SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 24, 1994
CERIDIAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-1969 52-0278528
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
8100 34th Avenue South, Minneapolis, Minnesota 55425
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612)853-8100
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On June 24, 1994, Ceridian Corporation (the "Company") acquired
Tesseract Corporation, a California corporation ("Tesseract") headquartered
in San Francisco, by means of a merger transaction involving Tesseract and
Braemar Acquisition Corp. ("BAC"), a wholly-owned subsidiary of the
Company. Tesseract, as the surviving corporation, became a wholly-owned
subsidiary of the Company as a result of the merger. Tesseract designs,
develops, markets and supports integrated payroll, human resource
management and benefits administration software systems, and provides
implementation, consulting, development and on-going maintenance and
support services to its customers.
Pursuant to the Agreement and Plan of Reorganization dated as of
May 25, 1994 among Tesseract, BAC and the Company, those persons who held
shares of Tesseract stock or vested options to acquire shares of Tesseract
stock immediately prior to the merger collectively received $60 million in
cash from BAC and the Company in exchange for their Tesseract stock and
options. The principal stockholders of Tesseract prior to the merger were
Tesseract Investors L.P., a California limited partnership, and The
Prudential Insurance Company of America. Employees and former employees of
Tesseract constituted the balance of Tesseract's stockholders and the
holders of vested stock options prior to the merger. Such persons employed
by Tesseract immediately prior to the merger continue to be employed by
Tesseract after the merger.
The merger consideration paid by BAC and the Company was obtained by
the Company from its existing cash and cash equivalents. The amount of
such consideration was determined as the result of negotiations between the
Company and Tesseract's board of directors, as ratified by Tesseract's pre-
merger stockholders. In the negotiations, consideration was given by the
parties to the current financial position, recent operating results and
future prospects of Tesseract, the degree to which Tesseract's product and
service offerings and technological expertise are expected to complement
those of the Company's Employer Services business and accelerate Employer
Services' upgrade of its payroll processing system software, and other
relevant factors.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Tesseract Corporation
The following financial statements of Tesseract are incorporated herein
by reference to Exhibits 99.1 and 99.2, respectively, to this Report:
(i) Audited Financial Statements
Independent Auditors' Report
Balance Sheets at December 31, 1993 and 1992
Statements of Income for the Years Ended December 31, 1993
and 1992
Statements of Cash Flows for the Years Ended December 31, 1993
and 1992
Statements of Stockholders' Equity for the Years Ended
December 31, 1993 and 1992
Notes to Financial Statements
(ii) Unaudited Financial Statements
Balance Sheet at March 31, 1994
Statement of Income for the Three Months Ended March 31, 1994
Statement of Cash Flows for the Three Months Ended
March 31, 1994
(b) Pro Forma Financial Information
As described in Item 2, on June 24, 1994, the Company acquired
Tesseract in a merger transaction treated as a purchase of stock for $60
million in cash.
The following unaudited pro forma financial statements reflect the
application of the acquisition of Tesseract, in the manner described in the
accompanying notes, to the combined historical statements of operations of
Ceridian Corporation and Tesseract Corporation for the year ended December
31, 1993, and the three month period ended March 31, 1994, and to the
combined historical balance sheets of those companies at March 31, 1994.
For purposes of reporting pro forma results of operations, it is assumed
that Tesseract was acquired on January 1, 1993; while for purposes of
reporting the pro forma balance sheet, it is assumed that the acquisition
took place on March 31, 1994.
The pro forma financial information is not intended to reflect the
results of operations or financial position of Ceridian which actually
would have resulted had this transaction, as described in the notes,
occurred on the assumed dates.
This pro forma financial information should be read in conjunction
with the accompanying notes which follow, the historical financial
statements of Tesseract filed as an exhibit to this Report, and the
historical financial statements of Ceridian included in its Annual Report
on Form 10-K for 1993 and its Quarterly Report on Form 10-Q for the three-
month period ended March 31, 1994.
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<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Ceridian Corporation and Subsidiaries
Year Ended December 31, 1993
<CAPTION>
Historical Pro Forma
(Dollars in millions Ceridian Tesseract
except per share data) Corporation Corporation Adjustments Results
<S> <C> <C> <C> <C>
Revenue
Product sales $ 442.0 $ $ 442.0
Services 444.1 28.9 473.0
Total 886.1 28.9 915.0
Cost of revenue
Product sales 353.1 353.1
Services 252.9 11.0 263.9
Total 606.0 11.0 617.0
Gross profit 280.1 17.9 298.0
Operating expenses
Selling, general and
administrative 178.1 9.3 4.9 (1) 192.3
Technical expense 48.6 6.2 54.8
Other expense (income) (3.5) (3.5)
Restructure loss (gain) 67.0 2.3 69.3
Earnings (Loss) before
interest and taxes (10.1) 0.1 (14.9)
Interest income 8.3 0.3 8.6
Interest expense (16.4) (16.4)
Earnings (Loss) before
income taxes (18.2) 0.4 (22.7)
Income tax provision 3.8 0.2 4.0
Earnings (Loss) from
continuing operations $ (22.0) $ 0.2 (26.7)
Earnings (Loss) per share $ (0.52) $ (0.62)
(See accompanying notes.)
</TABLE>
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<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Ceridian Corporation and Subsidiaries
For the Three Months Ended March 31, 1994
<CAPTION>
Historical Pro Forma
(Dollars in millions Ceridian Tesseract
except per share data) Corporation Corporation Adjustments Results
<S> <C> <C> <C> <C>
Revenue
Product sales $ 112.5 $ $ 112.5
Services 108.8 4.5 113.3
Total 221.3 4.5 225.8
Cost of revenue
Product sales 90.3 90.3
Services 48.3 1.8 50.1
Total 138.6 1.8 140.4
Gross profit 82.7 2.7 85.4
Operating expenses
Selling, general and
administrative 46.9 1.7 1.2 (1) 49.8
Technical expense 12.8 2.8 15.6
Other expense (income) 0.4 0.4
Earnings (Loss) before
interest and taxes 22.6 (1.8) 19.6
Interest income 1.9 0.1 2.0
Interest expense (0.4) (0.4)
Earnings (Loss) before
income taxes 24.1 (1.7) 21.2
Income tax provision 1.9 (0.7) 1.2
Net earnings $ 22.2 $ (1.0) 20.0
Primary Earnings per share $ 0.42 $ 0.37
Fully diluted earnings
per share $ 0.40 $ 0.36
(See accompanying notes.)
