advantage, Inc.
dated as of July 15, 1999
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE OFFER .................................................................................. 2
Section 1.1 The Offer............................................................... 2
Section 1.2 Offer Documents......................................................... 3
Section 1.3 Company Actions......................................................... 3
Section 1.4 Directors............................................................... 4
ARTICLE II
THE MERGER.................................................................................. 6
Section 2.1 The Merger.............................................................. 6
Section 2.2 Closing................................................................. 6
Section 2.3 Effective Time.......................................................... 6
Section 2.4 Effects of the Merger................................................... 6
Section 2.5 Certificate of Incorporation; Bylaws.................................... 6
Section 2.6 Directors; Officers..................................................... 7
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES................................................................................ 7
Section 3.1 Effect on Capital Stock................................................. 7
Section 3.2 Stock Options and Warrants.............................................. 8
Section 3.3 Payment for Shares...................................................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.............................................................. 10
Section 4.1 Representations and Warranties of Company............................... 10
Section 4.2 Representations and Warranties of Parent and Purchaser.................. 27
ARTICLE V
CONDUCT OF BUSINESS OF COMPANY.............................................................. 28
Section 5.1 Conduct of Business of Company.......................................... 28
ARTICLE VI
ADDITIONAL COVENANTS........................................................................ 31
Section 6.1 Company Stockholders Meeting; Preparation of the Proxy Statement;
Short-Form Merger....................................................... 31
Section 6.2 Access to Information; Confidentiality.................................. 32
Section 6.3 Reasonable Best Efforts................................................. 32
Section 6.4 Public Announcements.................................................... 33
Section 6.5 No Solicitation; Acquisition Proposals.................................. 33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 6.6 Consents, Approvals and Filings ......................................... 35
Section 6.7 Employee Benefit Matters................................................. 35
Section 6.8 Indemnification; Directors' and Officers' Insurance...................... 36
Section 6.9 Board Action Relating to Stock Option Plans, Warrants and ESPP........... 37
Section 6.10 ......................................................................... 38
ARTICLE VII
CONDITIONS PRECEDENT......................................................................... 38
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............... 38
Section 7.2 Conditions to Parent's or Purchaser's Obligation to Effect the Merger.... 39
ARTICLE VIII
TERMINATION.................................................................................. 39
Section 8.1 Termination.............................................................. 39
Section 8.2 Effect of Termination.................................................... 40
ARTICLE IX
GENERAL PROVISIONS........................................................................... 40
Section 9.1 Nonsurvival of Representations and Warranties............................ 40
Section 9.2 Fees and Expenses........................................................ 41
Section 9.3 Definitions.............................................................. 41
Section 9.4 Amendment and Modification............................................... 42
Section 9.5 Extension; Waiver........................................................ 43
Section 9.6 Notices.................................................................. 43
Section 9.7 Interpretation........................................................... 44
Section 9.8 Entire Agreement; Third-Party Beneficiaries.............................. 44
Section 9.9 Governing Law............................................................ 44
Section 9.10 Assignment............................................................... 44
Section 9.11 Enforcement.............................................................. 45
Section 9.12 Severability............................................................. 45
Section 9.13 Counterparts............................................................. 45
</TABLE>
EXHIBIT A - Conditions to the Offer
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of July 15, 1999 (this
"Agreement"), is made and entered into among Sterling Software, Inc., a Delaware
corporation ("Parent"), Sterling Software Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Purchaser"), and Information
Advantage, Inc., a Delaware corporation ("Company").
RECITALS:
A. The Board of Directors of Parent and the respective Boards of
Directors of Purchaser and Company have determined that it would be advisable
and in the best interests of their respective stockholders for Parent to acquire
Company by means of a merger of the Purchaser with and into Company (the
"Merger"), on the terms and subject to the conditions set forth in this
Agreement.
B. To effectuate the acquisition, Parent and Company each desire that
Parent cause Purchaser to commence a cash tender offer to purchase all of the
outstanding shares of common stock, par value $.01 per share, of Company (the
"Shares") (including the associated Series A Junior Participating Preferred
Stock Purchase Rights (the "Rights") issued pursuant to the Rights Agreement
between Company and Norwest Bank Minnesota, National Association, dated as of
March 1, 1999 (the "Company Rights Agreement")) on the terms and subject to the
conditions set forth in this Agreement and the Offer Documents (as defined in
Section 1.2) and the Board of Directors of Company has approved, by a unanimous
vote of the directors present at the meeting, such tender offer and is
recommending (subject to the limitations contained herein) that Company's
stockholders accept the tender offer and tender their Shares pursuant thereto.
C. Concurrently with the execution and delivery of this Agreement and as
a condition to Parent's and Purchaser's willingness to enter into this
Agreement, Parent and Purchaser have entered into separate Stockholder
Agreements, dated as of the date hereof (the "Stockholder Agreements"), with
each of the Principal Stockholders (as defined in Section 9.3), pursuant to
which each Principal Stockholder has (x) agreed, among other things, to vote all
Shares owned by such Principal Stockholder in favor of the Merger and (y)
granted to Parent an option to purchase all Shares owned by such Principal
Stockholder.
D. Parent, Purchaser and Company desire to make certain representations
and warranties and to enter into certain covenants in connection with the Offer
(as defined in Section 1.1) and the Merger and also to prescribe various
conditions to the consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer. (a) Provided that none of the events set forth
---------
in Exhibit A hereto shall have occurred and be continuing, as promptly as
practicable (but in any event not later than five business days after the public
announcement of the execution and delivery of this Agreement), Parent shall
cause Purchaser to commence (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), an offer to
purchase (the "Offer") all outstanding Shares at a price of $6.50 per share, net
to the seller in cash (as paid pursuant to the Offer, the "Offer
Consideration"). The obligation of Parent and Purchaser to commence the Offer,
to consummate the Offer and to accept for payment and to pay for Shares validly
tendered in the Offer and not withdrawn shall be subject only to those
conditions set forth in Exhibit A hereto.
C-1-2
<PAGE>
(b) Without the prior written consent of Company, Purchaser shall not
(and Parent shall cause Purchaser not to) (i) decrease or change the form of the
Offer Consideration or decrease the number of Shares sought pursuant to the
Offer, (ii) impose additional conditions to the Offer, (iii) extend the
expiration date of the Offer beyond the initial expiration date of the Offer
(which shall be the 20/th/ business day from commencement of the Offer), except
(A) as required by applicable law, (B) that if immediately prior to the
expiration date of the Offer (as it may be extended), the Shares tendered and
not withdrawn pursuant to the Offer constitute more than 75% and less than 90%
of the outstanding Shares, Purchaser may extend the Offer for one or more
periods not to exceed an aggregate of fifteen business days, notwithstanding
that all conditions to the Offer are satisfied as of such expiration date of the
Offer, and (C) that if any condition to the Offer has not been satisfied or
waived, Purchaser may, in its sole discretion, extend the expiration date of the
Offer for one or more periods provided, that the expiration date of the Offer
may not be extended beyond October 31,1999, (iv) waive the condition (the
"Minimum Condition") that there shall be validly tendered and not withdrawn
prior to the time the Offer expires a number of Shares which when added to the
number of Shares which Parent, Purchaser or any other Subsidiary of Parent
"beneficially owns" (within the meaning of Rule 13d-3 under the Exchange Act),
constitutes at least a majority of the Shares outstanding on a fully-diluted
basis on the date of purchase ("on a fully-diluted basis" meaning, as of any
date, the number of Shares outstanding, together with the Shares which Company
may be required to issue pursuant to warrants, options or obligations
outstanding at that date under employee stock or similar benefit plans or
otherwise whether or not vested or then exercisable), or (v) amend any term or
other condition of the Offer in any manner materially adverse to holders of
Shares; provided, however, that, except as set forth above and subject to
applicable legal requirements, Purchaser may waive any condition to the Offer
other than the Minimum Condition in its sole discretion; and provided further
that the Offer may be extended in connection with an increase in the
consideration to be paid pursuant to the Offer so as to comply with applicable
rules and regulations of the United States Securities and Exchange Commission
(the "SEC"). Purchaser shall, on the terms and subject to the prior satisfaction
or waiver of the conditions of the Offer, accept for payment, and pay for, in
accordance with the terms and subject to the conditions of the Offer, all Shares
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after the expiration date thereof.
Section 1.2 Offer Documents. (a) On the date of commencement of the
---------------
Offer, Parent and Purchaser shall file or cause to be filed with the SEC a
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to
the Offer which shall contain the offer to purchase and related letter of
transmittal and other ancillary Offer documents and instruments pursuant to
which the Offer will be made (collectively, and with any supplements or
amendments thereto, the "Offer Documents"). Company will promptly supply to
Parent and Purchaser in writing, for inclusion in the Offer Documents, all
information concerning Company required under the Exchange Act and the rules and
regulations thereunder to be included in the Offer Documents.
(b) The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to Company's shareholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by Parent or the Purchaser
with respect to information supplied by Company in writing for inclusion in the
Offer Documents. Each of Parent and the Purchaser further agrees to take all
steps necessary to cause the Offer Documents to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent, Purchaser and Company shall
promptly correct any information provided by them for use in the Offer Documents
if and to the extent that such information shall be or have become false or
misleading in any material respect, and Parent and Purchaser shall take all
lawful action necessary to cause the Offer Documents as so corrected to be filed
promptly with the SEC and to be disseminated to holders of Shares as and to the
extent required by applicable law. Company and its counsel shall be given a
reasonable opportunity to review and comment on the Offer Documents and any
amendments thereto prior to the filing thereof with the SEC.
Section 1.3 Company Actions. (a) Company hereby approves of and consents
---------------
to the Offer and represents and warrants that (i) its Board of Directors (at a
meeting duly called and held) has (A) unanimously (of
C-1-3
<PAGE>
those directors present at the meeting) determined that each of this Agreement,
the Stockholder Agreements, the Offer and the Merger are advisable and fair to
and in the best interests of Company and its stockholders, (B) unanimously (of
those directors present at the meeting) approved this Agreement, each of the
Stockholder Agreements and the transactions contemplated hereby and thereby,
including the Offer and the Merger, and such approval is sufficient to render
Section 203 of the Delaware General Corporation Law (the "DGCL") inapplicable to
this Agreement, each of the Stockholder Agreements and the transactions
contemplated hereby and thereby, including the Offer and the Merger, and (C)
resolved (subject to the limitations herein contained) to recommend acceptance
of the Offer and adoption of this Agreement by the holders of Shares, and (ii)
BancBoston Robertson Stephens Inc. has delivered to the Board of Directors of
Company its opinion that the Offer Consideration to be received by the holders
of Shares in the Offer and Merger is fair, from a financial point of view, to
such holders.
(b) Company shall file with the SEC, simultaneously with the filing
by Parent and Purchaser of the Schedule 14D-1, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with any supplements or amendments
thereto, the "Schedule 14D-9") containing such recommendations of the Board of
Directors of Company in favor of the Offer and the adoption of this Agreement.
Each of Parent and Purchaser will promptly supply to Company in writing, for
inclusion in the Schedule 14D-9, all information concerning Parent's Designees
(as such term is defined in Section 1.4 hereof), as required by Section 14(f) of
the Exchange Act and Rule 14f-1 thereunder, and Company shall include such
information in the Schedule 14D-9. The Schedule 14D-9 will comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by Company with respect to information supplied by Parent or Purchaser in
writing for inclusion in the Schedule 14D-9. Company further agrees to take all
steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Company, Parent and Purchaser shall
promptly correct any information provided by them for use in the Schedule 14D-9
if and to the extent that such information shall be or have become false or
misleading in any material respect and Company shall take all lawful action
necessary to cause the Schedule 14D-9 as so corrected to be filed promptly with
the SEC and disseminated to the holders of Shares as and to the extent required
by applicable law. Parent, Purchaser and their counsel shall be given a
reasonable opportunity to review and comment on the Schedule 14D-9 and any
amendments thereto prior to the filing thereof with the SEC.
(c) In connection with the Offer, Company shall promptly furnish
Parent and Purchaser with mailing labels, security position listings and all
available listings or computer files containing the names and addresses of the
record holders of Shares as of the latest practicable date and shall furnish
Parent and Purchaser with such information and assistance (including updated
lists of stockholders, mailing labels and lists of security positions) as Parent
and Purchaser or their agents may reasonably request in communicating the Offer
to the record and beneficial holders of Shares. Subject to the requirements of
applicable law, and except for such actions as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer and
the Merger, Parent and Purchaser shall, and shall use commercially reasonable
efforts to cause each of their affiliates, associates, partners, employees,
agents and advisors to, hold in confidence the information contained in such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger and, if this Agreement is terminated in accordance with its
terms, shall deliver promptly to Company (or destroy and certify to Company the
destruction of) all copies of such information (and any copies, compilations or
extracts thereof or based thereon) then in their possession or under their
control.
Section 1.4 Directors. (a) Promptly after (i) the purchase of and
---------
payment for any Shares by Purchaser or any of its affiliates pursuant to the
Offer as a result of which Purchaser and its affiliates own beneficially at
least a majority of then outstanding Shares and (ii) compliance with Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, whichever shall
occur later, Parent shall be entitled to designate such number of directors (the
"Parent Designees"), rounded up to the next whole number, on Company's Board of
Directors as is equal to
C-1-4
<PAGE>
the product of the total number of directors on such Board (after giving effect
to any increase in the size of such Board pursuant to this Section 1.4)
multiplied by the percentage that the number of Shares beneficially owned by
Purchaser at such time (including Shares so accepted for payment) bears to the
total number of Shares then outstanding. In furtherance thereof, Company shall,
upon request of Parent, use its best efforts promptly either to increase the
size of its Board of Directors or to secure the resignations of such number of
its incumbent directors, or both, as is necessary to enable such Parent
Designees to be so elected or appointed to Company's Board of Directors, and
Company shall take all actions available to Company to cause such Parent
Designees to be so elected or appointed. At such time, Company shall, if
requested by Parent, also take all action necessary to cause the Parent
Designees to constitute at least the same percentage (rounded up to the next
whole number) as is on Company's Board of Directors of (i) each committee of
Company's Board of Directors, (ii) each board of directors (or similar body) of
each Subsidiary (as defined in Section 9.3) of Company and (iii) each committee
(or similar body) of each such board.
(b) Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under Section 1.4(a), including mailing to
stockholders the information required by such Section 14(f) and Rule 14f-1 (or,
at Parent's request, including such information in the Schedule 14D-9 initially
filed with the SEC and distributed to the stockholders of Company) as is
necessary to enable Parent's designees to be elected to Company's Board of
Directors. Parent or Purchaser will supply to Company in writing and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1. The provisions of this Section 1.4 are in addition to and shall not
limit any rights which Purchaser, Parent or any of their affiliates may have as
a holder or beneficial owner of Shares as a matter of applicable law with
respect to the election of directors or otherwise.
(c) Notwithstanding the provisions of this Section 1.4, the parties
hereto shall use their respective reasonable best efforts to ensure that at
least two of the members of the Board shall, at all times prior to the Effective
Time (as defined in Section 2.3 hereof) be, directors of the Company who were
directors of the Company on the date hereof (the "Continuing Directors"),
provided that, if the number of Continuing Directors shall be reduced below two
for any reason, the remaining Continuing Director may designate a person to fill
such vacancy who shall be deemed to be a Continuing Director for all purposes of
this Agreement, or if no Continuing Directors then remain, the other directors
of Company then in office shall designate two persons to fill such vacancies who
will not be officers or employees or affiliates of Company, Parent or either of
their subsidiaries and such persons shall be deemed to be Continuing Directors
for all purposes of this Agreement. From and after the time, if any, that
Parent's designees constitute a majority of Company's Board of Directors and
prior to the Effective Time, any amendment or modification of this Agreement,
any amendment to Company's Certificate of Incorporation or By-Laws inconsistent
with this Agreement, any termination of this Agreement by Company, any extension
of time for performance of any of the obligations of Parent or Purchaser
hereunder, any waiver of any condition to Company's obligations hereunder or any
of Company's rights hereunder or other action by Company hereunder may be
effected only by the action of a majority of the Continuing Directors of
Company, which action shall be deemed to constitute the action of any committee
specifically designated by the Board of Directors of Company to approve the
actions contemplated hereby and the full Board of Directors of Company;
provided, that, if there shall be no Continuing Directors, such actions may be
- -------- ----
effected by majority vote of the entire Board of Directors of Company.
ARTICLE II
THE MERGER
Section 2.1 The Merger. On the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the DGCL, the Merger shall be
effected and the Purchaser shall be merged with and into Company at the
Effective Time. At the Effective Time, the separate existence of Purchaser
shall cease and
C-1-5
<PAGE>
Company shall continue as the surviving corporation (as such, the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware.
Section 2.2 Closing. Unless this Agreement shall have been terminated
-------
and the transactions contemplated hereby shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver of all of the conditions
set forth in Article VII, the closing of the Merger (the "Closing") will take
place as soon as practicable, but in no event later than 10:00 a.m. on the
second business day (the "Closing Date") following satisfaction or waiver of all
of the conditions set forth in Article VII, other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions, at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York, 10022, unless another date, time
or place is agreed to by the parties hereto.
Section 2.3 Effective Time. On the Closing Date (or on such other date
--------------
as Parent and Company may agree), the parties hereto shall file with the
Secretary of State of the State of Delaware (the "Delaware State Secretary") a
certificate of merger and any other appropriate documents, executed in
accordance with the relevant provisions of the DGCL, and shall make all other
filings or recordings required under the DGCL and other applicable law in
connection with the Merger. The Merger shall become effective upon the filing
of the certificate of merger with the Delaware State Secretary, or at such later
time as is specified in the certificate of merger (the "Effective Time").
