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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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CONTINUUS SOFTWARE CORPORATION
(NAME OF SUBJECT COMPANY)
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CONTINUUS SOFTWARE CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
21218R 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
JOHN R. WARK
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONTINUUS SOFTWARE CORPORATION
9401 JERONIMO ROAD
IRVINE, CALIFORNIA 92618
(949) 830-8022
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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COPIES TO:
D. BRADLEY PECK, ESQ.
COOLEY GODWARD LLP
4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92121
(858) 550-6000
[ ] Check the box if the filing relates solely to preliminary
communications made before commencement of a tender offer.
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1. SUBJECT COMPANY INFORMATION
The name of the subject company is Continuus Software Corporation, a
Delaware corporation (the "COMPANY"), and the address of the principal executive
offices of the Company is 9401 Jeronimo Road, Irvine, California 92618.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "SCHEDULE 14D-9")
relates is the Common Stock, par value $0.001 per share, of the Company (the
"COMMON STOCK" or the "SHARES"). As of October 23, 2000, the number of Shares
to which this tender offer relates is 11,130,314.
2. IDENTITY AND BACKGROUND OF FILING PERSON
This Schedule 14D-9 relates to the tender offer being made by Raindrop
Acquisition Corporation, a Delaware corporation ("PURCHASER") and a direct
wholly owned subsidiary of Telelogic AB, a company organized under the laws of
Sweden ("PARENT"), disclosed in a Tender Offer Statement on Schedule TO (the
"SCHEDULE TO"), dated October 30, 2000 and filed with the Securities and
Exchange Commission (the "COMMISSION"), to purchase all the outstanding Shares
at a price of $3.46 per Share net to the sellers in cash (subject to applicable
withholding taxes), without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 30, 2000 (the
"OFFER TO PURCHASE"), and the related Letter of Transmittal (which, together
with the Offer to Purchase and any amendments or supplements thereto, constitute
the "OFFER") included in the Schedule TO. A copy of the Offer to Purchase and
Letter of Transmittal has been filed as EXHIBIT 1 and EXHIBIT 2 hereto and each
is incorporated herein by reference. Copies of the Offer to Purchase and the
Letter of Transmittal are being furnished to the Company's stockholders
concurrently with this Schedule 14D-9.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 25, 2000 (the "MERGER AGREEMENT"), among Parent, Purchaser and the
Company. 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 Parent.
As more fully described in Item 3 below, at the effective time of the
Merger (the "EFFECTIVE TIME"), each remaining outstanding Share (other than (i)
Shares held in the treasury of the Company or owned by Purchaser, Parent or any
direct or indirect wholly owned subsidiary of Parent or of the Company which
shall be canceled, and (ii) Shares held by stockholders who have demanded and
perfected appraisal rights, if any, under the DGCL) will be converted into the
right to receive $3.46 in cash or any greater amount per Share paid pursuant to
the Offer (the "MERGER CONSIDERATION").
In connection with the execution of the Merger Agreement, Purchaser entered
into a Tender and Stockholder Support Agreement, dated as of October 25, 2000
(the "STOCKHOLDER AGREEMENT"), with certain stockholders of the Company (the
"STOCKHOLDERS"). Under the Stockholder Agreement, each of the Stockholders has,
among other things, (i) agreed to tender (and not withdraw) pursuant to the
Offer, all Shares owned by him or it, (ii) agreed to vote such Shares in favor
of the Merger and the Merger Agreement and against any acquisition proposal
other than the Merger, and (iii) granted to Parent and certain officers of
Parent an irrevocable proxy to vote such shares in favor of the transactions
contemplated by the Merger Agreement. The Shares owned by the Stockholders and
subject to the Stockholder Agreement equal 3,886,527 Shares and represented
approximately 35% of the Shares outstanding as of October 23, 2000. A copy of
the Stockholder Agreement is filed as EXHIBIT 3 hereto and is incorporated
herein by reference.
As set forth in the Schedule TO, the principal executive offices of Parent
and Purchaser are located at Kungsgaten 6, Malmo, Sweden. All information
contained in this Statement or incorporated herein by
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reference concerning Purchaser, Parent or their affiliates, or actions or events
with respect to any of them, was provided to the Company by Purchaser or Parent,
and the Company takes no responsibility for the accuracy or completeness of such
information or for any failure by such entities to disclose events or
circumstances that may have occurred and may affect the significance,
completeness or accuracy of any such information.
3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Rule 14f-1 under the Securities Exchange Act (the "INFORMATION STATEMENT") that
is attached as ANNEX A to this Schedule 14D-9 and is incorporated herein by
reference. Except as described in this Schedule 14D-9 (including in the
exhibits hereto and in ANNEX A hereto) or incorporated herein by reference, to
the knowledge of the Company, as of the date of this Statement, there exists no
material agreement, arrangement or understanding or any actual or potential
conflict of interest between the Company or its affiliates and (1) the Company's
executive officers, directors or affiliates or (2) Parent, the Purchaser or
their respective executive officers, directors or affiliates.