</TABLE>
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Notes to Pro Forma Condensed Consolidated Statement of Operations
(Unaudited)
The pro forma statements of operations assume that the acquisition of
Tesseract took place on January 1, 1993, and include the following pro
forma adjustment:
(1) Amortization over a 15 year period of goodwill of $73.4 million
arising from this transaction.
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<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Ceridian Corporation and Subsidiaries
March 31, 1994
<CAPTION>
Historical Pro Forma
(Dollars in millions Ceridian Tesseract
except per share data) Corporation Corporation Adjustments Results
<S> <C> <C> <C> <C>
Current assets
Cash and equivalents $ 120.0 $ 8.5 $ (60.0) (1)$ 68.5
Short-term investments 78.8 78.8
Trade and other
receivables, net 128.7 6.1 134.8
Inventories 26.4 26.4
Other current assets 6.3 0.5 6.8
Total current assets 360.2 15.1 315.3
Investments and advances 28.3 28.3
Property, plant and
equipment, net 90.1 2.0 92.1
Other noncurrent assets 112.7 4.5 68.8 (2) 186.0
Total assets $ 591.3 $ 21.6 $ 621.7
(See accompanying notes.)
</TABLE>
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<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Ceridian Corporation and Subsidiaries
March 31, 1994 (cont.)
<CAPTION>
Historical Pro Forma
(Dollars in millions Ceridian Tesseract
except per share data) Corporation Corporation Adjustments Results
<S> <C> <C> <C> <C>
Liabilities and
Stockholders' Equity
Current liabilities
Short-term debt and current
portion of long-term
obligations $ 1.7 $ $ $ 1.7
Accounts payable 33.3 0.4 33.7
Customer advances 27.7 27.7
Deferred income 26.2 9.5 35.7
Accrued taxes 54.1 54.1
Employee compensation and
benefits 38.2 38.2
Restructure reserves,
current portion 35.5 35.5
Other accrued expenses 65.9 5.5 14.3 (3) 85.7
Total current liabilities 282.6 15.4 312.3
Long-term obligations, less
current portion 16.2 16.2
Deferred income taxes 7.2 7.2
Restructure reserves, less
current portion 51.1 51.1
Other noncurrent liabilities 101.7 .7 102.4
Stockholders' equity
Preferred stock 4.7 19.0 (19.0) (4) 4.7
Common stock 22.2 0.3 (0.3) (4) 22.2
Additional paid-in capital 826.2 826.2
Accumulated deficit (710.8) (13.8) 13.8 (4) (710.8)
Other stockholders' equity (9.8) (9.8)
Total stockholders' equity 132.5 5.5 132.5
Total liabilities and
stockholders' equity $ 591.3 $ 21.6 $ 621.7
(See accompanying notes.)
</TABLE>
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Notes to Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
The pro forma balance sheet assumes that the acquisition of Tesseract
took place on March 31, 1994, and includes the following pro forma
adjustments:
(1) To reflect the consideration paid of $60 million in cash.
(2) To reflect a $4.6 million reduction of asset values of the
acquired company and goodwill of $73.4 million arising from the
acquisition.
(3) To reflect accruals of $14.3 million primarily related to
acquisition costs and conforming Tesseract accounting methods to those of
Ceridian.
(4) To eliminate equity accounts of acquired company.
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(c) Exhibits
The following is a complete list of Exhibits filed or incorporated by
reference as part of this report:
Exhibit Description
2 Agreement and Plan of Reorganization, dated as of
May 25, 1994, by and between the Company, BAC and
Tesseract
99.1 Audited Financial Statements of Tesseract
Corporation for the Years ended December 31, 1993
and 1992 and Independent Auditors' Report
99.2 Unaudited Financial Statements of Tesseract
Corporation at and for the Three Months Ended
March 31, 1994
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CERIDIAN CORPORATION
Registrant
Date: July 11, 1994 /s/L. D. Gross
L. D. Gross
Vice President and
Corporate Controller
(Principal Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Code
2 Agreement and Plan of Reorganization, dated as of E
May 25, 1994, by and between the Company, BAC and
Tesseract
99.1 Audited Financial Statements of Tesseract
Corporation for the Years ended December 31, 1993 E
and 1992 and Independent Auditors' Report
99.2 Unaudited Financial Statements of Tesseract
Corporation at and for the Three Months Ended E
March 31, 1994
Legend: (IBR) Incorporated by reference from previous filing
(P) Printed material filed under Form SE dated August 3, 1992
(E) Electronic Filing
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Merger Agreement") is
made and entered into as of this 25th day of May
and between Ceridian Corporation, a Delaware corporation ("Ceridian")
together with Braemar Acquisition Corp., a Delaware corporation
("Acquisition Sub"); and Tesseract Corporation, a California corporation
(the "Company").
INTRODUCTION
A.The parties hereto, subject to approval by the shareholders of the
Company in accordance with applicable law, wish to consummate a transaction
whereby Acquisition Sub will merge with and into the Company and all of the
issued and outstanding stock of Company will be converted into cash
pursuant to the terms and conditions contained in the Plan of Merger
attached hereto as Exhibit A and this Merger Agreement.
B.The parties hereto wish to make certain representations,
warranties, covenants and agreements in connection with the merger of
Acquisition Sub with and into the Company, and also to prescribe various
conditions to such transaction.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The following terms have the following meanings when used in this
Agreement, unless the context expressly or by necessary implication
otherwise requires:
1.01 "Affiliate" shall have the meaning assigned to such term in Rule
405, as presently promulgated under the Securities Act of 1933, as amended.
1.02 "Assets" means all properties and assets (real, personal or
mixed, tangible or intangible).
1.03 "Best Knowledge" means the knowledge, after reasonable inquiry,
of a responsible officer of the entity to which reference is made.