Section 2.4 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all property of
Company and Purchaser shall vest in the Surviving Corporation, and all
liabilities and obligations of Company and Purchaser shall become liabilities
and obligations of the Surviving Corporation.
Section 2.5 Certificate of Incorporation; Bylaws. At the Effective Time,
------------------------------------
(a) the certificate of incorporation of Purchaser as in effect at the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable law and (b) the bylaws
of Purchaser as in effect at the Effective Time shall, from and after the
Effective Time, be the bylaws of the Surviving Corporation until thereafter
changed or amended in accordance with the provisions thereof and applicable law.
Section 2.6 Directors; Officers. From and after the Effective Time, (a)
-------------------
the directors of Purchaser shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and (b) the
officers of Company shall be the officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Capital Stock. At the Effective Time, by virtue of
-----------------------
the Merger and without any action on the part of any holder of Shares or any
other shares of capital stock of Company or Purchaser:
(a) Common Stock of Purchaser. Each share of common stock, par
-------------------------
value $0.01 per share, of Purchaser issued and outstanding immediately prior to
the Effective Time shall be converted into and become one validly issued, fully
paid and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
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<PAGE>
(b) Cancellation of Treasury Shares. Each Share issued and
-------------------------------
outstanding immediately prior to the Effective Time that is owned by Company
(other than shares in trust accounts, managed accounts, custodial accounts and
the like that are beneficially owned by third parties) shall automatically be
canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Shares. Each share of Company Common Stock
--------------------
(including the associated Rights) issued and outstanding immediately prior to
the Effective Time (other than Shares to be canceled and retired in accordance
with Section 3.1(b), shares held by any Subsidiary of Company and any Dissenting
Shares (as defined in Section 3.1(d)) shall be converted into the right to
receive the Offer Consideration, payable to the holder thereof, without any
interest thereon (the "Merger Consideration"), less any required withholding
taxes, upon surrender and exchange of a Certificate (as defined in Section 3.3).
(d) Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, Shares issued and outstanding immediately prior to the Effective
Time held by any person who has the right to demand, and who properly demands,
an appraisal of such Shares ("Dissenting Shares") in accordance with Section 262
of the DGCL (or any successor provision) shall not be converted into a right to
receive the Merger Consideration unless such holder fails to perfect or
otherwise loses such holder's right to such appraisal, if any. If, after the
Effective Time, such holder fails to perfect or loses any such right to
appraisal, each such Share of such holder shall be treated as a Share that had
been converted as of the Effective Time into the right to receive the Merger
Consideration in accordance with Section 3.1(c). At the Effective Time, any
holder of Dissenting Shares shall cease to have any rights with respect thereto,
except the rights provided in Section 262 of the DGCL (or any successor
provision) and as provided in the immediately preceding sentence. Company shall
give prompt notice to Parent of any demands received by Company for appraisal of
Shares, and Parent shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Company shall not,
except with the prior written consent of Parent, make any payment with respect
to, or settle or offer to settle, any such demands.
Section 3.2 Stock Options and Warrants.
--------------------------
(a) At the Effective Time, each then-outstanding option to purchase
Shares (collectively, the "Options") under Company's 1992 Stock Option Plan,
1997 Equity Incentive Plan, IQ 1993 Stock Option Plan, IQ 1987 Stock Option Plan
and IQ 1994 Non-Employee Directors Stock Option Plan, as each of such plans has
been amended from time to time (collectively, the "Stock Option Plans"), whether
or not then exercisable or fully vested, shall be assumed by Parent and shall
constitute an option (a "Substitute Option") to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under such Option, including without limitation term, vesting, exercisability,
status as an "incentive stock option" (if applicable) under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and termination
provisions, the number of shares of common stock, par value $0.10 per share
("Parent Common Stock") of Parent, rounded down to the nearest whole share,
determined by multiplying the number of Shares subject to such Option
immediately prior to the Effective Time by the Conversion Factor (as defined
below), at an exercise price per share of Parent Common Stock (increased to the
nearest whole cent) equal to the exercise price per Share subject to such Option
divided by the Conversion Factor; provided, however, that in the case of any
Option to which Section 421 of the Code applies by reason of its qualification
as an incentive stock option under Section 422 of the Code, the conversion
formula shall be adjusted if necessary to comply with Section 424(a) of the
Code. For purposes of this Agreement "Conversion Factor" means the Offer
Consideration divided by the average closing price per share of Parent Common
Stock on the NYSE (as defined in Section 9.3) for the five consecutive trading
days ending on the trading day immediately prior to the Closing Date.
(b) Company shall use its best efforts to obtain all necessary
waivers, consents or releases from holders of Options under the Stock Option
Plans and take any such other action as may be reasonably necessary to give
effect to the transactions contemplated by Section 3.2(a).
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<PAGE>
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Substitute Options pursuant to the terms set forth in Section
3.2(a). As soon as practicable but in any event within fifteen days after the
Effective Time, the shares of Parent Common Stock subject to Substitute Options
will be covered by an effective registration statement on Form S-8 (or any
successor form) or another appropriate form and Parent shall use its reasonable
best efforts to maintain the effectiveness of such registration statement for so
long as the Substitute Options remain outstanding. In addition, Parent shall
use all reasonable efforts to cause the shares of Parent Common Stock subject to
Substitute Options to be listed on the NYSE and such other exchanges as Parent
shall determine.
(d) Parent and Purchaser shall not assume or continue any outstanding
warrants to purchase Shares (the "Warrants"). The parties hereto shall take all
appropriate action to provide that, in accordance with the respective terms of
the Warrants, at or prior to the Effective Time, each holder of an outstanding
Warrant shall be entitled to receive an amount in cash equal to the product of
(i) the excess, if any, of the Offer Consideration over the per share exercise
price of such Warrant and (ii) the number of shares subject to such Warrant.
Section 3.3 Payment for Shares.
------------------
(a) Payment Fund. Concurrently with the Effective Time, Parent shall
------------
deposit, or shall cause to be deposited, with or for the account of a bank or
trust company designated by Parent, which shall be reasonably satisfactory to
Company (the "Paying Agent"), for the benefit of the holders of Shares, cash in
an amount sufficient to pay the aggregate Merger Consideration payable upon the
conversion of Shares pursuant to Section 3.1(c) (the "Payment Fund").
(b) Letters of Transmittal; Surrender of Certificates. As soon as
-------------------------------------------------
reasonably practicable after the Effective Time, Parent shall instruct the
Paying Agent to mail to each holder of record (other than Company or any of its
Subsidiaries or Parent, Purchaser or any other Subsidiary of Parent) of a
certificate or certificates that, immediately prior to the Effective Time,
evidenced outstanding Shares (the "Certificates"), (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent, and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the holder
of such Certificate shall be entitled to receive in exchange therefor cash in an
amount equal to the product of (i) the number of Shares theretofore represented
by such Certificate and (ii) the Merger Consideration, and the Certificate so
surrendered shall forthwith be canceled. No interest shall be paid or accrued on
any cash payable upon the surrender of any Certificate. If payment is to be made
to a person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the surrendered Certificate or established to the satisfaction of
Parent and the Surviving Corporation that such taxes have been paid or are not
applicable.
(c) Cancellation and Retirement of Shares; No Further Rights. As of
--------------------------------------------------------
the Effective Time, all Shares (other than Shares to be canceled in accordance
with Section 3.1(b)) issued and outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of any such Shares shall cease
to have any rights with respect thereto or arising therefrom (including without
limitation the right to vote), except the right to receive the Merger
Consideration, without interest, upon surrender of such Certificate in
accordance with Section 3.3(b), and until so surrendered, each such Certificate
shall represent for all purposes only the right to receive the Merger
Consideration, without interest. The Merger Consideration paid upon the
surrender for exchange of Certificates in accordance with the
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<PAGE>
terms of this Section 3.3 shall be deemed to have been paid in full satisfaction
of all rights pertaining to the Shares theretofore represented by such
Certificates.
(d) Investment of Payment Fund. The Paying Agent shall invest the
--------------------------
Payment Fund, as directed by Parent, in (i) direct obligations of the United
States of America, (ii) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal and
interest, (iii) commercial paper rated the highest quality by either Moody's
Investors Services, Inc. or Standard & Poor's Corporation, or (iv) certificates
of deposit, bank repurchase agreements or bankers' acceptances of commercial
banks with capital exceeding $500 million. Any net earnings with respect to the
Payment Fund shall be the property of and paid over to Parent as and when
requested by Parent.
(e) Termination of Payment Fund. Any portion of the Payment Fund
---------------------------
which remains undistributed to the holders of Certificates for 180 days after
the Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore complied with this Section 3.3 shall
thereafter look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration.
(f) No Liability. None of Parent, Purchaser, the Surviving
------------
Corporation or the Paying Agent shall be liable to any person in respect of any
payments or distributions payable from the Payment Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to five years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration in respect of such Certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined in Section
4.1(c)), any amounts payable in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
(g) Withholding Rights. Parent and Purchaser shall be entitled to
------------------
deduct and withhold, or cause to be deducted or withheld, from the consideration
otherwise payable pursuant to this Agreement to any holder of Shares or
Certificates such amounts as are required to be deducted and withheld with
respect to the making of such payment under the Code, or any provision of
applicable state, local or foreign tax law. To the extent that amounts are so
deducted and withheld, such deducted and withheld amounts shall be treated for
all purposes of this Agreement as having been paid to such holders in respect of
which such deduction and withholding was made
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Company. Except as set
-----------------------------------------
forth in the Disclosure Schedule (as defined in Section 9.3), Company represents
and warrants to Parent and Purchaser that all of the statements contained in
this Article IV are true and correct as of the date of this Agreement (or, if
made as of a specified date, as of such date). Each exception set forth in the
Disclosure Schedule and each other response to this Agreement set forth in the
Disclosure Schedule is identified by reference to, or has been grouped under a
heading referring to, a specific individual Section of this Agreement and
relates only to such Section, except to the extent that one section of the
Disclosure Schedule specifically refers to another section thereof.
(a) Organization, Standing and Corporate Power. Each of Company and
------------------------------------------
each Subsidiary of Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its business as
now being conducted. Each of Company and each Subsidiary of Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where
C-1-9
<PAGE>
the failure to be so qualified or licensed could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect (as defined in
Section 9.3) on Company. Company has delivered to Parent true, complete and
correct copies of the certificate of incorporation and bylaws or comparable
governing documents of Company and each Subsidiary of Company, in each case as
amended to the date of this Agreement. A true, correct and complete list of all
Subsidiaries of Company, together with the jurisdiction of incorporation of each
such Subsidiary and the percentage of each such Subsidiary's capital stock owned
by Company or another Subsidiary, is set forth in Section 4.1(a) of the
Disclosure Schedule.
(b) Authority; Noncontravention. Company has the requisite corporate
---------------------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Company and the consummation by Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Company, subject, in the case of the Merger, to the adoption of this
Agreement by its stockholders as contemplated by Section 6.1(a). This Agreement
has been duly executed and delivered by Company and, assuming that this
Agreement constitutes a valid and binding obligation of Parent and Purchaser,
constitutes a valid and binding obligation of Company, enforceable against
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity. Except as specified in Section 4.1(b) of the Disclosure Schedule, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, (i) conflict with any of the provisions of the certificate of incorporation
or bylaws of Company or the comparable governing documents of any Subsidiary of
Company, in each case as amended to the date of this Agreement, (ii) subject to
the governmental filings and other matters referred to in Section 4.1(c),
conflict with, result in a breach of or default (with or without notice or lapse
of time, or both) under, or give rise to a material obligation, a right of
termination, cancellation or acceleration of any obligation or a loss of a
material benefit under, or require the consent of any person under, any
indenture or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which Company or any of its Subsidiaries is a party
or by which Company or any of its Subsidiaries or any of their respective assets
is bound or affected, or (iii) subject to the governmental filings and other
matters referred to in Section 4.1(c), contravene any domestic or foreign law,
rule or regulation or any order, writ, judgment, injunction, decree,
determination or award currently in effect, which, in the case of clauses (ii)
and (iii) above would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company.
(c) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration or filing with, or notice to, any domestic or foreign
governmental agency or regulatory authority (a "Governmental Entity") which has
not been received or made is required by or with respect to Company or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
by Company or the consummation by Company of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing with the SEC of (A) the Schedule 14D-9 and, if
required by applicable law, the Proxy Statement (as defined in Section 6.1(b)),
(B) such reports under the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby, (iii) the filing of the
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Company is
qualified to do business, (iv) such other consents, approvals, authorizations,
filings or notices as are specified in Section 4.1(c) of the Disclosure
Schedule, and (v) any other consents, approvals, authorizations, filings or
notices the failure to make or obtain which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Company.
(d) Capital Structure. The authorized capital stock of Company
-----------------
consists solely of (i) 60,000,000 Shares and (ii) 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Shares"). At the close of business
on July 15, 1999: (i) 25,381,011 Shares were issued and outstanding, (ii) no
Preferred Shares were issued and outstanding, (iii) 4,765,810 Shares were
reserved for issuance pursuant to outstanding Options granted under the Stock
Option Plans, (iv) 550,000 Shares were reserved for issuance under the 1997
C-1-10
<PAGE>
Employee Stock Purchase Plan of which the Company expects not more than 225,000
Shares to be issued for the accumulation period beginning on July 1, 1999 and
ending on or about the Effective Date (the "ESPP"), (v) 30,000 Shares were
reserved for issuance upon the exercise of the outstanding Warrants, (vi)
500,000 shares of Series A Junior Participating Preferred Stock were reserved
for issuance pursuant to the Company Rights Agreement and (vii) no Shares were
held by Company in its treasury. Except as set forth in the immediately
preceding sentence, at the close of business on July 13, 1999, no shares of
capital stock or other equity securities of Company were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Company are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as specified above or in Section 4.1(d) of the
Disclosure Schedule, neither Company nor any Subsidiary of Company has or is
subject to or bound by or, at or after the Effective Time will have or be
subject to or bound by, any outstanding option, warrant, call, subscription or
other right (including any preemptive right), agreement or commitment which (i)
obligates Company or any Subsidiary of Company to issue, sell or transfer, or
repurchase, redeem or otherwise acquire, any shares of the capital stock of
Company or any Subsidiary of Company, (ii) restricts the transfer of any shares
of capital stock of Company or any of its Subsidiaries, or (iii) relates to the
voting of any shares of capital stock of Company or any of its Subsidiaries. No
bonds, debentures, notes or other indebtedness of Company or any Subsidiary of
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the stockholders of
Company or any Subsidiary of Company may vote are issued or outstanding. Section
4.1(d) of the Disclosure Schedule accurately sets forth information regarding
the current exercise price, date of grant and number of granted Options for each
holder of Options pursuant to any Stock Option Plan. Except as specified in
Section 4.1(d) of the Disclosure Schedule, all of the outstanding shares of
capital stock of each Subsidiary of Company have been duly authorized, validly
issued, fully paid and nonassessable and are owned by Company, by one or more
Subsidiaries of Company or by Company and one or more such Subsidiaries, free
and clear of Liens (as defined in Section 9.3).
(e) SEC Documents. Company has filed all required reports, schedules,
-------------
forms, statements and other documents with the SEC since December 17, 1997 (such
reports, schedules, forms, statements and other documents being hereinafter
referred to as the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents as of
such dates contained any untrue statements of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may otherwise be indicated in the notes
thereto) and fairly present the consolidated financial position of Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end audit
adjustments).
(f) Absence of Certain Changes or Events; No Undisclosed Material
-------------------------------------------------------------
Liabilities.
- -----------
(i) Except as disclosed in the SEC Documents filed and publicly
available prior to the date of this Agreement (the "Filed SEC Documents") or
specified in Section 4.1(f) of the Disclosure Schedule, since the date of the
most recent audited financial statements included in the Filed SEC Documents,
Company and its Subsidiaries have conducted their businesses only in the
ordinary course, and there has not been: (A) a Material Adverse Effect on
Company; (B) any declaration, setting aside or payment of any dividend or other
distribution in respect of shares of Company's capital stock, or any redemption
or other acquisition by Company of any shares of its capital stock; (C) any
increase in the rate or terms of compensation payable or to become payable by
Company or its Subsidiaries to their directors, officers or key employees,
except increases occurring
C-1-11
<PAGE>
in the ordinary course of business consistent with past practice; (D) any entry
into, or increase in the rate or terms of, or amendment or modification to, any
bonus, insurance, severance, pension or other employee or retiree benefit plan,
payment, agreement or arrangement made to, for or with any such directors,
officers or key employees, except increases occurring in the ordinary course of
business consistent with past practices or as required by applicable law; (E)
any entry into any agreement, commitment or transaction by Company or any of its
Subsidiaries which is material to Company and its Subsidiaries taken as a whole,
except for agreements, commitments or transactions entered into in the ordinary
course of business consistent with past practice; (F) any change by Company in
accounting methods, principles or practices, except as required or permitted by
generally accepted accounting principles; (G) any write-off or write-down of, or
any determination to write-off or write-down, any asset of Company or any of its
Subsidiaries or any portion thereof which write-off, write-down or determination
exceeds $50,000 individually or $250,000 in the aggregate, other than accounts
receivable write-offs for which the Company has adequately reserved; (H) any
announcement or implementation of any reduction in force, lay-off, early
retirement program, severance program or other program or effort concerning the
termination of employment of employees of Company or its Subsidiaries; or (I)
any announcement of or entry into any agreement, commitment or transaction by
Company or any of its Subsidiaries to do any of the things described in the
preceding clauses (A) through (H) otherwise than as expressly provided for
herein.