THE MERGER AGREEMENT. The summary of the Merger Agreement and the
description of the conditions of the Offer contained in Sections 11 and 15,
respectively, of the Offer to Purchase of Parent and the Purchaser, dated
October 30, 2000 and filed as an exhibit to the Schedule TO, which is being
mailed to stockholders together with this Statement, are incorporated herein by
reference. Such summary and description are qualified in their entirety by
reference to the Merger Agreement, which has been filed as an exhibit to the
Schedule TO and is incorporated herein by reference. Such summary may not
contain all the information that is important to you. Accordingly, you should
read the Merger Agreement in its entirety for a more complete description of the
material summarized in the Offer to Purchase.
Certain members of the Company's management and the Company's Board of
Directors (the "BOARD" or the "BOARD OF DIRECTORS") have interests in the
transactions contemplated by the Merger Agreement that are in addition to their
interests as the Company stockholders generally. The Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
STOCK OPTION AGREEMENTS. The Merger Agreement provides that each
outstanding option to purchase shares of Common Stock granted to members of the
Company Board of Directors or the executive officers or other employees (other
than Messrs. John R. Wark, William Philbin, David McCann and Paul Van Den Berg)
under any stock option agreement, compensation plan or arrangement
(collectively, the "STOCK OPTION PLANS") will automatically be cancelled, and
the holder of such the Company Stock Option will thereafter be entitled to
receive an amount in cash (subject to any applicable withholding tax and paid
without interest) equal to the difference between the Merger Consideration and
the per share exercise price of such Option to the extent such difference is a
positive number. The Company will deliver such payment, subject to the terms and
conditions of the Merger Agreement and the provisions of the applicable Stock
Option Plan, as soon as practicable after consummation of the Merger. As
described below, Parent, Purchaser and the Company have entered amendments to
Change of Control Agreements with certain executive officers of the Company
which modify these provisions.
CERTAIN AGREEMENTS WITH EXECUTIVE OFFICERS. On May 31, 1997, the Company
entered into a Change in Control Agreement with John R. Wark. The agreement
provided that if within thirteen months of a Change in Control of the Company
(as defined in the agreement), Mr. Wark's employment is terminated other than
for Cause (as defined in the agreement), disability or retirement, Mr. Wark
shall be paid one year's salary, bonuses and regular benefits plus any accrued
but unpaid salary, bonuses and benefits, and the vesting of stock options issued
to Mr. Wark shall accelerate and immediately become vested and exercisable with
respect to those option shares which would have vested if Mr. Wark had continued
to render services to the Company for twenty-four (24) months following the date
of his termination.
On May 31, 1997, the Company entered into Change in Control Agreements with
five of the Company's then current executive officers, including Messrs. Steve
L. Johnson, William A. Philbin. Geoffrey W. Haggart,
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James M. Carrigan and David McCann. The agreements for each of these officers
provide that if within thirteen months of a Change in Control of the Company (as
defined in the applicable agreement), such officer's employment is terminated
other than for Cause (as defined in the applicable agreement), disability, or
such officer's retirement, in the sole discretion of such executive he shall
elect to receive either i) nine (9) months' base salary continuation from the
date of termination, nine-twelfths ( 9/12) of his annual bonus, and the vesting
of stock options issued to such executive officer shall accelerate and
immediately become vested and exercisable with respect to those option shares
which would have vested if such executive officer had continued to render
services to the Company for eighteen (18) months following the date of his
termination; or, ii) six (6) months' base salary continuation from the date of
termination, six-twelfths ( 6/12) of his annual bonus, and the vesting of stock
options issued to such executive officer shall accelerate and immediately become
vested and exercisable with respect to those option shares which would have
vested if such executive officer had continued to render services to the Company
for eighteen (24) months following the date of his termination.
In August 2000, the Company granted an aggregate of 370,000 shares of
Common Stock pursuant to restricted stock bonus awards under the Company's 1997
Equity Incentive Plan as follows:
<TABLE>
<CAPTION>
AWARD HOLDER NUMBER OF SHARES
------------ ----------------
<S> <C>
John R. Wark......................................... 125,000 shares
Steven Johnson....................................... 75,000 shares
David McCann......................................... 75,000 shares
William Philbin...................................... 65,000 shares
Paul Van Den Berg.................................... 30,000 shares
</TABLE>
Under the original terms of the awards, the Company was given a right to
repurchase the unvested portion of the Common Stock subject to the awards in the
event the holder's continuous service with the Company is terminated. One
hundred percent (100%) of the shares subject to the restricted stock bonus
awards shall vest on August 3, 2005. In the event of a change in control of the
Company, including the acquisition of at least 50% of the Company's voting
power, the Company's right to repurchase the stock subject to the awards lapsed
in full.
Immediately prior to the execution of the Merger Agreement, Telelogic, the
Purchaser and Continuus entered into amendments to the change in control
severance benefits agreements (each, a "Change in Control Amendment") with each
of four executive officers of Continuus: John Wark, Chief Executive Officer and
President, William Philbin, Vice President, Internet Business Development, Paul
Van Den Berg, Vice President, Product Management and David McCann, Executive
Vice President, Global Operations Worldwide.