1.04 "Business" means the business and operations of Company.
1.05 "Business Condition" means, with respect to any corporation,
association or other business entity, the business, condition (financial or
otherwise), operations, assets or liabilities of such entity and its
Subsidiaries taken as a whole.
1.06 "CGCL" means the California General Corporation Law.
1.07 "Certain Matters Agreement" means the Certain Matters Agreement
dated as of even date among Ceridian Corporation; Braemar Acquisition
Corp.; Tesseract Corporation; Tesseract Investors, L.P.; The Prudential
Insurance Company of America; and Woodson Hobbs, IV.
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<PAGE>
1.08 "Closing" means the completion of the Transaction upon the
satisfaction or waiver of all the conditions set forth in Article VIII of
this Agreement.
1.09 "Closing Date" shall be (a) as agreed by the parties in writing
or (b) if the parties do not agree in writing, two business days following
the date on which the expiration of all applicable waiting periods in
connection with approval of governmental authorities occurs and all
conditions to the consummation of the Merger are satisfied or waived.
1.10 "COBRA" means the Consolidated Omnibus Reconciliation Act of
1985, as amended.
1.11 "Code" means the Internal Revenue Code of 1986, as amended.
1.12 "Common Shareholders" means any and all holders of any shares of
any series of common stock of the Company or the Unexercised Vested Options
thereof.
1.13 "Company Facility" means any property, including the land, the
improvements thereon, and the ground water and surface water thereof, that
Company has at any time owned, operated, occupied, controlled or leased.
1.14 "Company Products" means all products, software, services and
technology which are material to the Business as presently conducted.
1.15 "Company Software Products" means all of Company's proprietary
Software that is included in Company Products or has been offered or
provided by Company under license for use by Company's customers. Company
Software Products does not include Third Party Software.
1.16 "Company Tax" means all liability for any Tax imposed on,
relating or attributable to, or otherwise payable by or with respect to
Company or its assets or the Business.
1.17 "Company Tax Returns" means all Tax Returns filed or required to
be filed by or with respect to any Company tax.
1.18 "Contracts" means all contracts and agreements, contract rights,
executory commitments, license agreements, purchase and sales orders,
written or oral, relating to the operation of the Business, including,
without limitation, the agreements disclosed in Annexes to Section 4.22.
1.19 "DGCL" means the Delaware General Corporation Law.
1.20 "Disposal Site" means a facility that treats, stores, or disposes
of Hazardous Materials.
1.21 "Effective Time" means the time that the Plan of Merger is filed
with the California Secretary of State to effect the Merger in accordance
with the DGCL.
1.22 "Employment Agreements" means the employment agreements between
the Company and each of Woodson Hobbs IV; Lyn Jensen; Val Vaden; Gary
Durbin; Mark Barrenechea; Ron Ellis; and James Rowe to be effective as of
the Effective Time, copies of which are attached hereto as Exhibits B1, B2,
B3, B4, B5, B6 and B7 respectively.
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<PAGE>
1.23 "Encumbrance" means any security interest, mortgage, lien,
charge, assessment, adverse claim, restriction, easement or other
encumbrance of any kind, including, but not limited to, with respect to
real property, any exceptions to title, recorded and unrecorded.
1.24 "Environmental Laws" means any federal, state, foreign or local
law, statute, ordinance, rule, regulation, authorization, decree, or
requirement of any Governmental Entity regulating or otherwise concerning
the protection of human health or of the environment including, without
limitation, those relating to Hazardous Materials.
1.25 "Environmental Permit" means any approval, permit, license,
clearance or consent required to be obtained from any private Person or any
Governmental Entity with respect to a Hazardous Materials Activity which is
or was conducted by Company, or any of its predecessors, or otherwise with
respect to the Business.
1.26 "Equity Securities" shall have the meaning assigned to such term
in Rule 3a11-1 as presently promulgated under the Securities Exchange Act
of 1934, as amended.
1.27 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.28 "ERISA Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA, that is subject to any provision of ERISA.
1.29 "GAAP" means generally accepted accounting principles in effect
in the United States at the time when and for the period as to which such
accounting principles are to be applied.
1.30 "Governmental Entity" means any local, state, provincial,
federal, foreign or international governmental authority, agency or other
entity, including, but not limited to, any court, tribunal or panel.
1.31 ``
HSR Act'' means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations pursuant thereto.
1.32 "Hazardous Materials" means any hazardous materials, hazardous or
toxic substances, or hazardous wastes that are defined as such or regulated
by any Environmental Law.
1.33 "Hazardous Materials Activity" means the possession,
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, removal, remediation, release, sale, or distribution of, any
Hazardous Material.
1.34 "Intellectual Property Rights" means all of Company's rights,
title and interest in and to all: (a) United States and foreign patents and
patent applications; (b) copyrights in computer programs and other works of
authorship; (c) trade secrets and proprietary or confidential business and
technical information; (d) proprietary "know-how," whether or not
protectable by patent, copyright or trade secret right; and (e) United
States and foreign trademarks, service marks, trade names and associated
goodwill, and registrations or applications for registration of any such
marks or names.
1.35 "Knowledge" means the actual knowledge of an officer of the
entity to which reference is made without inquiry or investigation by any
officer.
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1.36 "Laws" means all laws, statutes, ordinances, rules, regulations,
judgments, injunctions, stipulations, decrees and orders of any
Governmental Entity.
1.37 "Leased Real Property" means all real property leased, occupied,
operated or controlled by Company or otherwise related to or used in the
Business.
1.38 "Liabilities" means any and all claims, assessments, charges,
indebtedness or obligations of any nature whatsoever, whether absolute,
accrued, contingent or otherwise, and whether due or to become due.