(ii) Except as disclosed in the Filed SEC Documents or specified in
Section 4.1(f) of the Disclosure Schedule and liabilities incurred in the
ordinary course of business consistent with past practice, since the date of the
most recent financial statements included in the Filed SEC Documents, there are
no liabilities of Company or its Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable or
otherwise, having or which would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Company.
(g) Certain Information. Subject to Parent's and Purchaser's
-------------------
fulfillment of their respective obligations with respect thereto, the Schedule
14D-9 and the Proxy Statement will contain (or will be amended in a timely
manner so as to contain) all information which is required to be included
therein in accordance with the Exchange Act and the rules and regulations
thereunder and any other applicable law and will conform in all material
respects with the requirements of the Exchange Act and any other applicable law,
and neither the Schedule 14D-9 nor the Proxy Statement will, at the respective
times they are filed with the SEC or published, sent or given to Company's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading; provided, however, that no representation or warranty is hereby
made by Company with respect to any information supplied by Parent or Purchaser
in writing for inclusion in, or with respect to Parent or Purchaser information
derived from Parent's public SEC filings which is included or incorporated by
reference in, the Schedule 14D-9 or the Proxy Statement. None of the
information supplied or to be supplied by Company for inclusion or incorporation
by reference in, or which may be deemed to be incorporated by reference in, any
of the Offer Documents will, at the respective times the Offer Documents are
filed with the SEC or published, sent or given to Company's stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Time any event with respect to Company, or with
respect to any information supplied by Company for inclusion in any of the Offer
Documents, shall occur which is required to be described in an amendment of, or
a supplement to, any of the Offer Documents, Company shall so describe the event
to Parent.
(h) Real Property; Other Assets. Company owns no real property and
---------------------------
has not in the last 3 years owned any real property.
(i) Company or one of its Subsidiaries has good and marketable title
to each of the assets reflected in the latest balance sheet of Company included
in the Filed SEC Documents (other than any such assets disposed of or consumed
in the ordinary course of business or as specified in Section 4.1(h)(ii) of the
Disclosure Schedule) free and clear of all Liens except (A) those reflected or
reserved against in the latest balance
C-1-12
<PAGE>
sheet of Company included in the Filed SEC Documents, (B) taxes and general and
special assessments not in default and payable without penalty and interest, (C)
other Liens that individually or in the aggregate would not have a Material
Adverse Effect on Company and (D) other Liens as are specified in Section
4.1(h)(ii) of the Disclosure Schedule.
(ii) Company has heretofore made available to Parent true,
correct and complete copies of all leases, subleases and other agreements (the
"Real Property Leases") under which Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property or facility which involve aggregate annual payments in excess of
$50,000 (the "Leased Real Property"), including all modifications, amendments
and supplements thereto. Except in each case where the failure would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company and except as specified in Section 4.1(h)(iii) of the
Disclosure Schedule: (A) Company or one of its Subsidiaries has a valid and
subsisting leasehold interest in each parcel of Leased Real Property free and
clear of all Liens and each Real Property Lease is in full force and effect, (B)
all rent and other sums and charges payable by Company or its Subsidiaries as
tenants thereunder are current in all material respects, (C) no termination
event or condition or uncured default of a material nature on the part of
Company or any such Subsidiary or, to Company's knowledge, the landlord, exists
under any Real Property Lease, and (D) Company or one of its Subsidiaries is the
sole undisputed lessee of each Leased Real Property, is in actual possession
thereof and is entitled to quiet enjoyment thereof in accordance with the terms
of the applicable Real Property Lease.
(i) Software.
--------
(i) Section 4.1(i)(i) of the Disclosure Schedule sets forth
under the caption "Owned Software" a true, correct and complete list of all
computer programs (source code or object code) owned by Company or any
Subsidiary of Company, including without limitation any computer programs in the
development or testing phase (collectively, the "Owned Software"), and Section
4.1(i)(i) of the Disclosure Schedule sets forth under the caption "Licensed
Software" a true, correct and complete list of all computer programs (source
code or object code) licensed to Company or any Subsidiary of Company by any
third party (other than any off-the-shelf computer program that is so licensed
under a shrink wrap license) (collectively, the "Licensed Software" and,
together with the Owned Software, the "Software").
(ii) Except as specified in Section 4.1(i)(ii) of the Disclosure
Schedule, Company, directly or through its Subsidiaries, has good, marketable
and exclusive title to, and the valid and enforceable power and unqualified
right to sell, license, lease, transfer, use or otherwise exploit, all versions
and releases of the Owned Software and all copyrights thereof, free and clear of
all Liens. Company, directly or through its Subsidiaries, is in actual
possession of (A) the source code and object code for each computer program
included in the Owned Software and (B) the object code and, to the extent
required for the effective use of the Software as currently used in Company's
business or as offered or represented to Company's customers or potential
customers, the source code, for each computer program included in the Licensed
Software. Company, directly or through its Subsidiaries, is in possession of all
other documentation (including without limitation all related engineering
specifications, program flow charts, installation and user manuals) and know-how
required for the effective use of the Software as currently used in Company's
business or as offered or represented to Company's customers or potential
customers. The Software constitutes all of the computer programs necessary to
conduct Company's business as now conducted, and includes all of the computer
programs used in the development, marketing, licensing, sale or support of the
products and the services presently offered by Company. Except as specified in
Section 4.1(i)(ii) of the Disclosure Schedule or pursuant to agreements entered
into in the ordinary course of business or made available to Purchaser or its
representatives, no person other than Company and its Subsidiaries has any right
or interest of any kind or nature in or with respect to the Owned Software or
any portion thereof or any rights to sell, license, lease, transfer, use or
otherwise exploit the Owned Software or any portion thereof.
(iii) Section 4.1(i)(iii) of the Disclosure Schedule sets forth a
true, correct and complete
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list, by computer program, of (A) all persons other than Company and its
Subsidiaries that have been provided with the source code or have a right to be
provided with the source code (including any such right that may arise after the
occurrence of any specified event or circumstance, either with or without the
giving of notice or passage of time or both) for any of the Owned Software, and
(B) all source code escrow agreements relating to any of the Owned Software
(setting forth as to any such escrow agreement the source code subject thereto
and the names of the escrow agent and all other persons who are actual or
potential beneficiaries of such escrow agreement), and identifies with
specificity all agreements and arrangements pursuant to which the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby would entitle any third party or parties to
receive possession of the source code for any of the Owned Software or any
related technical documentation. Except as specified in Section 4.1(i)(iii) of
the Disclosure Schedule, no person (other than Company and its Subsidiaries and
any person that is a party to a contract referred to in clause (v) of the first
sentence of Section 4.1(l) that restricts such person from disclosing any
information concerning such source code) is in possession of, or has or has had
access to, any source code for any computer program included in the Owned
Software.
(iv) There are no defects in any computer program included in the
Software that would adversely affect the functioning thereof in accordance with
any published specifications therefor or which would cause the Software to fail
to be Year 2000 compliant. Without limiting the generality of the foregoing, all
of the Software and computer equipment of the Company and its Subsidiaries has
the following properties and capabilities: (A) the capability to correctly
recognize and accurately process dates expressed as a four-digit number (or the
binary equivalent or other machine readable iteration thereof) (collectively,
the "Four-Digit Dates"); (B) the capability to accurately execute calculations
using Four-Digit Dates; (C) the functionality (both on-line and batch),
including entry, inquiry, maintenance and update, to support processing
involving Four-Digit Dates; (D) the capability to generate interfaces and
reports that support processing involving Four-Digit Dates; (E) the capability
to generate and successfully transition, without human intervention, into the
year 2000 using the correct system date and to thereafter continue processing
with Four-Digit Dates; and (F) the capability to provide correct results in
forward and backward data calculations spanning century boundaries, including
the conversion of pre-2000 dates currently stored as two-digit dates; provided,
however, that no representation or warranty is made as to the effect that
defects in computer programs, hardware or systems provided by third parties (or
the inability of any such programs, hardware or systems, other than those
contemplated by the documentation for the Software to be used in conjunction
with the Software, to properly exchange date data with the Software) may, when
used in conjunction with the Software, have on the foregoing capabilities.
Except as specified in Section 4(1)(i)(iv) of the Disclosure Schedule, the
Company has made no representations, warranties or disclosures of any sort
regarding the Company's, any Subsidiary's, or any of the Software's Year 2000
compliance. The Company and its Subsidiaries have received warranties or
otherwise adequate assurance of Year 2000 compliance from its material providers
of products and services. Each computer program included in the Software is in
machine readable form and contains all current revisions. Section 4.1(i)(iv) of
the Disclosure Schedule sets forth a true, correct and complete list of any
current developments or maintenance efforts with respect to the Owned Software,
including without limitation the development of new computer programs,
enhancements or revisions to existing computer programs included in the Owned
Software and software fixes in progress for any person to whom or to which
Company or a Subsidiary of Company has sold, licensed, leased, transferred or
otherwise furnished Software or related products or services.
(v) Except as specified in Section 4.1(i)(v) of the Disclosure
Schedule, none of the sale, license, lease, transfer, use, reproduction,
distribution (other than non-exclusive license agreements for which the Company
made royalty payments to a third party for the use of Licensed Software of less
than $25,000 as to each such agreement during the preceding twelve (12) month
period and non-exclusive distribution agreements for which the Company paid
commissions to a third party in conjunction with the license by the Company of
Software to a third party of less than $100,000 as to each such agreement during
the preceding twelve (12) month period), modification or other exploitation by
Company, any Subsidiary of Company or any of their respective
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<PAGE>
successors or assigns of any version or release of any computer program included
in the Software obligates or will obligate Company, any Subsidiary of Company or
any of their respective successors or assigns to pay any royalty, fee or other
compensation to any other person.
(vi) Except as specified in Section 4.1(i)(vi) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries markets, or has marketed,
and none of them has supported or is obligated to support, any Licensed
Software.
(vii) Except as specified in Section 4.1(i)(vii) of the
Disclosure Schedule, no agreement, license or other arrangement pertaining to
any of the Software (including without limitation any development, distribution,
marketing, user or maintenance agreement, license or arrangement) to which
Company or any Subsidiary of Company is a party will terminate or become
terminable by any party thereto as a result of the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(j) Intellectual Property.
---------------------
(i) Section 4.1(j)(i) of the Disclosure Schedule sets forth a
true, correct and complete list (including, to the extent applicable,
registration, application or file numbers) of all patents, trademarks, trade
names, service marks, domain names and registered copyrights and material non-
registered copyrights used by Company or any Subsidiary of Company in connection
with the conduct of Company's business, and all registrations of or applications
for registration of any of the foregoing, including any additions thereto or
extensions, continuations, renewals or divisions thereof (setting forth the
registration, issue or serial number and a description of the same)
(collectively, together with all trade dress, trade secrets, processes,
formulae, designs, know-how and other intellectual property rights that are so
used, the "Intellectual Property"). Parent has heretofore been furnished with
true, correct and complete copies of each U.S. and foreign registration or
application for U.S. and foreign registration covering any of the Intellectual
Property which is registered with, or in respect of which any application for
registration has been filed with, any Governmental Entity. All such
registrations and applications are valid and subsisting, in full force and
effect, and have not been cancelled, expired or abandoned. Company is listed in
the records of the appropriate Governmental Entity or foreign government
equivalent entity as the sole owner of record for each such application and
registration.
(ii) The Intellectual Property includes all of the intellectual
property rights owned or licensed by Company and its Subsidiaries that are
reasonably necessary to conduct Company's business as it is now conducted or is
expected to be conducted, and includes all of the intellectual property rights
owned by or licensed to Company and its Subsidiaries that are used in the
development, marketing, licensing or support of the Software. Except as
specified in Section 4.1(j)(ii) of the Disclosure Schedule, (A) Company,
directly or through its Subsidiaries, has good, marketable and exclusive title
to, and the valid and enforceable power and unqualified right to use, the
Intellectual Property free and clear of all Liens and (B) no person or entity
other than Company and its Subsidiaries has any right or interest of any kind or
nature in or with respect to the Intellectual Property or any portion thereof or
any rights to use, market or exploit the Intellectual Property or any portion
thereof other than pursuant to agreements entered into in the ordinary course of
business or made available to Purchaser or its representatives.
(iii) Company and its Subsidiaries take reasonable measures to
protect the confidentiality of its material trade secrets, know-how or other
confidential information, including requiring employees, independent contractors
and licensees having access thereto to execute written non-disclosure agreements
that adequately protect Company's and its Subsidiaries' proprietary interests in
and to such trade secrets, know-how and other confidential information.
(k) No Infringement.
---------------
c-1-15
<PAGE>
(i) Except as specified in Section 4.1(k) of the Disclosure
Schedule, neither the existence nor the sale, license, lease, transfer, use,
reproduction, distribution, modification or other exploitation by Company, any
Subsidiary of Company or any of their respective successors or assigns of any
Software or Intellectual Property, as such Software or Intellectual Property, as
the case may be, is or was, or is currently contemplated to be, sold, licensed,
leased, transferred, used or otherwise exploited by such persons, does, did or
will (i) infringe on any patent, trademark, copyright or other right of any
other person, (ii) constitute a misuse or misappropriation of any trade secret,
know-how, process, proprietary information or other right of any other person,
or (iii) entitle any other person to any interest therein, or right to
compensation from Company, any Subsidiary of Company or any of their respective
successors or assigns, by reason thereof (it being understood and agreed that,
insofar as the foregoing representation and warranty relates to Software and
Intellectual Property that is licensed to Company or any Subsidiary of Company
by any third party, such representation and warranty is made only to Company's
knowledge). Except as specified in Section 4.1(k) of the Disclosure Schedule,
neither Company nor any of its Subsidiaries has received any complaint,
assertion, threat or allegation or otherwise has notice of any lawsuit, claim,
demand, proceeding or investigation involving matters of the type contemplated
by the immediately preceding sentence or is aware of any facts or circumstances
that could reasonably be expected to give rise to any such lawsuit, claim,
demand, proceeding or investigation. Except as specified in Section 4.1(k) of
the Disclosure Schedule, there are no restrictions on the ability of Company,
any Subsidiary of Company or any of their respective successors or assigns to
sell, license, lease, transfer, use, reproduce, distribute, modify or otherwise
exploit any Software or Intellectual Property.
(ii) Except as specified in Schedule 4.1(k)(ii) of the
Disclosure Schedule, Company and its Subsidiaries are not aware of any
Infringement, misappropriation or other violation of any Software or
Intellectual Property, and no lawsuit, claim, demand, proceeding or
investigation has been brought by Company or any of its Subsidiaries against any
third party.
(l) Material Contracts. There have been made available to Parent and
------------------
its representatives true, correct and complete copies of all of the following
contracts to which Company or any of its Subsidiaries is a party or by which any
of them is bound (collectively, the "Material Contracts"): (i) contracts with
any directors and officers required to file beneficial ownership statements
pursuant to Section 16 of the Exchange Act; (ii) contracts pursuant to which
Company or any of its Subsidiaries licenses other persons to use the Software
(other than shrink wrap licenses) and pursuant to which other persons license
Company or any of its Subsidiaries to use the Licensed Software; (iii) contracts
(A) for the sale of any of the assets of Company or any of its Subsidiaries,
other than contracts entered into in the ordinary course of business or (B) for
the grant to any person of any preferential rights to purchase any of its
assets; (iv) contracts which restrict Company or any of its Subsidiaries from
competing in any line of business or with any person in any geographical area or
which restrict any other person from competing with Company or any of its
Subsidiaries in any line of business or in any geographical area; (v) contracts
which restrict Company or any of its Subsidiaries from disclosing any
information concerning or obtained from any other person or which restrict any
other person from disclosing any information concerning or obtained from Company
or any of its Subsidiaries; (vi) indentures, credit agreements, security
agreements, mortgages, guarantees, promissory notes and other contracts relating
to the borrowing of money; (vii) contracts with any stockholders of Company;
(viii) acquisition, merger, asset purchase or sale agreements; (ix) agreements,
arrangements, transactions or understandings with any Affiliate that would be
required to be disclosed under Item 404 of Regulation S-K under the Securities
Act; (x) contracts which contain a "change in control" or similar provision;
and (xi) all other agreements, contracts or instruments entered into outside of
the ordinary course of business or which are material to Company. Except as
specified in Section 4.1(l) of the Disclosure Schedule, all of the Material
Contracts are in full force and effect and are the legal, valid and binding
obligation of Company and/or its Subsidiaries, enforceable against them in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity); except that the representations in this
sentence are made to the knowledge of Company as to clauses 4.1(l)(ii) and (v).
Except as specified in Section 4.1(l) of the Disclosure Schedule, neither
Company nor any of its Subsidiaries is in breach or default in any material
respect under any
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<PAGE>
Material Contract nor, to the knowledge of Company, is any other party to any
Material Contract in breach or default thereunder in any material respect;
except that the representations in this sentence are made to the knowledge of
the Company as to clauses 4.1(l)(ii) and (v).
(m) Litigation, etc. Except as disclosed in the Filed SEC Documents
---------------
or in Section 4.1(m) of the Disclosure Schedule, (i) there is no suit, claim,
action, proceeding (at law or in equity) or investigation pending or, to the
knowledge of Company, threatened against Company or any of its Subsidiaries
before any court or other Governmental Entity, and (ii) neither Company nor any
of its Subsidiaries is subject to any outstanding order, writ, judgement,
injunction, decree or arbitration order or award that, in any such case
described in clauses (i) and (ii), has had or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Company.