Under the Change in Control Amendments, each of Messrs. McCann, Philbin,
Van Den Berg, and Wark has agreed for a limited period of time following the
Effective Time not to compete with Continuus' business, not to solicit for
employment Continuus employees and not to disclose confidential information, in
each case subject to certain limitations. In addition, each of Messrs. McCann,
Philbin, Van Den Berg, and Wark has agreed to the cancellation of his vested and
unvested stock option awards and unvested restricted stock awards as of the
Effective Time.
The Change in Control Amendments provide that each of Messrs. McCann,
Philbin, Van Den Berg, and Wark will have the right to receive, in cash, (i) at
the Effective Time, for each Share issuable upon exercise of an option that is
exercisable and outstanding, an amount equal to the difference between the
Merger Consideration and the per Share exercise price of such option (to the
extent the difference is a positive number), (ii) for each Share subject to an
unvested option an amount equal to the difference between the Merger
Consideration and the per Share exercise price of such option plus interest from
the Effective Time (to the extent the difference is a positive number), and
(iii) for each Share of restricted stock, an amount equal to the Merger
Consideration plus interest from the Effective Time; provided however, the right
to receive the amounts granted in (ii) and (iii) above shall be held in escrow
and be due and payable only after they become vested. For Messrs. Wark and
Philbin, the amounts in (ii) and (iii) above shall vest 50% on each
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of March 31 and June 30, 2001 provided they remain in the employ of Continuus
through such dates. For Messrs. Van Den Berg and McCann, the amounts in (ii) and
(iii) above shall vest 33%, 33% and 34% on each of the Effective Time, March 31,
2001 and June 30, 2001, respectively provided they remain in the employ of
Continuus through such dates. If any of such officers are terminated without
cause such amounts shall become immediately due and payable. In addition, each
of Messrs. McCann, Philbin, Van Den Berg, and Wark have been guaranteed a
portion of their target bonuses for 2001 if they remain in the employ of
Continuus for specified periods of time. Messrs. Wark and Philbin have been
guaranteed 50% of their target bonuses for 2001 if they are an employee of
Continuus on December 31, 2001. Messrs. Van Den Berg and McCann have been
guaranteed 50% of their target bonuses for the first six months of 2001 if they
are an employee of Continuus on June 30, 2001. Pursuant to the Change in Control
Amendments described herein Messrs. McCann, Philbin, Van Den Berg, and Wark will
each be entitled to receive $86,500, $173,573, $54,200, and $658,654 as of the
Effective Time.
The foregoing descriptions of the Change in Control Amendments of Messrs.
McCann, Philbin, Van Den Berg, and Wark are qualified in their entirety by the
terms of each such agreement. Each such agreement has been filed as an exhibit
to this Schedule 14D-9, and each such agreement is hereby incorporated by
reference.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Merger Agreement
provides that all rights to indemnification under the Company's bylaws existing
on the date of the Merger Agreement in favor of any current or former director
or officer of the Company will survive the Merger and will continue in full
force and effect. Purchaser has also agreed to (or to cause the Surviving
Corporation to) indemnify and hold harmless, to the fullest extent permitted
under applicable law, each person who is, or has been at any time prior to the
date hereof or who becomes prior to the Effective Time, an officer, director or
similar person of the Company or any Subsidiary, against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claims,
actions, suits, proceedings, arbitrations, investigations or audits arising
before or after the Effective Time out of or pertaining to acts or omissions, or
alleged acts or omissions, by them in their capacities as such (including
without limitation acts or omissions with respect to the transactions
contemplated by this Agreement), which acts or omissions occurred no later than
the Effective Time; provided, however, Parent shall have no obligations unless
and until the Surviving Corporation is unable to satisfy its indemnification and
other obligations. Without limiting the foregoing, in the event any such person
is or becomes involved in any capacity in any action, proceeding or
investigation in connection with any matter, including, without limitation, the
transactions contemplated by the Merger Agreement, occurring prior to, and
including, the Effective Time, Parent will (or will cause the Surviving
Corporation to) periodically advance expenses as incurred with respect to the
foregoing to the fullest extent permitted under applicable law provided that the
person to whom the expenses are advanced provides an undertaking to repay such
advance if it is ultimately determined that such person is not entitled to
indemnification. If any litigation against officers or directors in connection
with their service to the Company arises or occurs, the Surviving Corporation
shall control the defense of such Action with counsel selected by the Surviving
Corporation, which counsel shall be reasonably acceptable to the party seeking
indemnification (each, an "Indemnified Party"), provided that the Indemnified
Party shall be permitted to participate in the defense of such Action through
counsel selected by the Indemnified Party, at the Indemnified Party's expense
except to the extent otherwise provided in the Surviving Corporation's bylaws or
any agreement between the Indemnified Party and the Company or the Surviving
Corporation. Notwithstanding the foregoing, if there is any actual or potential
conflict between the Surviving Corporation and any Indemnified Party or there
are additional defenses available to any Indemnified Party, such Indemnified
Party shall be permitted to participate in the defense of such Action with
counsel selected by the Indemnified Party, at the Surviving Corporation's
expense; provided, however, that the Surviving Corporation shall not be
obligated to pay the fees and expenses of more than one counsel for any
Indemnified Party in any single Action. Except to the extent otherwise provided
in the Surviving Corporation's bylaws or any agreement between the Indemnified
Party and the Company or the Surviving Corporation, the Surviving Corporation
shall not be liable for any settlement effected without its written consent,
which consent shall not unreasonably be withheld.