1.39 "Losses" means all Liabilities, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' and
accountants' fees and expenses) incurred in connection with the
investigation, evaluation, settlement, defense or prosecution of
Liabilities, and shall specifically include any and all claims, costs,
damages, fines, penalties, or liabilities which arise from or in connection
with any Environmental Law; provided, however, Losses shall exclude any
special, punitive, exemplary or consequential damages or lost profits and
shall be reduced to reflect insurance proceeds and after-tax benefits
received. If and to the extent a claim for indemnification under this
Agreement is based upon payments to a third party, Losses shall also
include interest thereon from the date the payments were made until the
same have been reimbursed. If and to the extent a claim for
indemnification under this Agreement is not based upon payments to a third
party, Losses shall also include interest on the liquidated elements of
such damages from 60 days after the date of the notice of claim until the
same have been reimbursed. Interest as described in this section shall be
computed at one percent (1%) in excess of the publicly announced prime rate
(or reference rate) of interest charged by Bank of America, National
Association, as in effect from time to time during the period for which
interest is payable.
1.40 "Material Adverse Effect" shall mean an event, circumstance,
fact, or condition which would: (a) individually or in the aggregate have a
material adverse effect on the Business Condition of the entity to which
reference is being made (other than any such effect arising out of or
attributable to changes in GAAP after the Closing), or (b) individually or
in the aggregate, have a material adverse effect on the ability of the
Person to perform its obligations under this Agreement.
1.41 "Merger" means the merger of Acquisition Sub into and with the
Company.
1.42 "Merger Consideration" means Sixty Million Dollars ($60,000,000)
cash distributed as described in Annex 3.01 hereof.
1.43 "Non-ERISA Benefit Arrangements" shall mean any policy, practice,
program, arrangement, agreement, plan, trust or other method of
contribution or compensation that (a) provides benefits, perquisites or
remuneration, other than current cash compensation, to an employee, former
employee or other individual who provides or provided personal services
other than as an employee or to the dependent or beneficiary of such an
employee, former employee or other individual and (b) is not an ERISA
Benefit Plan. Non-ERISA Benefit Arrangement includes, without limitation,
any policy, practice, program, arrangement, agreement, plan, trust or other
method of contribution or compensation providing for the grant, award or
sale of stock, stock options, phantom stock or stock appreciation or
depreciation rights; direct or indirect extensions of credit; health,
life or disability benefits; retirement, profit sharing or deferred
compensation benefits; severance and separation benefits; workers'
4
<PAGE>
compensation; vacation and other paid time off; cafeteria and flexible
benefits; and incentive and fringe benefits.
1.44 "Ordinary Course" means the ordinary course of business,
consistent with past business practice.
1.45 "Permitted Encumbrance" means: (a) mechanics', carriers',
workers' and other similar liens arising in the Ordinary Course;
(b) imperfections of title which do not materially detract from the value,
or impair the existing use of the property subject thereto or the
operations of Company, or the Business; and (c) liens for current Taxes not
yet due and payable or which are being challenged reasonably and; (d) liens
with respect to purchase money security interests which do not exceed the
current fair market value of the property or assets which are subject
thereto.
1.46 "Person" means any natural person, firm, corporation,
partnership, association, trust, or governmental entity.
1.47 "Personal Property" means all inventory, machinery, parts,
equipment, supplies, furniture, computer hardware, automobiles and vehicles
and other tangible personal property whether owned or leased.
1.48 "Plan of Merger" means the Agreement and Plan of Merger in the
form attached hereto as Exhibit A, to be executed by authorized officers of
Ceridian, Acquisition Sub and Company and filed at the Effective Time with
the Secretary of State of California in accordance with the CGCL and the
Secretary of State of Delaware in accordance with the DGCL.
1.49 "Prudential" shall mean The Prudential Insurance Company of
America, a New Jersey mutual insurance company.
1.50 ``
Records'' means originals or duplicate copies of all books of
account, general ledgers, sales invoices, accounts payable and payroll
records, customer lists, supplies lists, reports, correspondence and sales
and promotional literature.
1.51 "Related Party" means any company (whether or not incorporated)
which is considered a single employer with Company under Title I, II, or
III of ERISA.
1.52 "Software" means computer programs in any form (including source
code and binary code), and in any stage of development, test and release,
together with all related technical documentation, user manuals, data
files, databases and other works of authorship, and all information and
materials necessary or required for the effective installation,
maintenance, use and support of such computer programs.
1.53 "Stock" means all of the issued and outstanding shares of
capital stock of Company.
1.54 "Subsidiary" means any corporation or other entity of which
securities (or other ownership interests) having ordinary voting power to
elect a majority of the board of directors (or other persons performing
similar functions) are at the time directly or indirectly owned by the
designated entity.
1.55 "Surviving Corporation" means Acquisition Sub, from and after the
consummation of the Merger at the Effective Time.
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1.56 "Tax" or "Taxes" means any tax or other similar liability imposed
or collected by any Governmental Entity, including, without limitation, all
federal, state, county, local, and foreign income, profits, franchise,
gross receipts, payroll, sales, employment, use, occupation, property,
excise, value added, withholding and other taxes, duties or assessments
(including the recapture of any tax items such as investment tax credits),
together with any related interest, penalties and additions and shall
include any transferee or secondary liability for a Tax and any liability
arising as a result of being (or ceasing to be) a member of any affiliated,
consolidated, combined, or unitary group or being included (or required to
be included) in any Tax Return relating thereto.
1.57 "Tax Agreement" means any sharing, allocation, indemnity or other
agreement or arrangement (written or unwritten) relating to Taxes (other
than this Agreement).
1.58 "Tax Return" means any return, report, information return or
other documents (including any related or supporting schedules, statements
or information) filed or required to be filed with any Tax authority or
Governmental Entity in connection with the determination, assessment or
collection of any Taxes of any Person or the administration or any laws,
regulations or administrative requirements relating to any Taxes.
1.59 "Third Party Software" means all Software licensed, leased or
loaned by third party vendors or contractors for use by Company in
connection with the its internal business operations, or for distribution
by Company under sublicense for use by customers, either on a stand-alone
basis or in combination with Company Software Products.
1.60 "TILP" shall mean Tesseract Investors, L.P., a California limited
partnership.
1.61 "Transaction" means the transactions contemplated by this
Agreement.
1.62 "Unexercised Vested Options" shall mean any options, warrants or
other rights to acquire any equity securities of the Company which are, as
of the Closing Date, exercisable.