As of the date hereof, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of Company, threatened, seeking to
prevent, hinder, modify or challenge the transactions contemplated by this
Agreement.
(n) Compliance with Applicable Laws. All federal, state, local and
-------------------------------
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for each
of Company and its Subsidiaries to own, lease or operate its properties and
assets and to carry on its business as now conducted have been obtained or made,
and there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which lack or default would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Company. Company and its Subsidiaries are in compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity except where the failure to comply would not reasonably be
expected to have a Material Adverse Effect on Company, and neither Company nor
any of its Subsidiaries has received notification within the past three years of
any asserted present or past failure to so comply.
(o) Environmental Laws. Except as specified in Section 4.1(o) of the
------------------
Disclosure Schedule and as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company: (A)
neither Company nor any of its Subsidiaries has violated or is in violation of
any Environmental Law (as defined in Section 9.3); (B) none of the Owned Real
Property or Leased Real Property (including without limitation soils and surface
and ground waters) are contaminated with any Hazardous Substance (as defined in
Section 9.3) in quantities which require investigation or remediation under
Environmental Laws; (C) neither Company nor any of its Subsidiaries is liable
for any off-site contamination; (D) neither Company nor any of its Subsidiaries
has any liability or remediation obligation under any Environmental Law; (E) no
assets of Company or any of its Subsidiaries are subject to pending or
threatened Liens under any Environmental Law; (F) Company and its Subsidiaries
have all Permits required under any Environmental Law ("Environmental Permits");
and (G) Company and its Subsidiaries are in compliance with their respective
Environmental Permits.
(p) Taxes. Except as specified in Section 4.1(p) of the Disclosure
-----
Schedule:
(i) Each of Company and each Subsidiary of Company (and any
affiliated, consolidated, combined or unitary group of which Company or any
Subsidiary of Company is or was a member) has (A) timely filed all federal,
state, local and foreign Tax Returns (as hereinafter defined) required to be
filed by or for it in respect of any Taxes (as hereinafter defined) except where
failure to file would not have a Material Adverse Effect, and all such Tax
Returns filed are true, correct and complete in all material respects, (B)
liabilities for Taxes not yet due and payable as of the date of Company's most
recent financial statements included in the Filed SEC Documents that do not
exceed the reserves established on such financial statements for the payment of
such Taxes except where such excess would not have a Material Adverse Effect,
(C) complied in all material respects with the applicable laws, rules and
regulations relating to withholding and payment of all Taxes and other amounts
required to be so withheld and paid over except to the extent that a reserve for
such Taxes is reflected on the balance sheet that is part of the most recent
financial statements included in the Filed SEC Documents; and (D) timely paid
all Taxes that are currently due and payable except for those contested in good
faith and for which adequate reserves have been established in Company's most
recent financial statements included on the
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<PAGE>
Filed SEC Documents and except where failure to pay such Taxes would not have a
Material Adverse Effect.
(ii) The Tax Returns of Company, each of its Subsidiaries and
any affiliated, consolidated, combined or unitary group that includes Company or
any of its Subsidiaries either have been examined and settled with the
appropriate Tax authority or, to the knowledge of Company, closed by virtue of
the expiration of the applicable statute of limitations for all taxable years
through and including the taxable year ending January 31, 1995, and (B) except
for alleged deficiencies which have been finally and irrevocably resolved,
neither Company nor any of its Subsidiaries have received formal (or, to the
knowledge of Company, informal) notification that any deficiency for any Taxes,
the amount of which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company, has been or will be proposed,
asserted or assessed against Company or any of its Subsidiaries by any federal,
state, local or foreign taxing authority or court with respect to any period.
(iii) Neither Company nor any of its Subsidiaries has (A)
executed or entered into with the IRS or any other taxing authority any
agreement or other document that continues in force and effect beyond the
Effective Time and that extends or has the effect of extending the period for
assessments or collection of any federal, state, local or foreign Taxes, (B)
executed or entered into with the IRS or any other taxing authority any closing
agreement or other similar agreement (nor has Company or any of its Subsidiaries
received any ruling, technical advice memorandum or similar determination)
affecting the determination of Taxes required to be shown on any Tax Return not
yet filed, or (C) requested any extension of time to be granted to file after
the Effective Time any Tax Return required by applicable law to be filed by it.
(iv) Neither Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Company or any of its
Subsidiaries. None of the assets of Company or any of its Subsidiaries is
required to be treated as being owned by any other person pursuant to the "safe
harbor" leasing provisions of Section 168(f)(8) of the Internal Revenue Code of
1954 as formerly in effect.
(v) Neither Company nor any of its Subsidiaries (i) is a party
to, is bound by or has any obligation under any tax sharing agreement or similar
agreement or arrangement other than one that is solely between Company and one
or more of its Subsidiaries or (ii) has any liability for Taxes of any party
(other than Company or any of its Subsidiaries) under Treasury Regulation
Section 1.1502-6 or any similar provision of state, local or foreign law, as a
transferee or successor, by contract or otherwise.
(vi) Neither Company nor any of its Subsidiaries has agreed to
make, nor is it required to make, any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise and, to the
knowledge of Company, the IRS has not proposed any such adjustment or change in
accounting method.
(vii) Neither Company nor any of its Subsidiaries is, or has
been, a United States Real Property Holding Corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(viii) Except for the group of which Company is presently a
member, Company has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code, other than as a common parent
corporation, and each of Company's Subsidiaries has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, except where Company was the common parent of such affiliated group.
(ix) Neither Company nor any Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted, or by reason of the
transactions contemplated in this Agreement would
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<PAGE>
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(x) There are no Tax Liens upon any asset or property of
Company or any of its Subsidiaries except liens for Taxes not yet due and
payable.
(xi) No power of attorney currently in force has been granted
by Company or any of its Subsidiaries concerning any Tax matter.
(xii) Neither Company nor any of its Subsidiaries has made a
disclosure on a federal income Tax Return pursuant to Section 6662 of the Code.
(xiii) No audits or other administrative proceedings or court
proceedings are presently pending or, to Company's knowledge, threatened with
regard to any Taxes or Tax Return of the Company, any of its Subsidiaries or any
affiliated, consolidated, combined or unitary group of which Company or any
Subsidiary of Company is a member (other than those being contested in good
faith and for which adequate reserves have been established) and no material
issues have been raised by any Tax authority in connection with any Tax or Tax
Return.
For purposes of this Agreement, the term " Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation, all
income, gross receipts, excise, property, sales, use, occupation, transfer,
license, ad valorem, gains, profits, gift, estimated, social security,
unemployment, disability, premium, recapture, credit, payroll, withholding,
severance, stamp, capital stock, franchise and other taxes or similar charges of
any kind imposed by any governmental entity, including any interest and
penalties on or additions to or in respect of a failure to comply with any
requirement relating to any Tax Return; provided, however, that Taxes shall not
mean any of the above taxes or charges resulting from, attributable to, or
otherwise arising out of intercompany transactions. For purposes of this
Agreement, the term " Tax Return" means any report, return or other information
or document required to be supplied to a Tax authority or jurisdiction in
connection with Taxes, including, without limitation, combined, unitary or
consolidated returns for any group of entities. Notwithstanding any other
provision in this Section 4.1, the Company is making no representation regarding
taxes or charges resulting from, attributable to, or otherwise arising out of
intercompany transactions.
(q) Benefit Plans. Section 4.1(q) of the Disclosure Schedule sets
-------------
forth a true, correct and complete list of all the employee benefit plans (as
that phrase is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that are sponsored or maintained by
Company or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Company would be deemed a "single employer"
within the meaning of Code Sections 414(b), (c), or solely with respect to
matters relating to Code Section 412 or ERISA Sections 302 or 4007, Code Section
414(m) or to which Company or an ERISA Affiliate contributes, is required to
contribute, or is a party, whether written or oral, for the benefit of any
current or former employee, officer or director of Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation plan,
program or arrangement maintained or contributed to (or to which Company has any
obligation to contribute) for the benefit of any current or former employee,
officer or director of Company or any of its Subsidiaries ("Benefits
Arrangements") (Company ERISA Plans and Benefits Arrangements shall be referred
to as "Company Plans"). Company has furnished or made available to Parent and
its representatives a true, correct and complete copy of every document pursuant
to which each Company Plan is established or operated and any amendments thereto
(including the most recent summary plan descriptions), a written description of
any Company Plan for which there is no written document, the three most recent
annual reports on Treasury Form 5500, financial statements and actuarial
valuations, if required under ERISA, with respect to each Company Plan, and the
most recent determination letter received from the IRS with respect to each
Company ERISA Plan intended to qualify under Section 401(a) of the Code. Except
as specified in Section 4.1(q) of the Disclosure Schedule:
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<PAGE>
(i) none of Company ERISA Plans is a "multiemployer plan" as
defined in Section 3(37) of ERISA, nor is any Company ERISA Plan a plan
described in Section 4063(a) of ERISA;
(ii) none of Company Plans provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company or any of its Subsidiaries for
periods extending beyond their respective dates of retirement or other
termination of service, other than (A) coverage mandated by applicable law,
including continuation of medical coverage as required by Code Section 4980B,
(B) death benefits under any Company ERISA Plan which is an employee pension
benefit plan as defined in ERISA Section 3(2) or (C) benefits the full cost of
which is borne by the current or former employee (or his beneficiary);
(iii) none of Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit or the
acceleration of the payment or vesting of a benefit determined or occasioned, in
whole or in part, by reason of the execution of this Agreement or the
consummation of the transactions contemplated by this Agreement;
(iv) neither Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new benefit or
compensation plan, program or arrangement or, except as required by law, the
amendment of an existing Company Plan;
(v) each Company ERISA Plan intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the IRS that it is so qualified and nothing has occurred since the date of the
most recent favorable determination letter that could reasonably be expected to
adversely affect the qualified status of such Company ERISA Plan;
(vi) each Company Plan has been operated and administered in
all material respects in accordance with its terms and the requirements of all
applicable law, including but not limited to ERISA and the Code, and no
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code has occurred with respect to any Company ERISA Plan;
(vii) neither Company nor any of its Subsidiaries or members of
their "controlled group" has incurred any direct or indirect liability under
ERISA or the Code in connection with the termination of, withdrawal from or
failure to fund, any Company ERISA Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give rise to
any such liability;
(viii) neither Company nor any ERISA Affiliate is now, or has
been during the preceding five (5) years, the sponsor of any pension plans
subject to Title IV of ERISA;
(ix) Company is not aware of any pending, threatened or
anticipated claims by or on behalf of any Company Plan, by any employee covered
under such Company Plan, or otherwise involving any such Company Plan (other
than routine claims for benefits); and
(x) None of the Company Plans provides for benefits or other
participation therein, and Company has received no claims or demands for
participation in or benefits under any Company Plan, by any individual
classified or treated by Company as an independent contractor; provided,
however, that the failure of the representations set forth in clauses (v), (vi),
(vii), (ix) and (x) to be true and correct shall not be deemed to be a breach of
any such representation unless such failures could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Company.
(r) Absence of Changes in Benefit Plans. Except as disclosed in the
-----------------------------------
Filed SEC Documents or in Section 4.1(r) of the Disclosure Schedule, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or agreed to
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<PAGE>
adopt any collective bargaining agreement or any Company Plan.
(s) Labor Matters.
-------------
(i) Except as specified in Section 4.1(s)(i) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries is a party to any
employment, labor or collective bargaining agreement, and there are no
employment, labor or collective bargaining agreements which pertain to employees
of Company or any of its Subsidiaries. Company has heretofore made available to
Parent true, complete and correct copies of the agreements set forth in Section
4.1(s)(i) of the Disclosure Schedule, together with all amendments,
modifications, supplements or side letters affecting the duties, rights and
obligations of any party thereunder.
(ii) No employees of Company or any of its Subsidiaries are
represented by any labor organization and, to the knowledge of Company, no labor
organization or group of employees of Company or any of its Subsidiaries has
made a pending demand for recognition or certification. There are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and, to the knowledge of Company, there are no
organizing activities involving Company or any of its Subsidiaries pending with
any labor organization or group of employees of Company or any of its
Subsidiaries.
(iii) Except as specified in Section 4.1(s)(iii) of the
Disclosure Schedule, there are no (A) unfair labor practice charges, grievances
or complaints pending or threatened in writing by or on behalf of any employee
or group of employees of Company or any of its Subsidiaries, or (B) complaints,
charges or claims against Company or any of its Subsidiaries pending, or
threatened in writing to be brought or filed, with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any individual by Company or
any of its Subsidiaries.
(t) Brokers. No broker, investment banker, financial advisor or other
-------
person, other than BancBoston Robertson Stephens Inc., the fees and expenses of
which will be paid by Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Company.
(u) Written Opinion of Financial Advisor. Company has received the
------------------------------------
written opinion of BancBoston Robertson Stephens Inc., dated July 15, 1999 (a
true, correct and complete copy of which has been delivered to Parent by
Company), to the effect that, based upon and subject to the matters set forth
therein and as of the date thereof, the Offer Consideration and the Merger
Consideration to be received by the holders of Shares in the Offer and the
Merger, respectively, is fair, from a financial point of view, to such holders
and such opinion has not been withdrawn or modified.
(v) Voting Requirements. In the event that Section 253 of the DGCL is
-------------------
inapplicable and unavailable to effectuate the Merger, the affirmative vote of
the holders of a majority of the outstanding Shares entitled to vote at the
Stockholders Meeting (as defined in Section 6.1(a)) with respect to the adoption
of this Agreement is the only vote of the holders of any class or series of
Company's capital stock or other securities required in connection with the
consummation by Company of the Merger and the other transactions contemplated
hereby to be consummated by Company. The restrictions contained in Section 203
of the DGCL are not applicable to this Agreement, the Stockholder Agreements and
the transactions contemplated hereby and thereby, including the Offer, the
Merger and the acquisition of Shares pursuant to the Stockholder Agreements. No
other state takeover statute or similar statute applies or purports to apply to
the Offer, the Merger or the other transactions contemplated hereby.
(w) Company Rights Agreement. Company and its Board of Directors have
------------------------
taken all action to amend the Company Rights Agreement (the "Rights Amendment")
which may be necessary under the Company Rights Agreement so that the Offer and
the execution and delivery of this Agreement (and any
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amendments thereto by the parties hereto) and the Stockholder Agreements, and
the consummation of the Merger and the transactions contemplated hereby and by
the Stockholder Agreements, will not cause (i) Parent or Purchaser to constitute
an "Acquiring Person" (as defined in the Company Rights Agreement), (ii) a
"Distribution Date," or "Shares Acquisition Date" (each as defined in the
Company Rights Agreement) or an event as described in clauses (a)-(c) of Section
13 of the Company Rights Agreement to occur or (iii) the Rights (as defined in
the Company Rights Agreement) to become exercisable pursuant to Section
11(a)(ii) thereof or otherwise. The Rights Amendment is sufficient to render the
Rights inoperative with respect to the acquisition of Shares by Parent,
Purchaser or their affiliates pursuant this Agreement, the Offer and/or the
Stockholder Agreements. As a result of the Rights Amendment, the Rights shall
not be exercisable upon or at any time after the acceptance for payment of
Shares pursuant to the Offer and/or the purchase of, or right to acquire, Shares
pursuant to the Stockholder Agreements. A true and correct copy of the Rights
Amendment has been delivered to Parent.
Section 4.2 Representations and Warranties of Parent and Purchaser.
------------------------------------------------------
Parent and Purchaser represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
------------------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated.
(b) Authority; Noncontravention. Parent and Purchaser have the
---------------------------
requisite corporate power and authority to enter into this Agreement. The
execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the transactions contemplated hereby
have been duly authorized by the Executive Committee of the Board of Directors
of Parent and the Board of Directors of Purchaser and have been duly approved by
Parent as sole stockholder of Purchaser, and no other corporate proceedings on
the part of Parent or Purchaser are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of Parent and Purchaser and, assuming this
Agreement constitutes a valid and binding obligation of Company, constitutes a
valid and binding obligation of each of Parent and Purchaser, enforceable
against each such party in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions of this Agreement will not (i) conflict with any of the provisions of
the certificate of incorporation or bylaws of Parent or Purchaser, in each case
as amended to the date of this Agreement, (ii) subject to the governmental
filings and other matters referred to in Section 4.2(c), conflict with, result
in a breach of or default (with or without notice or lapse of time, or both)
under, or give rise to a material obligation, a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture, or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Parent or Purchaser is a party or by which Parent or
Purchaser or any of their respective assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in Section
4.2(c), contravene any law, rule or regulation, or any order, writ, judgment,
injunction, decree, determination or award currently in effect, which, in the
case of clauses (ii) and (iii) above, could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(c) Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration or filing with, or notice to, any Governmental Entity which
has not been received or made is required by or with respect to Parent or
Purchaser in connection with the execution and delivery of this Agreement by
Parent or Purchaser or the consummation by Parent or Purchaser, as the case may
be, of any of the transactions contemplated hereby, except for (i) the filing of
premerger notification and report forms under the HSR Act, (ii) the filing with
the SEC of (A) the Schedule 14D-1 and (B) such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the certificate of merger with the
Delaware State Secretary and appropriate documents with the relevant authorities
of other states in which Company is qualified to do business, and (iv) any other
consents, approvals,
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<PAGE>
authorizations, filings or notices the failure to make or obtain which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
(d) Certain Information. Subject to Company's fulfillment of its
-------------------
obligations hereunder with respect thereto, the Offer Documents will contain (or
will be amended in a timely manner so as to contain) all information which is
required to be included therein in accordance with the Exchange Act and the
rules and regulations thereunder and any other applicable law and will conform
in all material respects with the requirements of the Exchange Act and any other
applicable law, and the Offer Documents will not, at the respective times they
are filed with the SEC or published, sent or given to Company's stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; provided, however, that no representation or warranty is hereby made
by Parent or Purchaser with respect to any information supplied by Company in
writing for inclusion in, or with respect to Company information derived from
Company's public SEC filings which is included or incorporated by reference in
the Offer Documents. None of the information supplied or to be supplied by
Parent or Purchaser for inclusion or incorporation by reference in, or which may
be deemed to be incorporated by reference in, the Schedule 14D-9 or the Proxy
Statement will, at the respective times the Schedule 14D-9 and the Proxy
Statement are filed with the SEC or published, sent or given to Company's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
Parent or Purchaser, or with respect to any information supplied by Parent or
Purchaser for inclusion in the Schedule 14D-9 or the Proxy Statement, shall
occur which is required to be described in an amendment of, or a supplement to,
such document, Parent or Purchaser shall so describe the event to Company.