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The Merger Agreement also requires that the Surviving Corporation will
cause to be maintained for a period of not less than six years from the
Effective Time the current policies of directors' and officers' liability
insurance maintained by the Company; so long as the annual premium for such
insurance would not be in excess of 200% of the annual premiums paid by the
Company as of the date of the Merger Agreement, and further provided, that if
the Surviving Corporation is unable to obtain the required insurance, it will
obtain as much comparable insurance as possible for an annual premium equal to
such maximum amount.
4. THE SOLICITATION OR RECOMMENDATION.
BACKGROUND OF THE OFFER.
In early June 2000, members of Parent's management team called the
Company's management to discuss various business opportunities. The parties had
a general discussion about an existing common customer project and about
opportunities to broaden and deepen the co-operation between the two companies.
At the end of the discussion, the parties decided to set up a meeting to discuss
these opportunities.
On July 5, 2000, the Board directed management to retain an outside
financial advisor. Ultimately, after evaluating other options, the Company
engaged U.S. Bancorp Piper Jaffray on July 13, 2000.
On July 19, 2000, at a regularly scheduled meeting of the Continuus board
of directors, management and the Board discussed the strategic partnering
process and reviewed a preliminary list of potential partners to be approached
on the Company's behalf.
On August 3, 2000, Anders Lidbeck and H degreesakan Rippe, respectively
Parent's Chief Executive Officer and Executive Vice President of Business
Development, met with John Wark, the Company's Chief Executive Officer at Newark
airport. The discussion between the parties covered the visions, strategies,
opportunities and challenges of the companies in the software market. The idea
of a merger of the companies was discussed as well as other forms of
co-operation.
On August 8, 2000, Parent announced the acquisition of Quality Systems and
Software, Inc., or QSS. Soon thereafter, Mr. Wark contacted Mr. Lidbeck of
Parent to congratulate him on the acquisition. Messrs. Wark and Lidbeck agreed
that their previous discussions regarding co-operation would be even more
compelling because of the QSS acquisition.
On August 23, 2000, Parent and the Company entered into a customary
confidentiality and standstill agreement.
From September 19 through September 20, 2000, Mr. Wark met with the Parent
management team, including Messrs. Lidbeck and Rippe and Ingemar Ljungdahl,
Telelogic's Chief Technology Officer, in Malmo, Sweden. During these meetings
each company presented information regarding its strategy, customer base,
product line, organization structure, and corporate culture. The companies
explored the opportunities presented by a possible combination of the two
companies as well as the potential issues arising from such a combination.
On September 29, 2000, Parent sent a memo to Company management, addressing
the strategic value of the merger and Telelogic's approach to business
integration.
On October 2, 2000. Mr. Wark reported to the Board on the status of
discussions with a potential strategic partner and briefed the Board on the
discussions with Telelogic.
On October 3, 2000, members of Telelogic management, with representatives
from Lehman Brothers, met in San Diego, California with Company management and
its representatives from US Bancorp Piper Jaffray. The discussions at this
meeting concentrated on the conditions required for a merger transaction.
Later that day, Mr. Wark reported to the Board on that day's meeting with
Telelogic, focusing on the areas in which the companies did not yet have
agreement, including valuation.
On October 4, 2000, US Bancorp Piper Jaffray updated Mr. Wark on their
efforts to identify and negotiate with potential strategic partners. US Bancorp
Piper Jaffray indicated that, other than Telelogic, none
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of these companies had a continued interest in a transaction with Continuus or
would be able to pursue a competitive offer for Continuus. Mr. Wark updated the
Board on the status of efforts to identify and negotiate with strategic
partners.
On October 5, 2000, the management teams of Parent and the Company again
met at Newark airport to continue discussions regarding conditions and valuation
in a merger context and how the integration process could be carried out.
On October 11 and 12, 2000, Messrs. Wark and Johnson met with Parent
management in Malmo, Sweden to discuss a wide range of issues associated with
the proposed transaction, including organizational integration strategies,
business strategy, employee retention issues and strategies, and valuation. In
parallel, legal and financial due diligence commenced at the Company's
headquarters.
On October 13, 2000, Parent's legal advisors provided a draft merger
agreement to Company legal counsel.
From October 16, through October 18, 2000, Parent's and Company's
respective legal counsel had discussions relating to issues raised by the draft
merger agreement.