ARTICLE II
THE MERGER
2.01 The Merger. As of the Effective Time, upon the terms and subject
to the conditions hereof and the Plan of Merger, and in accordance with
applicable law, and the Articles of Incorporation and bylaws of Company and
Acquisition Sub, Acquisition Sub shall be merged with and into the Company.
The parties will treat the Merger as a sale of stock for tax purposes.
Following the Merger, the Company shall continue as the Surviving
Corporation and shall continue its existence under the laws of the State of
California, and the separate corporate existence of Acquisition Sub shall
cease.
2.02 Consummation of the Merger. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Article IX, the
parties hereto will cause a Plan of Merger to be filed with the California
Secretary of State and the Delaware Secretary of State at the Effective
Time. The parties hereto shall take all such other and further actions as
may be required by law to make the Merger effective.
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2.03 Effects of the Merger. The Merger shall have the effects set
forth in the CGCL and the DGLC. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Acquisition Sub shall vest in
the Company, and all debts, liabilities and duties of Acquisition Sub shall
become the debts, liabilities and duties of the Company.
2.04 Articles of Incorporation and Bylaws. The Articles of
Incorporation and bylaws of the Company in effect at the Effective Time
shall be the Articles of Incorporation and bylaws of the Surviving
Corporation until amended in accordance with applicable law, and the name
of the Company, as the Surviving Corporation shall be "Tesseract
Corporation." Acquisition Sub may, at its election, reincorporate in
California or assign its right hereunder to another wholly-owned subsidiary
of Ceridian.
2.05 Directors and Officers. From and after the Closing, the Company
shall take all actions necessary to elect as directors of the Company and
appoint as officers of the Company such persons as Ceridian shall designate
in writing. The directors of Acquisition Sub at the Effective Time shall
be the directors of the Surviving Corporation and the officers of
Acquisition Sub shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected (or appointed in
the case of officers) and qualified.
2.06 Conversion of Shares; Cancellation of Treasury Stock and Unvested
Options. At the Effective Time, by virtue of the Merger and without any
action on the part of any holder thereof, all Stock issued and outstanding
immediately prior to the Effective Time, shall in accordance with Article
III, by virtue of the Merger, be exchanged for and converted into the
Merger Consideration. Shares, if any, held in the treasury of Company
shall be canceled and retired and no payment shall be made with respect
thereto. Unvested options pursuant to any Company stock option plan or
agreement shall be terminated.
2.07 Effect on Stock of Acquisition Sub. All issued and outstanding
shares of capital stock of Acquisition Sub shall be converted into 100
issued and outstanding shares of common stock of the Surviving Corporation
which, as of the Effective Date, will be the only issued and outstanding
shares of the Surviving Corporation.
2.08 Options and Warrants. Prior to Closing, the Board of Directors
of the Company shall adopt a resolution causing all unexercisable stock
options or warrants for Company Stock to be canceled.
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ARTICLE III
EXCHANGE OF STOCK FOR CASH
3.01 Exchange and Conversion of Stock and Unexercised Vested Options.
At Closing, each share of Company Stock and each Unexercised Vested Option
will be exchanged for and converted into the Merger Consideration as
described in Annex 3.01.
3.02 Delivery of the Merger Consideration. Ceridian shall designate a
Person, reasonably acceptable to Company, to act as Exchange Agent (the
"Exchange Agent"). At Closing, the Merger Consideration will be delivered
by Acquisition Sub to the Exchange Agent. Each holder of a certificate
which prior to the Effective Date represented shares of Company Stock, and
each holder of an Unexercised Vested Option, will be entitled to receive,
upon surrender to the Exchange Agent of one or more such certificates or
option agreements, for cancellation, cash as set forth in Annex 3.01.
Certificates which prior to the Effective Date represented shares of
Company Stock, and option agreements with respect to Unexercised Vested
Options, shall, at and after the Effective Date, be deemed to represent
only the right to receive, without interest, upon surrender of such
certificates or option agreements, the cash as set forth in Annex 3.01.
3.03 Dissenters Rights.
(a) Any shares of Company Stock held by a holder who dissents
from the Merger and becomes entitled to obtain payment for the fair value
of such shares of Company Stock pursuant to the applicable provisions of
CGCL shall herein be called ``
Dissenting Shares''. Any Dissenting Shares
shall not, after the Effective Date, be entitled to vote for any purpose or
receive any dividends or other distributions and shall not be converted
into any of the Merger Consideration pursuant to Section 3.01; provided,
however, that Section 3.01 shall apply to shares of Company Stock held by a
dissenting shareholder who subsequently withdraws his or her demand for
payment, fails to comply fully with the requirements of applicable
provisions of CGCL, or otherwise fails to establish the right of such
shareholder to be paid the fair value of such shareholder's shares under
the CGCL, in which event such shares shall be deemed to be converted into
the Merger Consideration under Section 3.01. Shares of Company Stock
acquired by the Surviving Corporation pursuant to such provisions of the
CGCL shall be cancelled.
(b) The Company shall give Acquisition Sub prompt notice upon
receipt of any written objection to the Merger and demand for payment of
the fair value of shares. The Company agrees that prior to the Effective
Date it will not, except with the prior written consent of Acquisition Sub,
voluntarily make any payment with respect to, or settle or offer to settle,
any such demand for payment of the fair value of shares and, then, only to
the extent so agreed to by Acquisition Sub in such writing.
3.04 Closing of Company Transfer Books. Upon the Effective Date, the
stock transfer books of the Company shall be closed and no transfer of
Company Stock shall thereafter be made. If, after the Effective Date,
certificates which prior to the Effective Date represented shares of
Company Stock are presented to the Surviving Corporation, or any
Unexercised Vested Option is attempted to be exercised, they shall be
cancelled and exchanged for the Merger Consideration as provided in
Annex 3.01.