(e) Financing. Parent and Purchaser collectively have cash on hand
in an aggregate amount sufficient to enable Parent and Purchaser to pay in full
(i) the Offer Consideration, (ii) the Merger Consideration, and (iii) all fees
and expenses payable by Parent and Purchaser in connection with this Agreement
and the transactions contemplated hereby
ARTICLE V
CONDUCT OF BUSINESS OF COMPANY
Section 5.1 Conduct of Business of Company. Except as expressly provided
------------------------------
for herein, during the period from the date of this Agreement to the Effective
Time, Company shall, and shall cause each of its Subsidiaries to, act and carry
on its business only in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, use reasonable efforts to
preserve intact its current business organizations, keep available the services
of its current key officers and employees and preserve the goodwill of those
engaged in material business relationships with Company, and to that end,
without limiting the generality of the foregoing, Company shall not, and shall
not permit any of its Subsidiaries to, without the prior consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make
any other distributions (whether in cash, securities or other property) in
respect of, any of its outstanding capital stock (other than, with respect to a
Subsidiary of Company, to its corporate parent), (B) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its outstanding capital stock, or (C) purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any rights,
warrants or options to acquire any such shares;
(ii) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Options and Warrants outstanding on
the date of this Agreement;
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<PAGE>
(iii) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents or amend or redeem the Company
Rights Agreement;
(iv) directly or indirectly acquire, make any investment in, or make
any capital contributions to, any person other than in the ordinary course of
business consistent with past practice;
(v) make any new capital expenditure or expenditures in excess of
$50,000 individually, or $250,000 in the aggregate, other than the specific
capital expenditures disclosed and set forth on Schedule 5.1 of Company
Disclosure Schedule;
(vi) amend or terminate any Material Contract where such amendment
or termination would have a Material Adverse Affect on Company, or waive,
release or assign any material rights or claims;
(vii) directly or indirectly sell, pledge or otherwise dispose of
or encumber any of its properties or assets that are material to its business,
except for sales, pledges or other dispositions or encumbrances in the ordinary
course of business consistent with past practice;
(viii) (A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to Company or any direct or indirect wholly
owned Subsidiary of Company or (B) make any loans or advances to any other
person, other than to Company or to any direct or indirect wholly owned
Subsidiary of Company and other than routine advances to employees consistent
with past practice, except, in the case of clause (A), for borrowings under
existing credit facilities described in the Filed SEC Documents in the ordinary
course of business consistent with past practice;
(ix) grant or agree to grant to any officer, employee or consultant
any increase in wages or bonus, severance, profit sharing, retirement, deferred
compensation, insurance or other compensation or benefits, or establish any new
compensation or benefit plans or arrangements, or amend or agree to amend any
existing Company Plans, except as may be required under existing agreements or
by law;
(x) accelerate the payment, right to payment or vesting of any
bonus, severance, profit sharing, retirement, deferred compensation, stock
option, insurance or other compensation or benefits;
(xi) enter into or amend any employment, consulting, severance or
similar agreement with any individual other than consulting agreements entered
into in the ordinary course of business involving payments in the aggregate for
all such consulting agreements not in excess of $50,000 in any month and not
with a term in excess of 90 days;
(xii) adopt or enter into a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other material reorganization or any agreement relating to an Acquisition
Proposal (as defined in Section 6.5(d));
(xiii) make or rescind any tax election or settle or compromise any
Tax liability of Company or of any of its Subsidiaries;
(xiv) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction (x) of any such
claims, liabilities or obligations in the ordinary course of business and
consistent with past practice or (y) of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of Company and its consolidated Subsidiaries;
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<PAGE>
(xv) make any change in any method of accounting or accounting
practice or policy (including any method, practice or policy relating to Taxes),
except as required by any changes in generally accepted accounting principles or
as otherwise required by law;
(xvi) settle any action, suit, claim, investigation or proceeding
(legal, administrative or arbitrative) in an amount in excess of $50,000 (other
than the settlement of the IQ class action (Harvey Altman v. IQ Software
Corporation, et al., N.D. Georgia, No. 1-97-CV3203) consistent with the terms of
the Memorandum of Understanding, dated February 5, 1999);
(xvii) permit any material insurance policy naming it as a
beneficiary or a loss payable payee to be cancelled or terminated without notice
to Parent, except in the ordinary course of business and consistent with past
practice;
(xviii) enter into any agreement, understanding or commitment that
restrains, limits or impedes Company's ability to compete with or conduct any
business or line of business, including, but not limited to, geographic
limitations on Company's activities;
(xix) plan, announce, implement or effect any reduction in force,
lay-off, early retirement program, severance program or other program or effort
concerning the termination of employment of employees of Company or its
Subsidiaries;
(xx) accelerate the collection of any account receivable or delay
the payment of any account payable, or otherwise reduce the assets or increase
the liabilities of Company or any of its Subsidiaries otherwise than in the
ordinary course of business consistent with past practice, in any such case with
the purpose or effect of using the resulting increase in the cash flow of
Company or any of its Subsidiaries to reduce the total indebtedness of Company
and its Subsidiaries for money borrowed;
(xxi) take any action that would result in (i) any of its
representations and warranties set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the Offer set forth in Exhibit A not being satisfied; or
(xxii) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 5.1.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1 Company Stockholders Meeting; Preparation of the Proxy
------------------------------------------------------
Statement; Short-Form Merger.
- ----------------------------
(a) As soon as practicable following the acceptance for payment of
and payment for Shares by Purchaser in the Offer, if required by law to
consummate the Merger, Company shall take all action necessary, in accordance
with the DGCL, the Exchange Act and other applicable law and its certificate of
incorporation and bylaws to convene and hold a special meeting of the
stockholders of Company (the "Stockholders Meeting") for the purpose of
considering and voting upon this Agreement and to solicit proxies pursuant to
the Proxy Statement) in connection therewith. The Board of Directors of Company
shall recommend that the holders of Shares vote in favor of the adoption of this
Agreement at the Stockholders Meeting and shall cause such recommendation to be
included in the Proxy Statement. At the Stockholders Meeting, Parent and
Purchaser shall cause all of the Shares owned by them to be voted in favor of
the adoption of this Agreement.
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<PAGE>
(b) Company, if requested by Parent, shall prepare and file with the
SEC a proxy statement or information statement (together with any supplement or
amendment thereto, the "Proxy Statement") relating to the Stockholders Meeting
in accordance with the Exchange Act and the rules and regulations thereunder.
Parent, Purchaser and Company will cooperate with each other in the preparation
of the Proxy Statement. Without limiting the generality or effect of the
foregoing, Company shall use its reasonable efforts to respond to all SEC
comments with respect to the Proxy Statement and, subject to compliance with SEC
rules and regulations, to cause the Proxy Statement to be mailed to Company's
stockholders at the earliest practicable date. Each of Parent and Purchaser
shall promptly supply to Company in writing, for inclusion in the Proxy
Statement, all information concerning Parent and Purchaser required under the
Exchange Act and the rules and regulations thereunder to be included in the
Proxy Statement.
(c) Notwithstanding the foregoing clauses (a) and (b), in the event
that Purchaser or any other wholly owned Subsidiary of Parent shall acquire at
least 90% of the outstanding Shares in the Offer, the parties hereto shall, at
the request of Purchaser, take all necessary actions to cause the Merger to
become effective, as soon as practicable after the expiration of the Offer,
without a meeting of stockholders of Company, in accordance with Section 253 of
the DGCL.
(d) Parent shall: (i) cause Purchaser promptly to submit this
Agreement for adoption by its sole stockholder; (ii) cause the outstanding
shares of capital stock of Purchaser to be voted in favor of the adoption of
this Agreement; and (iii) cause to be taken all additional actions necessary for
Purchaser to adopt this Agreement.
Section 6.2 Access to Information; Confidentiality. Company shall, and
--------------------------------------
shall cause each of its Subsidiaries to, afford to Parent and its officers,
employees, counsel, financial advisors and other representatives access during
the period prior to the Effective Time to all of Company's and its Subsidiaries'
properties, books, contracts, commitments, Returns, personnel and records and,
during such period, Company shall, and shall cause each of its Subsidiaries to,
furnish as promptly as practicable to Parent such information concerning
Company's and its Subsidiaries' businesses, properties, financial condition,
operations and personnel as Parent may from time to time request. Any such
investigation by Parent shall not affect the representations or warranties of
Company contained in this Agreement. Except as required by law, Parent and
Company will hold, and will use its best efforts to cause its directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any non-public information obtained from
the other in confidence to the extent required by, and in accordance with the
provisions of, the letter agreement, dated June 9, 1999 (the "Letter
Agreement"), between Parent and Company with respect to confidentiality and
other matters.
Section 6.3 Reasonable Best Efforts. On the terms and subject to the
-----------------------
conditions set forth in this Agreement, each of the parties shall use its
reasonable best efforts to take, or cause to be taken, all actions, and do, or
cause to be done, and assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Offer, the Merger and the other
transactions contemplated hereby, including the satisfaction of the respective
conditions set forth in Article VII.
Section 6.4 Public Announcements. Parent and Purchaser, on the one hand,
--------------------
and Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release, SEC filing (including without limitation the Offer Documents, the
Schedule 14D-9 and the Proxy Statement) or other public statements with respect
to the transactions contemplated hereby, including the Offer and Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, by court
process or by obligations pursuant to any listing agreement with any national
securities exchange.
Section 6.5 No Solicitation; Acquisition Proposals. (a) Company shall
--------------------------------------
not, nor shall it permit any of its Subsidiaries to, nor shall it authorize (and
shall use its best efforts not to permit) any affiliate, officer,
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<PAGE>
director or employee of, or any investment banker, attorney or other advisor or
representative of, Company or any of its Subsidiaries to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries relating to, or
the submission of, any Acquisition Proposal, (ii) participate in any discussions
or negotiations regarding any Acquisition Proposal, or in connection with any
Acquisition Proposal, or furnish to any Person any information or data with
respect to or access to the properties of Company or any of its Subsidiaries, or
take any other action to knowingly facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal
or (iii) enter into any agreement with respect to any Acquisition Proposal or
approve or resolve to approve any Acquisition Proposal; provided, that nothing
-------- ----
contained in this Section 6.5 or any other provision hereof shall prohibit
Company or Company's Board of Directors from (i) taking and disclosing to
Company's stockholders a position with respect to a tender or exchange offer by
a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange
Act, or (ii) making such disclosure to Company's stockholders as, in the good
faith judgment of Company's Board of Directors, after consultation with outside
counsel, is required under, or is necessary to comply with, applicable law,
provided that Company may not, except as permitted by Section 6.5(b), withdraw
- -------- ----
or modify, or propose to withdraw or modify, its position with respect to the
Offer or the Merger or approve or recommend, or propose to approve or recommend
any Acquisition Proposal, or enter into any agreement with respect to any
Acquisition Proposal. Upon execution of this Agreement, Company will
immediately cease any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
Notwithstanding the foregoing, prior to the time of acceptance of Shares for
payment pursuant to the Offer, Company may furnish information concerning its
business or its Subsidiaries, properties or assets to any person or group and
may negotiate and participate in discussions and negotiations with such person
or group concerning an Acquisition Proposal, provided that such person or group
shall have entered into a confidentiality agreement, the confidentiality
provisions of which shall be no more favorable to such third party than those
provided for in the Letter Agreement, if:
(x) such Person or group has submitted a Superior Proposal; and
(y) in the opinion of Company's Board of Directors, determined
only after consulting with independent legal counsel to Company, such
action is required to discharge the Board's fiduciary duties to Company's
stockholders under applicable law and the failure to provide such
information or access or to engage in such discussions or negotiations
would cause Company's Board of Directors to violate its fiduciary duties to
Company's stockholders under applicable law.
Company will promptly (but in no case later than 24 hours) notify Parent in
writing of the existence of any proposal, discussion, negotiation or inquiry
received by Company regarding any Acquisition Proposal, and Company will
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry which it may receive regarding any Acquisition Proposal
(and will promptly provide to Parent copies of any written materials received by
Company in connection with such proposal, discussion, negotiation or inquiry)
and the identity of the party making such proposal or inquiry or engaging in
such discussion or negotiation. Company will promptly provide to Parent any
non-public information concerning Company provided to any other person in
connection with any Acquisition Proposal which was not previously provided to
Parent. Company will keep Parent informed of the status and details of any such
Acquisition Proposal and of any amendments or proposed amendments to any
Acquisition Proposal and of the status of any discussions or negotiations
relating to any Acquisition Proposal and will promptly (but in no case later
than 24 hours) notify Parent of any determination by Company's Board of
Directors that a Superior Proposal has been made.
(b) Except as set forth in this Section 6.5(b), neither the Board of
Directors of Company nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Purchaser, the
approval or recommendation by the Board of Directors of Company of the Offer,
this Agreement or the Merger, (ii) approve or recommend, or propose to approve
or recommend, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, subject to
compliance with the provisions of this Section 6.5, prior to the time of
acceptance for payment of Shares pursuant to the Offer, Company's Board of
Directors may withdraw or modify its approval
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<PAGE>
or recommendation of the Offer, this Agreement or the Merger, approve or
recommend a Superior Proposal, or enter into an agreement with respect to a
Superior Proposal, in each case at any time after the third business day
following Parent's receipt of written notice (including by facsimile) from
Company advising Parent that the Board of Directors of Company has received a
Superior Proposal which it intends to accept, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal.
(c) Nothing in this Section 6.5, and no action taken by the Board of
Directors of Company pursuant to this Section 6.5, will (i) permit Company to
enter into any agreement providing for any transaction contemplated by an
Acquisition Proposal for as long as this Agreement remains in effect or (ii)
affect in any manner any other obligation of Company under this Agreement.
(d) For purposes of this Agreement, "Acquisition Proposal" means any
bona fide offer, proposal or other indication of interest regarding any of the
following (other than the transactions provided for in this Agreement involving
Company): (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction involving the Company or any
of its Subsidiaries; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of all or a significant portion of the assets of Company
and its Subsidiaries, taken as a whole, in a single transaction or series of
related transactions; (iii) any purchase or tender offer or exchange offer for
15% percent or more of the outstanding shares of capital stock of Company or the
filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing. For
purposes of this Agreement, "Superior Proposal" means an unsolicited Acquisition
Proposal on terms which the Board of Directors of Company determines in good
faith to be more favorable to Company's stockholders than the Offer and the
Merger (based on advice of Company's independent financial advisor that the
value of the consideration provided for in such proposal is superior to the
value of the consideration provided for in the Offer and the Merger), for which
financing, to the extent required, is then committed or which, in the good faith
reasonable judgment of the Board of Directors of Company, based on advice from
Company's independent financial advisor, is reasonably capable of being financed
by such third party and which, in the good faith reasonable judgment of the
Board of Directors of Company, is reasonably likely to be consummated within a
period of time not materially longer in duration than the period of time
reasonably believed to be necessary to consummate the Offer and the Merger.
Section 6.6 Consents, Approvals and Filings. Upon the terms and subject
-------------------------------
to the conditions hereof, each of the parties hereto shall (a) make promptly its
respective filings, and thereafter make any other required submissions, under
the HSR Act and the Exchange Act, with respect to the Offer, the Merger and the
other transactions contemplated hereby and (b) use its reasonable best efforts
to take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Offer, the Merger and the other
transactions contemplated hereby, including without limitation using its
reasonable best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and parties
to contracts with Company and its Subsidiaries as are necessary for the
consummation of the Offer, the Merger and the other transactions contemplated
hereby and to fulfill the conditions to the Offer and the Merger; provided,
however, that in no event shall Parent or any of its Subsidiaries be required to
agree or commit to divest, hold separate, offer for sale, abandon, limit its
operation of or take similar action with respect to any assets (tangible or
intangible) or any business interest of it or any of its Subsidiaries (including
without limitation the Surviving Corporation after consummation of the Offer or
the Merger) in connection with or as a condition to receiving the consent or
approval of any Governmental Entity (including without limitation under the HSR
Act). In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.
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<PAGE>
Section 6.7 Employee Benefit Matters.
------------------------
(a) From and after the Effective Time, Parent shall, and shall cause
its Subsidiaries (including the Surviving Corporation) to, honor and provide for
payment of all accrued obligations and benefits under all Company Plans and
employment or severance agreements disclosed in the Disclosure Schedule between
Company and persons who are or had been employees of Company or any of its
Subsidiaries at or prior to the Effective Time ("Covered Employees"), all in
accordance with their respective terms.