On October 18, 2000, Mr. Wark updated the Company's Board of Directors
regarding the status of the negotiations and several significant business issues
which had not yet been agreed to the mutual satisfaction of the two companies.
These issues involved proposed terms and conditions both of the merger agreement
and the tender and support agreements.
On October 19, 2000, Mr. Rippe arrived in Orange County along with a
representative of Lehman Brothers to work directly with Company management and
representatives of US Bancorp Piper Jaffray in negotiating the resolution of the
remaining outstanding business issues on the merger agreement and the tender and
support agreements. Discussions continued through October 23, at which time
Anders Lidbeck arrived in Orange County to also participate directly in the
negotiations.
On October 20, 2000, Mr. Wark updated the Board regarding the status of
negotiations and the remaining open issues not yet resolved in the merger
agreement.
On October 23, 2000, the board of directors of Telelogic held a board
meeting, during which Mr. Lidbeck reviewed the terms and conditions of the
proposed merger, the tender and stockholder support agreement and proposed
amendments to the change in control severance benefits agreements of the
Continuus' senior management team. Following the presentation by Mr. Lidbeck,
and a discussion regarding the terms and conditions of the foregoing agreements,
the board of directors of Telelogic approved the Merger Agreement, the Offer and
the tender and support agreement.
In the late afternoon of October 23, 2000, a meeting of the Company Board
was held at which Mr. Wark reviewed the status of the negotiations with
Telelogic and the remaining open issues in the merger agreement.
During the evening of October 23, 2000, Telelogic discussed with the
Company's senior management team amendments to their individual change of
control severance benefits agreements with the Company, which would delay and
place certain conditions on the payment to the senior management team of certain
severance benefits resulting from the proposed transaction. Telelogic and the
Company's senior management team continued negotiations of the amendments on
October 24, 2000.
During the day on October 24, 2000, Mr. Wark and Mr. Lidbeck reached
agreement on the remaining issues relating to the merger agreement, including
the price to be offered for the Shares.
On the evening of October 24, 2000, there was a meeting of the Board of the
Company at which time Mr. Wark reviewed the proposed terms of the merger and the
stockholder tender and support agreement with the Board. Mr. Wark and Brad Peck
of Cooley Godward, LLP, legal counsel to the Company, gave a detailed
presentation to the Board regarding the material terms of the merger agreement,
including the structure of the Offer and Merger, the conditions to the Offer and
the Merger, the covenants applicable to the Company under the merger agreement
(including restrictions on the ability to solicit or negotiate alternative
transactions), the termination provisions and the circumstances under which the
Company would be required to pay a break-up
<PAGE> 8
fee to Telelogic in the event the merger agreement were terminated. In addition,
representatives of US Bancorp Piper Jaffray made a presentation regarding the
financial terms of the Offer, explaining to the Company Board in detail the
analyses undertaken by US Bancorp Piper Jaffray regarding the Offer and the
Merger with respect to its opinion. After questions were asked by the Company
Board, the US Bancorp Piper Jaffray representatives then rendered the opinion of
US Bancorp Piper Jaffray, which was subsequently confirmed in writing, that the
consideration to be received by the stockholders of the Company was fair, from a
financial point of view, to them as of that date. After such presentations and
discussions, the Company Board approved the Offer, the Merger, the Merger
Agreement and the transactions contemplated thereby by a unanimous vote.
During the evening of October 24 and early morning hours of October 25,
2000 negotiations regarding amendments to the executive change in control
severance benefits agreements continued among Mr. Lidbeck and Mr. Wark and the
other members of the executive team. After several hours of negotiations, each
of Messrs. Wark, McCann, Philbin, and Van Den Berg agreed to the terms of an
amendment to their change of control severance benefits agreements.
In the early morning of October 25, 2000, the Significant Stockholders,
Telelogic and the Purchaser entered into the tender and support agreement.
Immediately thereafter, Parent, Purchaser, and the Company executed the
Merger Agreement and the transaction was announced before the opening of
business on October 25, 2000 by the issuance of separate press releases by
Parent and the Company.
RECOMMENDATION OF THE COMPANY BOARD
The Board of Directors, at a meeting held on October 24, 2000, determined
that the terms of the Offer and the Merger are fair to and in the best interests
of the stockholders of Continuus. All members of the Board (other than Mr. Hall
who discussed the terms of the merger agreement with Mr. Wark prior to the
meeting and indicated his support) participated in this meeting, at which the
Board unanimously approved the Offer and the Merger and the other transactions
contemplated by the Merger Agreement, approved the Merger Agreement, including
for purposes of the "interested stockholder" provisions of Section 203 of the
DGCL. The Board of Directors recommends that stockholders accept the Offer,
tender their Shares in the Offer and, if required under the DGCL, vote to adopt
the Merger Agreement.
REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS
As set forth above, prior to authorizing and approving the Offer, the
Merger, the Merger Agreement and the transactions contemplated thereby, the
Company Board received presentations from representatives of US Bancorp Piper
Jaffray regarding the financial aspects of the proposed Offer and the Merger,
and from a representative of Cooley Godward regarding the legal aspects of the
Offer and the Merger. In reaching its conclusion that the Offer and the Merger
are in the best interests of the Company and the stockholders of the Company,
the Company Board principally considered the following:
- STRATEGIC ALTERNATIVES. The Board reviewed, with the Company's
management, the Company's prospects and anticipated competitive position
if it were to retain its current ownership structure, including the risks
and benefits inherent in remaining a stand-alone entity and continuing to
pursue its current strategy in an industry environment marked by
increasing competition and consolidation. The Board considered comparable
transactions as well as possible alternatives to the Offer and the Merger
involving third parties, the likelihood of consummation of such
comparable and alternative transactions and the risks associated
therewith. The Board also took into consideration the current and
historical financial condition and results of operations of the Company,
as well as the fact that, in the Company Board's view, conducting an
extensive public auction process prior to selling the Company would be
detrimental to the Company and would cause significant disruption in the
existing operations of the Company.
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- TRANSACTION FINANCIAL TERMS; PREMIUM TO MARKET PRICE. The Board
considered the relationship of the Offer Price and the Merger
Consideration to the historical market price of the Shares and financial
performance measures including applicable multiples. The $3.46 Offer
Price and Merger Consideration represented a 29% premium over the $2.69
closing price of the Shares on the Nasdaq National Market on October 24,
2000 (the last trading day prior to the Board meeting at which the Board
of Directors approved the Merger Agreement) and a 68% premium over the
$2.05 average closing prices of the Shares on the Nasdaq National Market
for the 30 trading days ending on October 24, 2000. The Board also
considered the form of consideration to be paid to holders of Shares in
the Offer and the Merger, and the certainty of value of such cash
consideration compared to stock or other forms of consideration. The
Board was aware that the consideration received by holders of Shares in
the Offer and Merger would be taxable to such holders for federal income
tax purposes.
- OPINION OF US BANCORP PIPER JAFFRAY. The Board evaluated the opinion of
US Bancorp Piper Jaffray as to the fairness, from a financial point of
view and as of the date of such opinion, of the $3.46 per Share cash
consideration to be received in the Offer and the Merger by the holders
of Shares. The full text of US Bancorp Piper Jaffray's written opinion,
dated October 24, 2000, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached hereto
as ANNEX B and is incorporated herein by reference. US Bancorp Piper
Jaffray's opinion is addressed to the Board, relates only to the
fairness, from a financial point of view, of the $3.46 per Share cash
consideration, and does not constitute a recommendation to any
stockholder as to whether or not such stockholder should tender Shares in
the Offer or as to any other matters relating to the Offer or the Merger.
Holders of Shares are urged to read such opinion carefully in its
entirety.
- TIMING OF COMPLETION. The Board considered the anticipated timing of
consummation of the transactions contemplated by the Merger Agreement,
including the structure of the transaction as a cash tender offer for all
of the Shares, which should allow stockholders to receive the transaction
consideration earlier than in an alternative form of transaction,
followed by the Merger in which stockholders will receive the same
consideration as received by stockholders who tender their Shares in the
Offer.
- NO FINANCING CONTINGENCY. Neither the Offer nor the Merger is subject to
any financing condition and Parent has represented that it has available
to it, and will make available to the Purchaser, sufficient funds to
consummate the Offer, the Merger and the transactions contemplated
thereby.
- INDICIA OF STOCKHOLDER SUPPORT. The Board considered the fact that
significant stockholders of the Company, including all Directors and
Executive Officers, beneficially holding in the aggregate approximately
35% of the outstanding Shares were willing to enter into the Tender and
Support Agreements, pursuant to which, among other things, such
stockholders agreed to tender all of their Shares into the Offer and to
otherwise support the Offer.
- ALTERNATIVE TRANSACTIONS. Under the terms of the Merger Agreement, the
Company is prohibited from soliciting acquisition proposals from any
third parties and from engaging in discussions or negotiations with, or
furnishing non-public information to, a third party who makes a written
acquisition proposal. The Board considered the fact that the terms of the
Merger Agreement permit the Company to inform itself concerning an
unsolicited acquisition proposal and, under certain circumstances, in
accordance with the provisions of the Merger Agreement, the Board may
terminate the Merger Agreement (subject to payment of a $1,700,000) and
recommend any such proposal that is superior to the Offer. The Board also
considered discussions with US Bancorp Piper Jaffray representatives
regarding other companies that could potentially be interested in
pursuing a strategic partnership or other business combination with the
Company, based on their market focus or other strategic or competitive
factors, an the respective likelihood that any of those companies would
submit a superior proposal to acquire the Company.
The foregoing includes the material factors considered by the Board of
Directors. In view of its many considerations, the Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Board may
have given different
<PAGE> 10
weights to the various factors considered. After weighing all of these
considerations, the Board determined to approve the Merger Agreement and
recommend that holders of Shares tender their Shares in the Offer.