3.05 Lost Certificates. In the event any certificates for Company
Stock or any option agreements for any Unexercised Vested Option shall have
been lost, stolen or destroyed, the Surviving
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Corporation shall issue in exchange for such lost, stolen or destroyed
certificate, upon the making of an affidavit of that fact by the holder
thereof, such Merger Consideration as may be required pursuant to this
Article; provided, however, that Acquisition Sub may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate to deliver a bond in such sum as it
may direct as indemnity against any claim that may be made against Ceridian
or Acquisition Sub with respect to the certificate alleged to have been
lost, stolen or destroyed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Each Section of Representations and Warranties below is modified to
the extent a Schedule of Exceptions containing that Section number is
delivered concurrently herewith. For purposes of this Article IV, the
inclusion of a description of an item on the Schedule with one Section
reference will be deemed to be inclusion on the Schedule for another
Section reference if the item is either specifically cross-referenced to
another Section or if a reasonable person would conclude from review of the
item's description in the Section reference that it was also properly
applicable to another Section reference. The Company hereby represents and
warrants to Ceridian and Acquisition Sub the following:
4.01 Company and Shareholder Actions. The Board of Directors of
Company, at a meeting duly called and held, has in light of and subject to
the terms and conditions set forth herein, (1) determined that this
Agreement and the Transaction, including the Merger, taken together, are in
the best interests of Company, (2) approved this Agreement and the
Transaction, including the Merger, and such approval constitutes approval
for purposes of Section 1101 of the CGCL, and (3) resolved to recommend
that the shareholders approve and adopt this Agreement and the Merger, and
exchange for their Company Stock the Merger Consideration as set forth in
Annex 3.01.
4.02 Authority, Validity of Agreement. The Company has all requisite
corporate power and authority to enter into this Agreement and to perform
the obligations hereunder and to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company and, except
as set forth herein, no other approval is required for the performance by
the Company of its obligations hereunder. This Agreement has been, and at
Closing will be, duly executed and delivered by the Company. This
Agreement constitutes, and at Closing will constitute, assuming due
authorization, execution and delivery by the other parties thereto, a valid
and binding obligation of the Company, enforceable in accordance with its
terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting creditors' rights, and, with respect to the remedy of specific
performance, equitable doctrines applicable thereto).
4.03 No Violations. Neither the execution and delivery of this
Agreement by the Company nor the consummation of the transactions
contemplated hereby will (a) violate any provisions of the charter or
bylaws of the Company, or (b) violate, or be in conflict with, or
constitute a default (or to the Company's Knowledge, an event which, with
or without due notice or lapse of time, or both, would constitute a
default) under, or cause or permit the acceleration of the maturity of or
give rise to any right of termination, cancellation, imposition of fees or
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penalties under, any note, debt, debt instrument, indenture, security
agreement, option to purchase, lease, deed of trust or license, or any
other Contract to which the Company is a party or by which it or any of its
Assets is or may be bound, or (c) result in the creation of imposition of
any Encumbrance of any kind upon any Assets of the Company under any debt,
obligation, Contract or commitment to which it is a party or by which any
of it or its Assets is or may be bound, except for Permitted Encumbrances
or (d) to the Knowledge of the Company, violate any Laws to which the
Company may be subject, which breach, acceleration, Encumbrance, conflict,
violation or default described in (a), (b), (c) or (d) above would have a
Material Adverse Effect on the Company, or enable any person to enjoin the
Merger.
4.04 Consents and Approvals of Governmental Authorities. Except as
contemplated by the Merger, and required by HSR, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required with respect to the Company in connection
with the execution, delivery and performance of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby.
4.05 Other Consents. No consent, waiver or approval of, or notice to,
any third party is required or necessary to be obtained by the Company in
connection with the execution and delivery of this Agreement and the
performance of the Company's obligations hereunder, except where failure to
so obtain would not have a Material Adverse Effect on the Business.
4.06 Organization and Good Standing of the Company. The Company:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its state of California;
(b) has all requisite power and authority to own, lease and
operate its material properties and assets and to carry on its business as
now being conducted except for such powers and authorizations, the absence
of which either individually or in the aggregate would not have a Material
Adverse Effect on the Company; and
(c) is qualified to do business and in good standing in each
state and jurisdiction where such qualification is required and where the
failure to be so qualified would have a Material Adverse Effect on the
Company or the Business. The Company has not received notification from
any jurisdiction that the Company is required to qualify or obtain a
license to do business in such jurisdiction (except where such
qualification or license has been obtained) or that it is otherwise not in
good standing in such jurisdiction.
Complete and correct copies of the articles of incorporation, as
amended (with such articles and all amendments thereto certified by the
Secretary of State of California) and bylaws, as amended to the date
hereof, of the Company have been provided to Ceridian.
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4.07 Capital Stock of the Company.
(a) Annex 4.07(a) sets forth a true and complete list for the
Company of the number of shares of all capital stock authorized and issued
and outstanding, the record owners and the amount and percentage of
ownership of such shares of capital stock or equity interests. The Company
does not own, directly or indirectly, any equity, or capital (whether
equity or debt) interest in any corporation, partnership, association,
business trust, joint venture or other business entity.
(b) Annex 4.07(b) contains a complete list of all states or
other jurisdictions in which the Company is qualified to do business.
(c) All outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and non-assessable and are
owned of record as set forth in Annex 4.07(a), free and clear of all
Encumbrances. None of such shares are subject to any preemptive rights.
The Company has not, and prior to the Closing will not become subject to,
any commitment or obligation, either firm or conditional, to issue, deliver
or sell, or cause to be issued, delivered or sold, under offers, stock
option agreements, stock bonus agreements, stock purchase plans, incentive
compensation plans, warrants, calls, conversion rights or otherwise, any
shares of the capital stock or other securities of the Company including
securities or obligations outstanding which are convertible into or
exchangeable for any shares of capital stock, other Equity Securities, or
ownership interests, upon payment of any consideration or otherwise.
4.08 Minute Books; Officers and Directors. The minute books of the
Company contain true and complete records of all material actions taken by
the directors and written consents to Company actions, annual and special
meetings by shareholders of the Company since January 1, 1986, and true and
complete copies of such minute books have been furnished to Ceridian.
Annex 4.08 sets forth a true and complete list of each of the officers and
directors of the Company.