(b) From and after the Effective Time, Parent shall, and shall cause
its Subsidiaries (including the Surviving Corporation) to, provide Covered
Employees who remain in the employ of Company or any such Subsidiary of Company
employee benefits that are reasonably comparable in the aggregate to the
employee benefits provided to similarly situated employees of Parent or any such
Subsidiary who are not Covered Employees. To the extent that Covered Employees
are included in any benefit plan of Parent or its Subsidiaries, Parent agrees
that the Covered Employees shall receive credit under such plan (other than any
such plan providing for sabbaticals) for service prior to the Effective Time
with Company and its Subsidiaries to the same extent such service was counted
under similar Company Plans for purposes of eligibility, vesting, eligibility
for retirement (but not for benefit accrual) and, with respect to vacation,
disability and severance, benefit accrual. To the extent that Covered Employees
are included in any medical, dental or health plan other than the plan or plans
they participated in at the Effective Time, Parent agrees that any such plans
shall not include pre-existing condition exclusions, except to the extent such
exclusions were applicable under the similar Company Plan at the Effective Time,
and shall provide credit for any deductibles and co-payments applied or made
with respect to each Covered Employee in the calendar year of the change.
(c) Notwithstanding anything in this Agreement to the contrary, from
and after the Effective Time, the Surviving Corporation will have sole
discretion over the hiring, promotion, retention, firing and other terms and
conditions of the employment of employees of the Surviving Corporation. Except
as otherwise provided in this Section 6.7, nothing herein shall prevent Parent
or the Surviving Corporation from amending or terminating any Company Plan in
accordance with its terms.
Section 6.8 Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) For a period of six years after the Effective Time, the
provisions with respect to indemnification set forth in the certificate of
incorporation and bylaws of Purchaser as in effect on the date of this Agreement
(true, correct and complete copies of which have been provided to Company) shall
not be amended, repealed or otherwise modified in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of Company in respect of actions
or omissions occurring at or prior to the Effective Time (including without
limitation the transactions contemplated by this Agreement), unless such
modification is required by law.
(b) Notwithstanding Section 6.8(a) above, from and after the
Effective Time, Parent shall, or shall cause the Surviving Corporation to,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer or director of Company (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees and
expenses), liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party (which approval shall not be unreasonably
withheld) incurred in connection with any threatened or actual action, suit or
proceeding based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director or officer of Company
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, this Agreement or
the transactions contemplated hereby, in each case, to the full extent that a
corporation is permitted under the DGCL to indemnify its own directors or
officers, as the case may be. In the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party, the
indemnifying party shall assume and direct all aspects of the defense thereof,
including settlement, and the Indemnified Party shall cooperate in the
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vigorous defense of any such matter. The Indemnified Party shall have a right to
participate in (but not control) the defense of any such matter with its own
counsel and at its own expense. The indemnifying party shall not settle any such
matter unless (i) the Indemnified Party gives prior written consent, which shall
not be unreasonably withheld, or (ii) the terms of the settlement provide that
the Indemnified Party shall have no responsibility for the discharge of any
settlement amount and impose no other obligations or duties on the Indemnified
Party and the settlement discharges all rights against Indemnified Party with
respect to such matter. In no event shall the indemnifying party be liable for
any settlement effected without its prior written consent. Any Indemnified Party
wishing to claim indemnification under this Section 6.8(b), upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify
Parent and the Surviving Corporation (but the failure so to notify shall not
relieve the indemnifying party from any liability which it may have under this
Section 6.8(b) except to the extent such failure prejudices such indemnifying
party), and shall deliver to Parent and the Surviving Corporation the
undertaking contemplated by Section 145(e) of the DGCL. The Indemnified Parties
as a group will be represented by a single law firm with respect to each such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties. The rights to indemnification under this Section 6.8(b)
shall continue in full force and effect for a period of six years from the
Effective Time; provided, however, that all rights to indemnification in respect
of any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities.
(c) For a period of two years after the Effective Time Parent shall
cause to be maintained in effect policies of directors' and officers' liability
insurance, for the benefit of those persons who are covered by Company's
directors' and officers' liability insurance policies at the Effective Time,
providing coverage with respect to matters occurring prior to the Effective Time
that is at least equal to the coverage provided under Company's current
directors' and officers' liability insurance policies, to the extent that such
liability insurance can be maintained at an annual cost to Parent not greater
than 150 percent of the premium for the current Company directors' and officers'
liability insurance; provided that if such insurance cannot be so maintained at
such cost, Parent shall maintain as much of such insurance as can be so
maintained at a cost equal to 150 percent of the current annual premiums of
Company for such insurance.
Section 6.9 Board Action Relating to Stock Option Plans, Warrants and
---------------------------------------------------------
ESPP.
- ----
(a) As soon as practicable following the date of this Agreement, the
Board of Directors of Company (or, if appropriate, any committee administering a
Stock Option Plan) shall adopt such resolutions and take such actions as may be
required to cause each outstanding Option to be automatically converted, at the
Effective Time, into a Substitute Option in accordance with Section 3.2 and
shall make such other changes to the Stock Option Plans as it deems appropriate
to give effect to the Merger (subject to the approval of Parent, which shall not
be unreasonably withheld).
(b) As soon as practicable following the date of this Agreement, the
Board of Directors of Company (or, if appropriate, any committee administering
any Warrants) shall adopt such resolutions and take such actions as may be
required to cause each holder of an outstanding Warrant to be automatically
entitled to receive an amount in cash equal to the product of (i) the excess, if
any, of the Offer Consideration over the per share exercise price of such
Warrant and (ii) the number of shares subject to such Warrant.
(c) Company and Parent agree that the "offering period" and
"accumulation period" under the ESPP each shall terminate not later than five
business days prior to the Effective Time, and Company agrees to cause any
appropriate notices to be given to participants under the ESPP. No further
"offering period" or "accumulation period" under the ESPP shall be created. In
addition, the Board shall cause the ESPP to be terminated as of the Effective
Time.
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Section 6.10 Certain Agreements. Company agrees to use its best efforts
------------------
to enforce any "standstill" provisions or similar restrictions on Acquisition
Proposals by any third party and so long as this Agreement is in effect shall
not amend or waive any such "standstill" provision.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Completion of the Offer. Purchaser shall have accepted for
-----------------------
payment and paid for all Shares validly tendered in the Offer and not withdrawn;
provided, however, that neither Parent nor Purchaser may invoke this condition
if Purchaser shall have failed to purchase Shares so tendered and not withdrawn
in violation of the terms of this Agreement or the Offer.
(b) Stockholder Approval. This Agreement shall have been adopted by
--------------------
the affirmative vote of the holders of the requisite number of shares of capital
stock of Company if such vote is required pursuant to Company's certificate of
incorporation, the DGCL or other applicable law.
(c) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that prior to
invoking this condition, the party so invoking this condition shall have
complied with its obligations under Section 6.3 and Section 6.6 and the parties
hereto shall have used commercially reasonable efforts to lift or remove such
order, injunction, restraint or prohibition.
(d) HSR Act. All necessary waiting periods under the HSR Act
-------
applicable to the Merger shall have expired or been earlier terminated.
Section 7.2 Conditions to Parent's or Purchaser's Obligation to Effect the
--------------------------------------------------------------
Merger. The obligation of Parent and/or Purchaser to effect the Merger shall
- ------
be subject to the satisfaction or written waiver on or prior to the Closing Date
of the following condition: No outstanding Option shall entitle the holder
thereof, at the Effective Time or thereafter, to purchase any capital stock of
Company
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the Merger
-----------
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of Company:
(a) By the mutual written consent of Parent and Company; provided,
--------
however, that if Parent shall have a majority of the directors pursuant to
- -------
Section 1.4, such consent of Company may only be given if approved by the
Continuing Directors.
(b) By either Parent or Company if (i) a statute, rule or executive
order shall have been enacted, entered or promulgated prohibiting the
transactions contemplated hereby on the terms contemplated by this Agreement or
(ii) any Governmental Entity shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable best efforts to lift),
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in each case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other action
shall have become final and non-appealable.
(c) By either Parent or Company if the Offer shall not have been
consummated on or before October 31, 1999; provided, however, that the party
-------- -------
seeking to terminate this Agreement pursuant to this Section 8.1(c) shall not
have breached in any material respect its obligations under this Agreement.
(d) by Company:
(i) if Company has entered into an agreement with respect to a
Superior Proposal or has approved or recommended a Superior Proposal in
accordance with Section 6.5(b), provided Company has complied with all
provisions of Section 6.5, including the notice provisions therein, and that it
simultaneously terminates this Agreement and makes simultaneous payment to the
Parent of the Termination Fee and the Expenses (as such terms are defined in
Section 9.2); or
(ii) if Parent or Purchaser shall have terminated the Offer or
the Offer expires without Parent or Purchaser, as the case may be, purchasing
any Shares pursuant thereto; provided that Company may not terminate this
Agreement pursuant to this Section 8.1(d)(ii) if Company is in material breach
of this Agreement; or
(iii) if Parent, Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to five business days following the
date of the initial public announcement of the Offer; provided, that Company may
not terminate this Agreement pursuant to this Section 8.1(d)(iii) if Company is
in material breach of this Agreement; or
(iv) if there shall be a material breach by either Parent or
Purchaser of any of their representations, warranties covenants or agreements
contained in this Agreement, except where such breach does not have a material
adverse effect on the ability of Parent or Purchaser to consummate the Offer or
the Merger.
(e) By Parent or Purchaser:
(i) (A) if prior to the purchase of the shares pursuant to the
Offer, the Board of Directors of Company shall have withdrawn, or modified or
changed in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, this Agreement or the Merger or shall have
recommended or approved, or taken a neutral position with respect to, an
Acquisition Proposal or upon request of Parent, shall fail to reaffirm its
approval and recommendation of the Offer, the Merger Agreement, or the Merger;
or
(B) if there shall have been a material breach by the
Company of any provision of Section 6.5; or
(ii) if Parent or Purchaser shall have terminated the Offer
without Parent or Purchaser purchasing any Shares thereunder due to a failure to
satisfy any of the conditions set forth on Exhibit A, provided that Parent or
--------
Purchaser may not terminate this Agreement pursuant to this Section 8.1(e)(ii)
if Parent or Purchaser is in material breach of this Agreement; or
(iii) if there shall be a material breach by Company of any of
its representations, warranties, covenants or agreements contained in this
Agreement.
Section 8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Company or Parent or Purchaser as provided in Section 8.1,
this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Purchaser or Company, other than
the provisions of Section 4.1 (t), Section 6.2, Section 6.4, this Section 8.2
and Article IX and except to the extent that such
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<PAGE>
termination results from the material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this Agreement
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 9.2 Fees and Expenses. (a) Except as provided in Section 9.2(b)
-----------------
below, all fees and expenses incurred in connection with the Offer, the Merger,
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such fees or expenses, whether or not the Offer or the Merger is
consummated.
(b) If (x) Parent or Purchaser terminates this Agreement
pursuant to Section 8.1(e)(i), or (y) Company terminates this Agreement pursuant
to Section 8.1(d)(i), then in each case, Company shall pay, or cause to be paid
to Parent, at the time of termination, an amount equal to $6,500,000 (the
"Termination Fee") and an amount equal to Parent's and Purchaser's actual and
reasonably documented out-of-pocket expenses incurred by Parent or Purchaser in
connection with the Offer, the Merger, this Agreement and the consummation of
the transactions contemplated hereby in an amount not to exceed $850,000 (the
"Expenses"). In addition, if this Agreement is terminated by Parent pursuant to
Section 8.1(e)(iii) and if Company shall within ninety (90) days after such
termination enter into an agreement with respect to an Acquisition Proposal,
Company shall pay to Parent the Termination Fee and Expenses concurrent with
entering into any such agreement. Any payments required to be made pursuant to
this Section 9.2 shall be made by wire transfer of same day funds to an account
designated by Parent.
Section 9.3 Definitions. For purposes of this Agreement:
-----------
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "business day" means any day other than Saturday, Sunday or any
other day on which banks in the City of New York are required or permitted to
close;
(c) "Disclosure Schedule" means the disclosure schedule delivered by
Company to Parent and Purchaser simultaneously with the execution of this
Agreement;
(d) "Environmental Laws" means any federal, state or local law
relating to: (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (iii) otherwise relating to
pollution of the environment or the protection of human health;
(e) "Hazardous Substances" means: (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act; (ii)
petroleum and petroleum products including crude oil and any fractions thereof;
(iii)
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<PAGE>
natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any other
contaminant; and (vi) any substance with respect to which any Governmental
Entity requires environmental investigation, monitoring, reporting or
remediation;
(f) "knowledge" means the actual knowledge of any executive officer of
Company or Parent, as the case may be, after making due inquiry under the
circumstances;
(g) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever;
(h) a "Material Adverse Effect" with respect to any person means any
event, change, occurrence, effect, fact or circumstance having, or which would
reasonably be expected to have, a material adverse effect on (i) the ability of
such person to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby or (ii) the condition (financial or otherwise),
assets, liabilities (actual or contingent), properties, results of operations,
cash flows, value or business of such person and its Subsidiaries taken as a
whole;
(i) the "NYSE" means the New York Stock Exchange;
(j) a "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(k) "Principal Stockholders" means Norwest Equity Partners, Sutter
Hill Ventures, LLP and St. Paul Venture Capital, Inc., Company's directors and
certain of the Company's executive officers;
(l) a "Subsidiary" of any person means any other person of which (i)
the first mentioned person or any Subsidiary thereof is a general partner, (ii)
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such other person is held by the first
mentioned person and/or by any one or more of its Subsidiaries, or (iii) at
least 50% of the equity interests of such other person is, directly or
indirectly, owned or controlled by such first mentioned person and/or by any one
or more of its Subsidiaries.
Section 9.4 Amendment and Modification. Subject to applicable law, this
---------------------------
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of Company contemplated
hereby, by written agreement of the parties hereto (which in the case of Company
shall include approvals as contemplated in Section 1.4(c)), at any time prior to
the Closing Date with respect to any of the terms contained herein; provided,
--------
however, that after the approval of this Agreement by the stockholders of
- -------
Company, no such amendment, modification or supplement shall reduce the amount
or change the form of the Merger Consideration or otherwise adversely affect the
rights of stockholders.
Section 9.5 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to Section 9.4, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in a written instrument executed and delivered by a duly authorized
officer on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
Section 9.6 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier
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<PAGE>
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(i) if to Parent or to Purchaser, to
Sterling Software, Inc.
300 Crescent Court
Suite 1200
Dallas, TX 75201-7853
Attention: Don J. McDermett, Jr.
SVP, General Counsel & Secretary
Telecopy: (214) 981-1265
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3897
Attention: Richard J. Grossman, Esq.
Telecopy: (212) 735-2000
(ii) if to Company, to
Information Advantage, Inc.
7905 Golden Triangle Drive
Eden Prairie, MN 55344
Attention: Larry Ford
President and CEO
Telecopy: (612)833-3701
with a copy (which shall not constitute notice) to:
Briggs and Morgan, P.A.
2400 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: Brian D. Wenger, Esq.
Telecopy: (612)334-8650
and
Gunderson, Dettmer, Stough, Villeneuve, Franklin
and Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attention: Jay K. Hachigian, Esq.
Telecopy: (650) 321-2800
Section 9.7 Interpretation. When a reference is made in this Agreement
--------------
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for convenience of reference purposes only and shall not affect in
any way the meaning
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<PAGE>
or interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
Section 9.8 Entire Agreement; Third-Party Beneficiaries. This Agreement
-------------------------------------------
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the Letter Agreement referenced in
the last sentence of Section 6.2). Other than the provisions of Section 6.8,
this Agreement is not intended to confer upon any person (including without
limitation any employees or former employees of Company), other than the parties
hereto, any rights or remedies.
Section 9.9 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.10 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void, except that Parent and/or
Purchaser may assign this Agreement to any direct or indirect wholly owned
Subsidiary of Parent without the prior consent of Company; provided that Parent
and/or Purchaser, as the case may be, shall remain liable for all of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.11 Enforcement. Irreparable damage would occur in the event
-----------
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware), this being in
addition to any other remedy to which they are entitled at law or in equity.
Each of the parties hereto (i) shall submit itself to the personal jurisdiction
of the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware) in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (iii) shall not bring
any action relating to this Agreement or any of the transactions contemplated
hereby in any court other than the Court of Chancery in and for New Castle
County in the State of Delaware (or, if such court lacks subject matter
jurisdiction, any appropriate state or federal court in New Castle County in the
State of Delaware).
Section 9.12 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the day and year first written above.
STERLING SOFTWARE, INC.
By: /s/ Sterling L. Williams
-----------------------------
Name: Sterling L. Williams
Title: President and CEO
STERLING SOFTWARE ACQUISITION CORP.
By: /s/ Sterling L. Williams
-----------------------------
Name: Sterling L. Williams
Title: President
INFORMATION ADVANTAGE, INC.