INTENT TO TENDER. To the best knowledge of the Company, each executive
officer, director, affiliate or subsidiary of the Company who owns Shares
presently intends to tender in the Offer all Shares that they own of record or
beneficially, other than Shares, if any, that they may have the right to
purchase by exercising stock options and Shares, if any, that if tendered
(instead of being converted into cash in the Merger) would cause them to incur
liability under the short-swing profits provisions of the Securities Exchange
Act.
5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
The Company has retained US Bancorp Piper Jaffray to act as its exclusive
financial advisor in connection with the Offer and the Merger. Under the terms
of the engagement letter dated July 13, 2000, the Company has agreed to pay US
Bancorp Piper Jaffray a fee equal to $1,000,000 upon consummation of an
acquisition of the Company, for US Bancorp Piper Jaffray's financial advisory
services. The Company also agreed to pay U.S. Bancorp Piper Jaffray a fee of
$350,000 for rendering its opinion, which will be credited against payment of
the fee for financial advisory services. Whether or not the transaction is
consummated, the Company has agreed to pay the reasonable out-of-pocket expenses
of U.S. Bancorp Piper Jaffray, and to indemnify U.S. Bancorp Piper Jaffray
against liabilities incurred. These liabilities include liabilities under the
Federal securities laws in connection with the engagement of US Bancorp Piper
Jaffray by the Company's Board of Directors. The Company has also agreed to
indemnify US Bancorp Piper Jaffray and related parties against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement. In the ordinary course of business, US
Bancorp Piper Jaffray and its successors and affiliates may actively trade or
hold the securities of the Company and affiliates of Parent for their own
accounts or for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
As disclosed in Item 3, in August 2000, the Company granted an aggregate of
370,000 shares of Common Stock to certain of the Company's executive officers.
See Item 3 for more information relating to the terms and conditions of the
restricted stock bonus awards.
Other than as described above, no transactions in Shares have been effected
during the past 60 days by the Company or, to the knowledge of the Company, by
any executive officer, director, affiliate or subsidiary of the Company, other
than exercises by certain executive officers of stock options granted under the
Company stock option plans, on-going purchases of Shares under the Company's
Employee Stock Purchase Plan for the benefit of certain executive officers who
participate in such plan, and on-going transactions in the Company stock fund of
the Company's Retirement Savings Plan (401(k)) for the benefit of certain
executive officers who participate in such plan.
7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Schedule 14D-9, the Company is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to (1) a tender offer for or other acquisition of the Company's securities by
the Company, any subsidiary of the Company or any other person; (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (3) a purchase, sale or
transfer of a material amount of assets of the Company or any subsidiary of the
Company; or (4) any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
Except as set forth in this Statement, there are no transactions,
resolutions of the Board of Directors, agreements in principle, or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
<PAGE> 11
8. ADDITIONAL INFORMATION.
DELAWARE GENERAL CORPORATION LAW. As a Delaware corporation, the Company
is subject to Section 203 of the DGCL. In general, Section 203 would prevent an
"interested stockholder" (generally defined as a person beneficially owning 15%
or more of a corporation's voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless:
(1) before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (2) upon
consummation of the transaction which resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for purposes of determining the number of
shares of outstanding, stock held by directors who are also officers and by
employee stock plans that do not allow plan participants to determine
confidentially whether to tender shares), or (3) following the transaction in
which such person became an interested stockholder, the business combination is
(x) approved by the board of directors of the corporation and (y) authorized at
a meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. In accordance with the provisions of Section 203, the
Board of Directors has approved the Merger Agreement, as described in Item 4
above and, therefore, the restrictions of Section 203 are inapplicable to the
Merger.
UNITED STATES ANTITRUST COMPLIANCE. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the rules that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice (the
"Antitrust Division") and the FTC and certain waiting period requirements have
been satisfied. The purchase of Shares pursuant to the Offer is subject to these
requirements.
Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchase may not be made until the expiration of a
15-calendar day waiting period following the required filing of a Notification
Report Form under the HSR Act by the Purchaser, which the Purchaser will submit
on October 31, 2000. Accordingly, the waiting period under the HSR Act will
expire at 11:59 P.M., New York City time, on November 15, 2000 unless early
termination of the waiting period is granted by the FTC and the Antitrust
Division or the Purchaser receives a request for additional information or
documentary material prior thereto. If either the FTC or the Antitrust Division
issues a request for additional information or documentary material from the
Purchaser prior to the expiration of the 15-day waiting period, the waiting
period will be extended and will expire at 11:59 P.M., New York City time, on
the tenth calendar day after the date of substantial compliance by the Purchaser
with such request unless terminated earlier by the FTC and the Antitrust
Division. If such a request is issued, the purchase of and payment for Shares
pursuant to the Offer will be deferred until the additional waiting period
expires or is terminated. Only one extension of such waiting period pursuant to
a request for additional information or documentary material is authorized by
the rules promulgated under the HSR Act. Thereafter, the waiting period can be
extended only by court order or by consent of the Purchaser. Although Continuus
is required to file certain information and documentary material with the
Antitrust Division and the FTC in connection with the Offer, neither Continuus'
failure to make such filings nor a request to Continuus from the Antitrust
Division or the FTC for additional information or documentary material will
extend the waiting period.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Continuus
pursuant to the Offer. At any time before or after the Purchaser's acquisition
of Shares pursuant to the Offer, the Antitrust Division or the FTC could take
such action under the antitrust laws as either deems necessary or desirable in
the public interest, including seeking to enjoin the purchase of Shares pursuant
to the Offer or the consummation of the Merger or seeking the divestiture of
Shares acquired by the Purchaser or the divestiture of substantial assets of
Continuus or its subsidiaries or Telelogic or its subsidiaries. Private parties
and states Attorneys General may also bring legal action under the antitrust
laws under certain circumstances. There can be no assurance that a challenge to
the Offer on antitrust grounds will not be made, or, if such a challenge is
made, of the result thereof.