4.09 Financial Statements. Annex 4.09 contains complete copies of the
following financial statements of the Company: audited balance sheets as of
December 31, 1991, 1992, and 1993; unaudited balance sheet as of March 31,
1994 ("March 31, 1994 Balance Sheet"); audited income statements and
statements of cash flow for the 12-month periods ended December 31, 1991,
1992, and 1993; and unaudited income statement and statement of cash flow
for the three-month period ended March 31, 1994 (the "Financial
Statements").
(a) Each balance sheet (including any related notes) included in
the Financial Statements fairly presents the assets, liabilities and
financial condition of the Company as of the respective dates thereof, and
each of the statements of operations, cash flows, and changes in financial
condition included in the Financial Statements fairly presents the results
of operations for the periods referred to therein, all in accordance with
GAAP (except as disclosed in the footnotes and except that the unaudited
Financial Statements do not contain all of the footnotes required by GAAP)
consistently applied throughout the periods involved.
(b) The general ledger, accounts receivable, accounts payable,
bank reconciliations and payroll records of the Company have been
maintained in all material respects in the Ordinary Course.
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4.10 Financial Projections. The financial projections contained in
Annex 4.10 (Tesseract Corporation Business Plan 1994-1998) were based on
assumptions regarding the Company, technology, financing, market, and
industry conditions at the time they were made. Management of the Company
believes such assumptions were appropriate at that time to demonstrate the
potential for performance in its industry. Such assumptions, projections,
and potential were validated by Ceridian and its outside advisors during
the course of due diligence in the contemplation of this Merger. However,
the Company's actual performance will vary, perhaps materially, from the
financial projections, particularly since many assumptions may be
inappropriate following the Merger contemplated in this Agreement and
Tesseract's Business will be solely under the control of Ceridian.
Accordingly, the projections may not be relied upon as a guaranty or other
assurance of the actual future performance of the Company
4.11 Absence of Undisclosed Liabilities. The Company has no
Liabilities which could have a Material Adverse Effect on the Company,
except:
(a) Liabilities that are accrued or reserved against in the
March 31, 1994 Balance Sheet, or reflected in the notes thereto, which have
not been paid or discharged since the date thereof;
(b) Liabilities not required to be reflected on a balance sheet
prepared in accordance with GAAP; and
(c) Liabilities incurred since the date of the March 31, 1994
Balance Sheet in the Ordinary Course.
4.12 Absence of Certain Changes. Since December 31, 1993, the Company
has not, except as disclosed in the Financial Statements or in the Ordinary
Course:
(a) Paid, discharged, or satisfied any material Liabilities
required by GAAP to be disclosed in the Financial Statements other than the
payment, discharge or satisfaction of material Liabilities reflected or
reserved against in the March 31, 1994 Balance Sheet or incurred subsequent
to the date thereof;
(b) Permitted or allowed any of its material Assets to be
subjected to any material Encumbrance, except Permitted Encumbrances;
(c) Written up the value of any material inventory, notes or
accounts receivable, or other material Assets;
(d) Canceled or amended any material debts or waived any claims
or rights of material value;
(e) Licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any material right to the use of any
Intellectual Property Right;
(f) Granted any increase in the compensation of officers or
employees;
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(g) Declared, paid or set aside for payment any dividend or
other distribution in respect of its capital stock or other Equity
Securities or, directly or indirectly, redeemed, purchased or otherwise
acquired any shares of its capital stock or other Equity Securities;
(h) Made any change in any method of accounting or accounting
practice or any change in depreciation or amortization policies or rates
previously adopted;
(i) Paid, lent or advanced any amount to, or sold transferred or
leased any Assets to, or entered into any agreement or arrangement with,
any of its Affiliates, except for directors' fees, and employment
compensation to officers;
(j) Sold, leased or otherwise disposed of any of its material
Assets;
(k) Made capital expenditures or commitments therefore
exceeding, in the aggregate, Fifty Thousand Dollars ($50,000);
(l) Entered into any other material transaction, Contract,
commitment or arrangement; or
(m) Entered into a material Contract to take any action
described in this Section 4.12.
4.13 Title to, and Sufficiency of, Assets.
(a) Annex 4.13(a) contains a true and correct list of all
material tangible Assets owned or leased, or otherwise used in or
pertaining to the Business as presently conducted.
(b) The Company has good and valid title to or a valid leasehold
interest in all of the material tangible Assets owned or leased by the
Company, or otherwise used in or pertaining to the Business as presently
conducted, including, without limitation, all material tangible Assets
reflected in the March 31, 1994 Balance Sheet and all material tangible
Assets purchased or otherwise acquired by the Company since the date of the
March 31, 1994 Balance Sheet (except for properties and assets sold since
the date of the March 31, 1994 Balance Sheet in the Ordinary Course). None
of such material tangible Assets is subject to any material Encumbrance
except for Permitted Encumbrances.
4.14 Plant, Property, and Equipment. To the Company's Knowledge, the
Leased Real Property, and other plant, property, equipment, leasehold
improvements, and other material tangible Assets of the Business conform in
all material respects with applicable Laws; are structurally sound with no
material defects; are in good operating condition and repair (ordinary wear
and tear excepted); and are adequate in all respects for the purposes for
which they are being used.
4.15 Intentionally omitted.
4.16 Accounts and Notes Receivable. Except to the extent of
applicable reserves for doubtful accounts and contract reserves shown on
the March 31, 1994 Balance Sheet, all of the accounts, notes and other
receivables owed to the Company as of the date hereof or thereafter
acquired or arising prior to the Closing Date, constitute, and as of the
Closing Date will constitute, valid and enforceable claims (subject, as to
the enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors' rights, and,
with respect to
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the remedy of specific performance, equitable doctrines applicable thereto)
arising from bona fide transactions on the part of the Company and, to the
Company's Knowledge, bona fide transactions for parties other than the
Company in the Ordinary Course, and there are no claims, refusals to pay or
other rights of set-off (except as provided by law) against any thereof.
None of such accounts are pledged to any third party. The reserve for
doubtful accounts shown on the March 31, 1994 Balance Sheet is in
accordance with GAAP. Annex 4.16 contains an accurate aging of the
accounts, notes and other receivables of the Company and its Subsidiaries
at March 31, 1994.