By: /s/ Larry Ford
-----------------------------
Name: Larry Ford
Title: President and CEO
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<PAGE>
EXHIBIT A
CONDITIONS TO THE OFFER
Capitalized terms used but not defined herein shall have the meanings set
forth in the Agreement and Plan of Merger (the "Agreement") of which this
Exhibit A is a part. Notwithstanding any other provision of the Offer, Purchaser
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may delay
the acceptance for payment of or, subject to the restriction referred to above,
the payment for, any tendered Shares, and may amend the Offer consistent with
the terms of the Agreement or terminate the Offer and not accept for payment any
tendered Shares, if (i) there shall not have been validly tendered and not
withdrawn prior to the expiration of the Offer such number of Shares which, when
added to the Shares, if any, beneficially owned by Parent or Purchaser, would
constitute at least a majority of the Shares outstanding on a fully diluted
basis on the date of purchase ("on a fully-diluted basis" meaning, as of any
date, the number of Shares outstanding, together with the Shares which Company
may be required to issue pursuant to warrants, options or obligations
outstanding at that date under employee stock or similar benefit plans or
otherwise whether or not vested or then exercisable) (the "Minimum Condition"),
(ii) any applicable waiting period under the HSR Act has not expired or been
terminated, or (iii) at any time on or after the date of the Merger Agreement
and prior to the Expiration Date, any of the following events shall occur or
shall be determined by Parent or Purchaser to have occurred:
(a) there shall be threatened or pending any suit, action or
proceeding (i) seeking to prohibit or impose any material limitations on
Parent's or Purchaser's ownership or operation (or that of any of their
respective Subsidiaries or affiliates) of all or a material portion of their or
Company's businesses or assets, (ii) seeking to compel Parent or Purchaser or
their respective Subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (iii) challenging the
acquisition by Parent or Purchaser of any Shares pursuant to the Offer, (iv)
seeking to restrain or prohibit the making or consummation of the Offer or the
Merger or the performance of any of the transactions contemplated by the
Agreement, (v) seeking to obtain from Company any damages (including damages
against Company's directors or officers for which they may seek indemnification
from Company) that would be reasonably likely to have a Material Adverse Effect
on Company, (vi) seeking to impose material limitations on the ability of
Purchaser, or rendering Purchaser unable, to accept for payment, pay for or
purchase some or all of the Shares pursuant to the Offer and the Merger, (vii)
seeking to impose material limitations on the ability of Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by Purchaser or
Parent on all matters properly presented to Company's stockholders, or (viii)
which otherwise is reasonably likely to have a Material Adverse Effect on
Company or, as a result of the transactions contemplated by the Merger
Agreement, Parent and its Subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, or any other action shall be taken by any Governmental
Entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (i) through
(viii) of paragraph (a) above; or
(c) the representations and warranties of Company set forth in the
Agreement which are not qualified by "materiality" or "Material Adverse Effect"
shall not be true and accurate in all material respects, and the representations
and warranties that are qualified by "materiality" or "Material Adverse Effect"
shall not be true and accurate in all respects, in each case as of the date of
consummation of the Offer as though made on or as of such date (except for those
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time which need only be true and
accurate as of such date or with respect to such period) or Company shall have
breached or failed to perform or comply in any material respect
<PAGE>
with any material obligation, agreement or covenant required by the Agreement to
be performed or complied with by it; or
(d) there shall have occurred any event, change, occurrence, effect
or circumstance which has had individually or in the aggregate, a Material
Adverse Effect on Company other than a Material Adverse Effect resulting
principally from the announcement of the Offer or the Merger; provided, however,
that if the Company's software license revenue (recognized by the Company in
accordance with generally accepted accounting principles, consistently applied)
for the fiscal quarter ending July 31, 1999 ("Current License Revenue") is
greater than the software license revenue publicly reported by the Company for
the quarter ended April 30, 1999, then such Current License Revenue shall not be
taken into account in determining whether there is or could be a Material
Adverse Effect; or
(e) Company's Board of Directors (i) shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the Merger
Agreement, or the Merger, (ii) shall have recommended or remained neutral with
respect to an Acquisition Proposal, (iii) shall have adopted any resolution to
effect any of the foregoing, or (iv) upon request of Parent, shall fail to
reaffirm its approval or recommendation of the Offer, the Merger Agreement, or
the Merger; or
(f) the Merger Agreement shall have been terminated in accordance
with its terms; or
(g) the Principal Stockholders shall have failed to comply with their
obligations under the Stockholder Agreements;
which in the sole good faith judgment of Parent or Purchaser, in any such case,
and regardless of the circumstances (including any action or inaction by Parent
or Purchaser) giving rise to such condition makes it inadvisable to proceed with
the Offer and/or with such acceptance for payment of or payments for Shares.
The foregoing conditions are for the sole benefit of Parent and
Purchaser and may (except for the Minimum Condition) be waived by Parent or
Purchaser, in whole or in part, at any time and from time to time, in the sole
discretion of Parent or Purchaser. The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
<PAGE>
EXHIBIT (c)(2)
<PAGE>
FORM OF
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT, dated as of July 15, 1999 (this "Agreement"),
is made and entered into among Sterling Software, Inc., a Delaware corporation
("Parent"), Sterling Software Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Parent ("Purchaser"), and _______________ (the
"Stockholder").
RECITALS:
A. Parent, Purchaser and Information Advantage, Inc., a Delaware
corporation ("Company"), propose to enter into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), pursuant to which the
Purchaser will merge with and into Company (the "Merger") on the terms and
subject to the conditions set forth in the Merger Agreement. Except as
otherwise defined herein, terms used herein with initial capital letters have
the respective meanings ascribed thereto in the Merger Agreement.
B. As of the date hereof, Stockholder beneficially owns and is entitled
to dispose of (or to direct the disposition of) and to vote (or to direct the
voting of) ______ shares of common stock, par value $0.01 per share ("Shares"),
of Company (such Shares, together with any other shares of capital stock of
Company the beneficial ownership of which is acquired by Stockholder during the
period from and including the date hereof through and including the earlier of
(i) the Effective Time (as defined in the Merger Agreement) and (ii) the date
that is six months after the date on which the Merger Agreement is terminated
pursuant to Section 8.1 thereof, are collectively referred to herein as "Subject
Shares").
C. Pursuant to the Merger Agreement, Purchaser shall commence a cash
tender offer (the "Offer") to purchase at a price of $6.50 per Share all
outstanding Shares, including all of the Subject Shares. Stockholder has
advised Parent and Purchaser that Stockholder intends to tender the Subject
Shares in the Offer.
D. As a condition and inducement to Parent's and Purchaser's willingness
to enter into the Merger Agreement, Parent and Purchaser have requested that
Stockholder agree, and Stockholder has agreed, to enter into this Agreement.
E. Parent and Purchaser have entered into substantially similar
stockholder agreements with each of the directors and certain of the executive
officers and significant stockholders of the Company, including affiliates of
Norwest Venture Capital and St. Paul Venture Capital.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained in this Agreement and the Merger
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
VOTING AGREEMENT
Section 1.1 Agreement to Vote Shares. During the Option Period (as
------------------------
defined in Section 2.2), at any meeting of the stockholders of Company called to
consider and vote upon the adoption of the Merger
<PAGE>
Agreement (and at any and all postponements and adjournments thereof), and in
connection with any action to be taken in respect of the adoption of the Merger
Agreement by written consent of stockholders of Company, Stockholder shall vote
or cause to be voted (including by written consent, if applicable) all of the
Subject Shares, whether issued, heretofore owned or hereinafter acquired, in
favor of the adoption of the Merger Agreement and in favor of any other matter
necessary for the consummation of the transactions contemplated by the Merger
Agreement and considered and voted upon at any such meeting or made the subject
of any such written consent, as applicable. During the Option Period, at any
meeting of the stockholders of Company called to consider and vote upon any
Other Proposal (as hereinafter defined) (and at any and all postponements and
adjournments thereof), and in connection with any action to be taken in respect
of any Other Proposal by written consent of stockholders of Company, Stockholder
shall vote or cause to be voted (including by written consent, if applicable)
all of the Subject Shares against such Other Proposal. For purposes of this
Agreement, the term "Other Proposal" means any (a) Acquisition Proposal (as
defined in the Merger Agreement) or (b) other action which is intended or could
reasonably be expected to impede, interfere with, delay or materially and
adversely affect the contemplated economic benefits to Parent of the Merger or
any of the other transactions contemplated by the Merger Agreement or this
Agreement; provided, however, that neither the Merger nor any other transaction
contemplated by the Merger Agreement to be consummated by Company, Parent or
Purchaser in connection with the Merger shall constitute an Other Proposal.
Stockholder shall not enter into any agreement or understanding with any person
or entity the effect of which would be inconsistent or violative of the
provisions and agreements contained in this Section 1.1.
Section 1.2 Irrevocable Proxy.
-----------------
(a) Grant of Proxy. STOCKHOLDER HEREBY APPOINTS PARENT AND ANY
--------------
DESIGNEE OF PARENT, EACH OF THEM INDIVIDUALLY, STOCKHOLDER'S PROXY AND ATTORNEY-
IN-FACT PURSUANT TO THE PROVISIONS OF SECTION 212 OF THE DELAWARE GENERAL
CORPORATION LAW, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, TO VOTE OR
ACT BY WRITTEN CONSENT WITH RESPECT TO THE SUBJECT SHARES IN ACCORDANCE WITH
SECTION 1.1 HEREOF. THIS PROXY IS GIVEN TO SECURE THE PERFORMANCE OF THE DUTIES
OF STOCKHOLDER UNDER THIS AGREEMENT. STOCKHOLDER AFFIRMS THAT THIS PROXY IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE. STOCKHOLDER SHALL TAKE SUCH
FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO
EFFECTUATE THE INTENT OF THIS PROXY.
(b) Other Proxies Revoked. Stockholder represents that any proxies
---------------------
heretofore given in respect of the Subject Shares are not irrevocable, and that
all such proxies are hereby revoked.
ARTICLE II
OPTION
Section 2.1 Grant of Option. Stockholder hereby grants to Parent an
---------------
irrevocable option (the "Option") to purchase the Subject Shares on the terms
and subject to the conditions set forth herein, at a price per Subject Share
equal to $6.50 in cash or any higher price paid or to be paid by Parent and
Purchaser pursuant to the Offer (such price being referred to as the "Option
Consideration").
Section 2.2 Exercise of Option. (a) Parent may exercise the Option, in
------------------
whole or in part, at any time or from time to time during the period (the
"Option Period") from and including the date hereof through and including the
earlier of (x) the Effective Time and (y) the date that is six months after the
date on which the Merger Agreement is terminated pursuant to Sections 8.1(d)(i)
or 8.1(e)(i) thereof and (z) the date that is 90 days after the date on which
the Merger Agreement is terminated pursuant to Section 8.1(e)(iii) thereof;
provided, however, that the Option shall terminate with respect to any Subject
- -------- -------
Shares that are tendered pursuant to the Offer
C-2-2
<PAGE>
and purchased by Purchaser thereunder. Notwithstanding anything in this
Agreement to the contrary, Parent shall be entitled to purchase all Subject
Shares in respect of which it shall have exercised the Option in accordance with
the terms hereof prior to the expiration of the Option Period, and the
expiration of the Option Period shall not affect any rights hereunder which by
their terms do not terminate or expire prior to or as of such expiration.
(b) If Parent wishes to exercise the Option, it shall deliver to
Stockholder a written notice (an "Exercise Notice") to that effect which
specifies (i) the number of Subject Shares to be purchased from Stockholder and
(ii) a date (an "Option Closing Date") not earlier than three business days
after the date such Exercise Notice is delivered for the consummation of the
purchase and sale of such Subject Shares (an "Option Closing"). If the Option
Closing cannot be effected on the Option Closing Date specified in the Exercise
Notice by reason of a preliminary or final injunction or any other applicable
judgment, decree, order, law or regulation, or because any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall not have expired or been terminated, (i)
Stockholder shall promptly take all such actions as may be requested by Parent,
and shall otherwise fully cooperate with Parent, to cause the elimination of all
such impediments to the Option Closing and (ii) the Option Closing Date
specified in the Exercise Notice shall be extended to the fifth business day
following the elimination of all such impediments. The place of the Option
Closing shall be at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022 and the time of the Option Closing shall
be 10:00 a.m. (New York Time) on the Option Closing Date.
Section 2.3 Payment and Delivery of Certificates. At any Option Closing,
------------------------------------
Parent shall pay to Stockholder the Option Consideration payable in respect of
the Subject Shares to be purchased from Stockholder at the Option Closing, and
Stockholder shall deliver to Parent such Subject Shares, free and clear of all
Liens, with the certificate or certificates evidencing such Subject Shares being
duly endorsed for transfer by Stockholder and accompanied by all powers of
attorney and/or other instruments necessary to convey valid and unencumbered
title thereto to Parent, and shall, to the extent permissible, assign to Parent
(pursuant to a written instrument in form and substance satisfactory to Parent)
all rights that Stockholder may have to require Company to register such Subject
Shares under the Securities Act of 1933, as amended (the "Securities Act").
Transfer taxes, if any, imposed as a result of the exercise of the Option shall
be borne by Stockholder.
Section 2.4 Adjustment upon Changes in Capitalization, Etc. In the event
----------------------------------------------
of any change in the capital stock of Company by reason of a stock dividend,
split-up, merger, recapitalization, combination, exchange of shares,
extraordinary distribution or similar transaction, the type and number or amount
of shares, securities or other property subject to the Option, and the Option
Consideration payable therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction, so that
Parent shall receive upon exercise of the Option the type and number or amount
of shares, securities or property that Parent would have retained and/or been
entitled to receive in respect of the Subject Shares if the Option had been
exercised immediately prior to such event relating to Company or the record date
therefor, as applicable. The provisions of this Section 2.4 shall apply in a
like manner to successive stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or extraordinary
distributions or similar transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Certain Representations and Warranties of Stockholder.
-----------------------------------------------------
Stockholder represents and warrants to Parent and Purchaser as follows:
(a) Ownership. Stockholder is the sole record and beneficial owner
---------
of ______ Subject Shares and has full and unrestricted power to dispose of and
to vote such Shares. Stockholder does not beneficially own any securities of
Company on the date hereof other than such Shares. Stockholder has sole
C-2-3
<PAGE>
voting power and sole power to issue instructions with respect to the matters
set forth in Articles I and II hereof, sole power of disposition, sole power of
conversion, sole power to demand appraisal rights and sole power to agree to all
of the matters set forth in this Agreement, in each case with respect to all of
the Subject Shares with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of this Agreement.
(b) Power and Authority; Execution and Delivery. Stockholder has all
-------------------------------------------
requisite legal capacity, power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Stockholder and, assuming that this Agreement
constitutes the valid and binding obligation of the other parties hereto,
constitutes a valid and binding obligation of Stockholder, enforceable against
Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity.
(c) No Conflicts. The execution and delivery of this Agreement do
------------
not, and, subject to compliance with the HSR Act, to the extent applicable, the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not conflict with, result in a breach or violation of or
default (with or without notice or lapse of time or both) under, or give rise to
a material obligation, a right of termination, cancellation, or acceleration of
any obligation or a loss of a material benefit under, or require notice to or
the consent of any person under any agreement, instrument, undertaking, law,
rule, regulation, judgment, order, injunction, decree, determination or award
binding on Stockholder, other than any such conflicts, breaches, violations,
defaults, obligations, rights or losses that individually or in the aggregate
would not (i) impair the ability of Stockholder to perform Stockholder's
obligations under this Agreement or (ii) prevent or delay the consummation of
any of the transactions contemplated hereby.
(d) No Encumbrances. Except as applicable in connection with the
---------------
transactions contemplated by Article II hereof, the Subject Shares and the
certificates representing the Subject Shares are now, and at all times during
the term hereof will be, held by Stockholder, or by a nominee or custodian for
the benefit of Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
(e) No Finder's Fees. No broker, investment banker, financial advisor
----------------
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of Stockholder.
Section 3.2 Representations and Warranties of Parent and Purchaser.
------------------------------------------------------
Parent and Purchaser hereby represent and warrant to Stockholder that:
(a) Power and Authority; Execution and Delivery. Parent and Purchaser
-------------------
each has all requisite legal capacity, corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and Purchaser. This Agreement has been duly executed and delivered by
Parent and Purchaser and, assuming that this Agreement constitutes the valid and
binding obligation of Stockholder, constitutes a valid and binding obligation of
Parent and Purchaser, enforceable against Parent and Purchaser in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and to general principles of equity.
(b) No Conflicts. The execution and delivery of this Agreement do
------------
not, and, subject to compliance with the HSR Act, to the extent applicable, the
consummation of the transactions contemplated
C-2-4
<PAGE>
hereby and compliance with the provisions hereof will not (i) conflict with or
result in any breach of any organizational documents applicable to Parent or
Purchaser or (ii) conflict with, result in a breach or violation of or default
(with or without notice or lapse of time or both) under, or give rise to a
material obligation, right of termination, cancellation, or acceleration of any
obligation or a loss of a material benefit under, or require notice to or the
consent of any person under any agreement, instrument, undertaking, law, rule,
regulation, judgment, order, injunction, decree, determination or award binding
on Parent or Purchaser, other than any such conflicts, breaches, violations,
defaults, obligations, rights or losses that individually or in the aggregate
would not (i) impair the ability of Parent and Purchaser to perform their
obligations under this Agreement or (ii) prevent or delay the consummation of
any of the transactions contemplated hereby.
(c) Purchase Not for Distribution. The Option and the Subject Shares
-----------------------------
to be acquired upon exercise of the Option are being and shall be acquired by
Parent without a view to public distribution thereof otherwise than in
compliance with the Securities Act and applicable state securities laws and
shall not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act and in
compliance with applicable state securities laws.
ARTICLE IV
CERTAIN COVENANTS
Section 4.1 Certain Covenants of Stockholder.
--------------------------------
(a) Restriction on Transfer of Subject Shares, Proxies and
------------------------------------------------------
Noninterference. During the Option Period, Stockholder shall not, directly or
- ---------------
indirectly: (A) except pursuant to the terms of this Agreement and for the
tender of Subject Shares in the Offer, offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Subject Shares; (B) except pursuant to the
terms of this Agreement, grant any proxies or powers of attorney, deposit any of
the Subject Shares into a voting trust or enter into a voting agreement with
respect to any of the Subject Shares; or (C) take any action that would make any
representation or warranty contained herein untrue or incorrect or have the
effect of impairing the ability of Stockholder to perform Stockholder's
obligations under this Agreement or preventing or delaying the consummation of
any of the transactions contemplated hereby or by the Merger Agreement.