<PAGE> 12
If the Antitrust Division, the FTC, a state or a private party raises
antitrust concerns in connection with a proposed transaction, Telelogic and the
Purchaser may engage in negotiations with the relevant governmental agency or
party concerning possible means of addressing these issues and may delay
consummation of the Offer or the Merger while such discussions are ongoing. The
Purchaser and Continuus have agreed to use their respective best efforts to
resolve any antitrust issues.
OTHER FILINGS. Parent and the Company each conduct operations in a number
of foreign countries, and filings may have to be made with foreign governments
under their pre-merger notification statutes. The filing requirements of various
nations are being analyzed by the parties and, where necessary, the parties
intend to make such filings.
SECTION 14(F) INFORMATION. The Information Statement attached as ANNEX A
to this Statement is being furnished in connection with the possible designation
by Parent, pursuant to the terms of the Merger Agreement, of certain persons to
be elected to the Board of Directors other than at a meeting of the Company's
stockholders.
<PAGE> 13
9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
1 Offer to Purchase dated October 30, 2000 (incorporated by
reference to Exhibit (a)(1) to the Schedule TO of the
Purchaser filed on October 30, 2000).*
2 Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule TO of the Purchaser filed on October
30, 2000).*
3 Tender and Stockholder Support Agreement by and among
Parent, Purchaser, and the parties named therein, dated
October 25, 2000 (incorporated by reference to Exhibit
(d)(2) to the Schedule TO of the Purchaser filed on October
30, 2000).
4 Letter to Stockholders of the Company, dated October 30,
2000.*
5 Agreement and Plan of Merger, dated as of October 25, 2000,
among Parent, the Purchaser and the Company (incorporated by
reference to Exhibit (d)(1) to the Schedule TO of the
Purchaser filed on October 30, 2000).
6 The Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 (included as Annex A to this
Schedule 14D-9).*
7 Opinion of US Bancorp Piper Jaffray, dated October 24, 2000
(included as Annex B to this Schedule 14D-9).*
8 President/CEO Change in Control Severance Benefits
Agreement, dated May 31, 1997 (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on
Form S-1 (No. 333-76893) filed on April 23, 1999).
9 Form of Executive Change in Control Severance Benefits
Agreement, dated May 31, 1997 (incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on
Form S-1 (No. 333-76893) filed on April 23, 1999).
10 Amendment to the President/Chief Executive Officer Change in
Control Severance Benefits Agreement dated as of October 25,
2000, by and among John R. Wark, the Company, Parent and
Purchaser (incorporated as Exhibit 99(d)(6) to the Schedule
TO of the Purchaser filed on October 30, 2000).
11 Amendment to the Executive Officer Change in Control
Severance Benefits Agreement dated as of October 25, 2000,
by and among David McCann, the Company, Parent and Purchaser
(incorporated as Exhibit 99(d)(3) to the Schedule TO of the
Purchaser filed on October 30, 2000).
12 Amendment to the Executive Officer Change in Control
Severance Benefits Agreement dated as of October 25, 2000,
by and among Paul Van Den Berg, the Company, Parent and
Purchaser (incorporated as Exhibit 99(d)(4) to the Schedule
TO of the Purchaser filed on October 30, 2000).
13 Amendment to the Executive Officer Change in Control
Severance Benefits Agreement dated as of October 25, 2000,
by and among William Philbin, the Company, Parent and
Purchaser (incorporated as Exhibit 99(d)(5) to the Schedule
TO of the Purchaser filed on October 30, 2000).
14 Form of Restricted Stock Bonus Awards Agreement under the
Company's 1997 Equity Incentive Plan.
15 Company's Employee Stock Option Plan (incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (No. 333-76893) filed on April 23,
1999).
16 Company's 1997 Equity Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (No. 333-76893) filed on April 23,
1999).
</TABLE>
* Included with copies of the Schedule 14D-9 mailed to stockholders.
<PAGE> 14
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CONTINUUS SOFTWARE CORPORATION
/s/ STEVEN L. JOHNSON
--------------------------------------
Steven L. Johnson
Vice President, Finance and
Chief Financial Officer
Date: October 30, 2000