(b) Cooperation. Stockholder shall cooperate fully with Parent,
-----------
Purchaser and Company in connection with their respective efforts to fulfill the
conditions to the Merger set forth in Article VII of the Merger Agreement.
(c) Releases. Stockholder hereby fully, unconditionally and
--------
irrevocably releases, effective as of the Effective Time, any and all claims and
causes of action that Stockholder has or may have against Company or any of its
Subsidiaries or any present or former director, officer, employee or agent of
Company or any of its Subsidiaries (collectively, the "Released Parties")
arising or resulting from or relating to any act, omission, event or occurrence
prior to the Effective Time; provided, however, that such release shall not
apply to any claim or cause of action insofar as it relates to rights to
indemnification under Company's charter or by-laws or any entitlement to
compensation or benefits earned or accrued by or for the benefit of Stockholder
prior to the Effective Time in respect of services performed by Stockholder to
Company, in the ordinary course of Company's business, as a director, officer or
employee of Company.
(d) No Solicitation. Stockholder shall not, in the capacity as a
---------------
stockholder, respond to any inquiries or the making of any proposal by any
person or entity (other than Parent or any affiliate of Parent) concerning any
business combination merger, tender offer, exchange offer, sale of assets, sale
of shares of capital
C-2-5
<PAGE>
stock or debt securities or similar transactions involving Company or any
Subsidiary, division or operating or principal business unit of Company. If
Stockholder receives any such inquiry or proposal, then Stockholder shall
promptly inform Parent of the existence thereof. Stockholder will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing.
(e) Reliance by Parent. Stockholder understands and acknowledges
------------------
that Parent and Purchaser are entering into the Merger Agreement in reliance
upon Stockholder's execution and delivery of this Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1 Fees and Expenses. Each party hereto shall pay its own
-----------------
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby.
Section 5.2 Amendment; Termination. This Agreement may not be amended
----------------------
except by an instrument in writing signed on behalf of each of the parties
hereto. This Agreement and the proxies granted pursuant to Section 1.2 shall
terminate at the end of the Option Period.
Section 5.3 Extension; Waiver. Any agreement on the part of a party to
-----------------
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 5.4 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, and is not intended to confer upon any person
other than the parties any rights or remedies; provided, however, that the
provisions of Section 4.1(c) are intended to inure to the benefit of, and to be
enforceable by, the Released Parties.
Section 5.5 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
Section 5.6 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, or sent by overnight courier or telecopy
(providing proof of delivery) to the address set forth below (or, in each case,
at such other address as shall be specified by like notice).
If to Parent or Purchaser:
Sterling Software, Inc.
300 Crescent Court
Suite 1200
Dallas, TX 75201-7853
Attention: Don J. McDermett, Jr.
SVP, General Counsel & Secretary
Telecopy: (214) 981-1265
C-2-6
<PAGE>
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Richard J. Grossman, Esq.
Telecopy: (212) 735-2000
If to Stockholder:
_________________________
_________________________
_________________________
Telecopy: _______________
Section 5.7 Assignment. Neither this Agreement nor any of the rights,
----------
interests, or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by Stockholder without the
prior written consent of Parent, and any such assignment or delegation that is
not consented to shall be null and void. This Agreement, together with any
rights, interests, or obligations of Parent and Purchaser hereunder, may be
assigned or delegated, in whole or in part, by Parent and Purchaser without the
consent of or any action by Stockholder upon notice by Parent or Purchaser to
Stockholder as herein provided. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns (including without
limitation any person to whom any Subject Shares are sold, transferred, assigned
or passed, whether by operation of law or otherwise).
Section 5.8 Confidentiality. Stockholder recognizes that successful
---------------
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, Stockholder hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement
(other than its counsel and advisors, if any) without the prior written consent
of Parent, except for filings required pursuant to the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder, or disclosures
its counsel advises are necessary in order to fulfill its obligations imposed by
law, in which event Stockholder shall give notice of such disclosure to Parent
as promptly as practicable so as to enable Parent to seek a protective order
from a court of competent jurisdiction with respect thereto.
Section 5.9 Further Assurances. Stockholder shall execute and deliver
------------------
such other documents and instruments and take such further actions as may be
necessary or appropriate or as may be reasonably requested by Parent or
Purchaser in order to ensure that Parent and Purchaser receive the full benefit
of this Agreement.
Section 5.10 Enforcement. Irreparable damage would occur in the event
-----------
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware), this being in
addition to any other remedy to which they are entitled at law or in equity.
Each of the parties hereto (i) shall submit itself to the personal jurisdiction
of the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware) in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (ii) shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (iii) shall not bring
any action relating to this Agreement or any of the transactions contemplated
C-2-7
<PAGE>
hereby in any court other than the Court of Chancery in and for New Castle
County in the State of Delaware (or, if such court lacks subject matter
jurisdiction, any appropriate state or federal court in New Castle County in the
State of Delaware).
Section 5.11 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 5.12 Descriptive Headings. The descriptive headings used herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
Section 5.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the day and year first written above.
STERLING SOFTWARE, INC.
By: /s/ Don J. McDermett, Jr.
------------------------------------------
Name: Don J. McDermett, Jr.
Title: Senior Vice President, General Counsel and
Secretary
STERLING SOFTWARE ACQUISITION CORP.
By: /s/ Don J. McDermett, Jr.
------------------------------------------
Name: Don J. McDermett, Jr.
Title: Vice President
---------------------------------------------
[ ]
<PAGE>
SCHEDULE OF THE NUMBER OF SHARES OWNED BY EACH STOCKHOLDER
WHO ENTERED INTO A
STOCKHOLDER AGREEMENT
<TABLE>
<CAPTION>
Shareholder: Shares:
- ------------ -------
<S> <C>
Norwest Equity Partners IV 1,930,795
Norwest Equity Partners V 1,248,053
St. Paul Fire and Marine
Insurance Company 2,163,129
St. Paul Venture Capital IV L.L.C. 301,788
William Younger Trust 87,133
Hollis Family Limited Partnership 40,000
Rory Terrien 8,500
Richard Tanler 45,193
Robin Pederson 36,896
Richard Parker 53,300
Larry Ford 51,500
Ronald Codd 4,000
Mary Trick 20,200
Jay Wein 315,359
</TABLE>
<PAGE>
EXHIBIT (c)(3)
<PAGE>
STERLING SOFTWARE, INC.
300 Crescent Court
Suite 1200
Dallas, Texas 75201
July 7, 1999
Information Advantage, Inc.
7905 Golden Triangle Drive, Suite 190
Eden Prairie, Minnesota 55344-7227
Attn: Larry J. Ford, President & Chief Executive Officer
Re: Potential Acquisition Transaction
---------------------------------
Gentlemen:
This letter is to confirm certain agreements we have reached regarding the
potential acquisition (the "Potential Acquisition") by Sterling Software, Inc.
("Sterling Software") of Information Advantage, Inc. ("Company"). As a material
inducement to Sterling Software's continuation of negotiations with Company with
respect to the terms and conditions of the Potential Acquisition, and in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Exclusivity Period: Upon the execution of this letter agreement and
-------------------
continuing until the earlier of (a) 5:00 p.m. Dallas time on July 22, 1999 and
(b) the execution of a definitive agreement governing the terms and conditions
of the Potential Acquisition (such period, the "Exclusivity Period"), Company
shall, and shall cause its subsidiaries and all of its or their affiliates,
officers, directors, employees, agents and representatives (including without
limitation any investment banker, financial advisor, attorney or accountant
retained by Company or any of its subsidiaries or affiliates) to, discontinue
any solicitation efforts, discussions or negotiations with respect to any
Acquisition Proposal (as hereinafter defined) with any person or entity other
than Sterling Software. During the Exclusivity Period, Company shall not, and
shall not authorize or permit any of its subsidiaries or any of its or their
affiliates, officers, directors, employees, agents or representatives (including
without limitations any investment banker, financial advisor, attorney or
accountant retained by Company or any of its subsidiaries or affiliates) to,
directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries, any expression of interest or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal,
or enter into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal. For purposes of this letter agreement,
"Acquisition Proposal" means an inquiry, offer, proposal or other indication of
interest (other than the Potential Acquisition) regarding any of the following
matters involving Company: (i) any merger, consolidation, share exchange, tender
or exchange offer, recapitalization, business combination or other similar
transaction; (ii) any acquisitions of voting stock or other securities issued by
Company or any of its subsidiaries, (iii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of all or any substantial portion of the
assets of Company and its subsidiaries, taken as a whole, in a single
transaction or series of related transactions; or (iv) any proposal, plan or
intention to do any of the foregoing or any agreement in principle or other
agreement to engage in any of the foregoing.
C-4-1
<PAGE>
Information Advantage, Inc.
July 7, 1999
Page 2
2. Certain Obligations Only on Definitive Agreement. No agreement
------------------------------------------------
providing for the Potential Acquisition shall be deemed to exist unless and
until definitive documentation providing therefor has been executed and
delivered by Sterling Software and Company (and/or any other appropriate party
or parties thereto). Unless and until such definitive documentation concerning a
Potential Acquisition has been executed, neither Sterling Software nor any of
our representatives will have any liability to Company with respect to a
Potential Acquisition, whether by virtue of this letter agreement or otherwise.
3. General Provisions. No failure or delay in exercising any right
-------------------
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right. This letter agreement shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns,
although neither party may assign any of its rights or obligations hereunder
without the prior written consent of the other party, which consent may be
withheld in the sole and absolute discretion of such other party. Money damages
would not be a sufficient remedy for any breach or violation of the terms of
this letter agreement and, accordingly, Sterling Software or Company, as the
case may be, shall be entitled to specific performance and injunctive relief as
remedies for any breach or violation, in addition to all other remedies
available at law or equity. This letter agreement may not be amended except by
virtue of a written instrument executed by both of the parties hereto. This
letter agreement shall be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to the principles of conflict of
laws thereof.
[Remainder of page intentionally left blank.]
C-4-2
<PAGE>
Information Advantage, Inc.
July 7, 1999
Page 3
Please sign and return one copy of this letter agreement to evidence your
acceptance of and agreement to the foregoing, whereupon this letter agreement
will become the binding obligation of each of the undersigned subject to the
terms hereof.
Very truly yours,
STERLING SOFTWARE, INC.
By:/s/ Don J. McDermett, Jr.
-------------------------------------
Don J. McDermett, Jr.,
Senior Vice President and General
Counsel
Accepted and agreed to as of
the date first written above:
INFORMATION ADVANTAGE, INC.
By:/s/ Larry J. Ford
----------------------------------------
Larry J. Ford,
President & Chief Executive Officer
C-4-3
<PAGE>
EXHIBIT (c)(5)
<PAGE>
ARTICLE 9
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction
from which the director derived an improper personal benefit.
If the GCL is amended after the filing of this Certificate of Incorporation
with the Secretary of State of the State of Delaware to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL.
No amendment or repeal of this Article 9 shall adversely affect any right
or protection of a director of the Corporation existing hereunder in respect of
any act or omission occurring prior to such amendment or repeal.
C-5-1
<PAGE>
EXHIBIT (c)(6)
<PAGE>
ARTICLE V
Indemnification and Insurance
-----------------------------
Section 5.1 Right to Indemnification. Each person who was or is made a
----------- ------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of any other corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to any employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an office capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the GCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act of 1974, as amended, and amounts
paid or to be paid in settlement) reasonably incurred by such indemnitee in
connection therewith; provided, however, that except as provided in Section 5.3
-------- -------
with respect to proceedings seeking to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee seeking indemnification in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors.
Section 5.2 Right to Advancement of Expenses. The right to
----------- --------------------------------
indemnification conferred in Section 5.1 shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the GCL requires, an
-------- -------
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 5.2 or otherwise.
Section 5.3 Right of Indemnitee to Bring Suit. If a claim under Section
----------- ---------------------------------
5.1 or Section 5.2 is not paid in full by the Corporation within thirty (30)
days after a written claim has been received by the Corporation, except in the
case of a claim of an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right of an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the GCL. Neither the failure of the Corporation (including
C-6-1
<PAGE>
its Board of Directors, independent legal counsel or stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the GCL, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article V or otherwise shall be on the Corporation.
Section 5.4 Non-Exclusivity of Rights. The right to indemnification and
----------- -------------------------
the advancement of expenses conferred in this Article V shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, provision of these
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
In the event of a conflict between the rights to indemnification and advancement
of expenses conferred in this Article V and any such rights granted to an
indemnitee pursuant to an agreement entered into between such indemnitee and the
Corporation, the terms of any such agreement shall prevail.
Section 5.5 Insurance. The Corporation may maintain insurance, at its
----------- ---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.
Section 5.6 Indemnification of Employees and Agents of the Corporation.
----------- ----------------------------------------------------------
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to the advancement of
expenses, to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article V with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
Section 5.7 Contract Rights. The rights to indemnification and to the
----------- ---------------
advancement of expenses conferred in Section 5.1 and Section 5.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C-6-2
<PAGE>
EXHIBIT (c)(21)
<PAGE>
EXHIBIT (C)(21)
FIRST AMENDMENT TO RIGHTS AGREEMENT
Amendment dated July 15, 1999 ("Amendment") to the Rights Agreement
("Agreement"), dated as of March 1, 1999, between Information Advantage, Inc., a
Delaware corporation (the "Company"), and Norwest Bank, National Association, a
national banking association (the "Rights Agent").
Pursuant to Section 25 of the Agreement, this Amendment is being
executed by the Company and the Rights Agent for the purpose of amending the
Agreement as set forth below:
The Agreement is hereby amended as follows:
1. Section 1(a) shall be amended by inserting the following at the
end of Section 1(a):
"Notwithstanding the foregoing or any provision to the contrary in this
Agreement, none of the Sterling Software, Inc. ("Parent"), its
Subsidiaries, Affiliates or Associates, including Sterling Software
Acquisition Corp. ("Purchaser"), is, nor shall any of them be deemed to
be, an Acquiring Person (as defined in the Agreement) by virtue of (i)
their acquisition, or their right to acquire, beneficial ownership of
Common Shares of the Company as a result of their execution of the
Agreement and Plan of Merger dated July 15, 1999 among Parent, Purchaser
and the Company (the "Merger Agreement"), or the Stockholder Agreements
(as defined in the Merger Agreement), (ii) the announcement of the Offer
(as defined in the Merger Agreement), (iii) the consummation of the
Offer, (iv) the consummation of the Merger (as defined in the Merger
Agreement) or (v) any other transaction contemplated by the Merger
Agreement or the Stockholder Agreements, it being the purpose of the
Company in adopting this amendment to the Agreement that neither the
execution of the Merger Agreement or the Stockholder Agreements by any
of the parties thereto nor the consummation of the transactions
contemplated thereby shall in any respect give rise to any provision of
the Agreement becoming effective."
2. Section 1(a) shall be further amended by inserting the following
at the end of Section 1(a):
"Pursuant to the provisions of Section 1(a) of the Agreement, a majority
of Disinterested Directors (as defined in the Agreement) of the
Company's Board of Directors has approved, in advance and in writing,
the transactions contemplated by the Merger Agreement or the
Stockholder Agreements, thereby making them "Company-Approved
Transactions" within the meaning of the Agreement."
3. Section 1(kk) shall be amended by inserting the following at the
end of Section 1(kk):
"Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Section 11(a)(ii) Event shall not occur by reason of the
execution of the Merger Agreement, the execution of the Stockholder
Agreements (as defined in the Merger Agreement), the announcement of the
Offer, the consummation of the Offer, the consummation of the
<PAGE>
Merger, or any other transaction contemplated by the Merger Agreement or the
Stockholder Agreements."
4. Section 1(mm) shall be amended by inserting the following at the end of
Section 1(ii):
"Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Shares Acquisition Date shall not occur by reason of the
execution of the Merger Agreement, the execution of the Stockholder Agreements
(as defined in the Merger Agreement), the announcement of the Offer, the
consummation of the Offer, the consummation of the Merger, or any other
transaction contemplated by the Merger Agreement or the Stockholder
Agreements."
5. Section 3(a) shall be amended by inserting the following at the end of
Section 3(a):
"Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Distribution Date shall not occur by reason of the execution of
the Merger Agreement, the execution of the Stockholder Agreements (as defined
in the Merger Agreement), the announcement of the Offer, the consummation of
the Offer, the consummation of the Merger, or any other transaction
contemplated by the Merger Agreement or the Stockholder Agreements."
6. If for any reason the Merger Agreement is terminated and the Merger is
abandoned, then the Amendment shall be of no further force and effect and the
Agreement shall remain exactly the same as it existed immediately prior to
execution of the Amendment.
7. This Amendment shall be deemed to be entered into under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
8. This Amendment may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
The term "Agreement" as used in the Agreement shall be deemed to refer to the
Agreement as amended hereby, and all references to the Agreement shall be deemed
to include this Amendment. This Amendment shall be effective as of the date
first written above, and except as expressly set forth herein, the Agreement
shall remain in full force and effect and otherwise shall be unaffected hereby.
C-21-2
<PAGE>
Entered into as of the date first written above,
INFORMATION ADVANTAGE, INC.
By: /s/ Larry J. Ford
------------------------------------------
Larry J. Ford, Chief Executive Officer
Attest: /s/ Brian Wenger
--------------------------------------
Secretary
NORWEST BANK, National Association,
as Rights Agent
By: /s/ John Beker
-----------------------------------------
Authorized Signature
C-21-3