4.17 Accounts and Notes Payable. All notes payable and all material
accounts payable by the Company to third parties as of the date hereof
arose, and as of the Closing Date will have arisen, in the Ordinary Course.
4.18 Orders, Commitments and Returns.
(a) To the Company's Knowledge, all accepted and unfulfilled
orders for the sale of Company Products entered into by the Company and all
outstanding material Contracts for the purchase of supplies and materials
were made in the Ordinary Course.
(b) To the Company's Best Knowledge (provided that no inquiry is
required to be made of Current Customers, retailers, or distributors),
there are no claims against the Company to return, or claims for refunds
due to delivery of defective or unsatisfactory Company Products, in excess
of an aggregate of Twenty-Five Thousand Dollars ($25,000), or of products
in the hands of Current Customers, retailers or distributors under an
understanding that such products would be returnable. The March 31, 1994
Balance Sheet includes provisions required under GAAP for any and all
returns, volume discounts and rebates based on volume purchases through
that date.
4.19 Defects in Products; Warranties. To the Company's Best
Knowledge, there are no defects in the Company Products heretofore or
currently being distributed or sold by the Company which would materially
adversely affect the performance and quality of such Company Products.
There are no express or implied warranties outstanding with respect to the
Company Products, except those imposed by federal and state laws. The
March 31, 1994 Balance Sheet includes reserves for returns or allowances
for defective products, services, and warranty claims required under GAAP
and such reserves constitute a reasonable estimate for such returns,
allowances and claims through that date.
4.20 Real Property.
(a) No Owned Real Property. The Company does not have and has
not had any fee or other direct or indirect ownership interest in any real
property.
(b) Leased Real Property Agreements. Annex 4.20(b) sets forth a
true and complete list of all Leased Real Property and a copy of all of the
agreements (as amended) to which the Company is a party, relating thereto
(the "Lease Agreements"). To the Company's Knowledge, all the Lease
Agreements are in full force and effect and are valid and enforceable
against the other parties thereto in accordance with their terms (subject,
as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting
creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto). None of the Lease Agreements is
in default by the Company or, to the Company's Knowledge, by other third
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parties thereto. There are no other agreements that concern right, title
or interest in and to the Leased Real Property or grant to a third party
the right to occupy the premises used in the Business, other than Permitted
Encumbrances. The Closing will not affect the rights to the continued use
and possession of the Leased Real Property on the terms and conditions
specified in the Lease Agreements for the purposes for which such property
is now used in the Business.
(c) Leases of Real Property to Others. To the Company's
Knowledge: (i) no Leased Real Property is subject to any lease or other
right of use of possession by any Person other than the Company, (ii) true
and complete copies of all leases or other agreements with other parties to
use or possess Leased Real Property have been delivered to Ceridian, (iii)
all such leases and agreements are in full force and effect, and are valid
and enforceable against such parties in accordance with their terms
(subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting
creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto), and (iv) none of such leases and
agreements is in default by the Company or by third parties thereto.
(d) Legal Proceedings Affecting Property. To the Company's
Knowledge, there is not: (i) any planned public improvement which will
result in any charge being levied or assessed against any Leased Real
Property or which would create any Encumbrance upon such property, (ii) any
condemnation proceeding with respect to any Leased Real Property, (iii) any
proposal by a tax authority to change materially the assessed value or
assessment rates of any Leased Real Property, or (iv) any other claim,
suit, proceeding, order or demand of any Governmental Entity or any persons
which could have a material adverse impact on the value, right to develop,
use or condition of any Leased Real Property.
(e) Utilities. All utilities necessary for the normal use and
operation of the Leased Real Property for the purposes for which they are
used by the Company are available at such property.
(f) Former Facilities. To the Company's Best Knowledge, Annex
4.20(f) lists each real property leased by the Company or its Subsidiaries
for the past ten years.
(g) Disputes. To the Company's Knowledge, no third party has
raised any material claim, dispute or controversy with respect to any of
the Lease Agreements.
4.21 Intentionally omitted.
4.22 Contracts.
(a) Annex 4.22(a)(i) contains a complete list of all Current
Customers of the Business. For purposes of this Agreement, "Current
Customer" means any Person from whom the Company has recognized revenue in
the past fifteen months or to whom the Company has any obligation to
complete work or honor any contractual warranty or has any obligation or
Liability. Annex 4.22(a)(ii) contains a list of all currently outstanding
but unaccepted material written proposals and a description of all material
oral proposals, to the extent such proposals are enforceable upon
acceptance by the offeree, except to the extent such written or oral
proposals would not have a Material Adverse Effect on the Company,
provided, however, such exception is inapplicable to the extent the written
or oral proposal would have a Material Adverse Effect on the Castle Project
described in Section 6.01. True and correct copies of all Contracts with
Current Customers of the Business have been provided to Ceridian.
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Since September 30, 1993, no Current Customers of the Business have
canceled or terminated their Contracts, or notified the Company, in writing
or, if orally to the Knowledge of a Company officer, of their specific
intent to cancel or terminate their contract, which would, individually or
in the aggregate, have a Material Adverse Effect on the Business Condition
of the Company.
(b) Annex 4.22(b) contains a complete list of all suppliers of
the Company who within the past 12 months have invoiced the Company for
Fifty Thousand Dollars ($50,000) or more, including a general description
of what is being supplied.
(c) Annex 4.22(c) sets forth a true and complete list of all
Contracts to which the Company is bound (which have not expired or been
terminated), or by which it or any of its material Assets is bound in any
material respect of the following types:
(i) Written employment agreements and any written offers of
employment outstanding.
(ii) Written Royalty agreements.
(iii) Written Consulting agreements for the provisions of
consulting services to the Company.
(iv) Joint venture or partnership agreements with any other
entity.
(v) Non-competition or similar agreements which prevent the
Company from competing with any Person.
(vi) Confidentiality or employee non-solicitation
agreements with any other Person.
(vii) Capitalized leases.
(ix) Any Contract, not listed in an Annex to this
Agreement, requiring the performance by the Company of any obligation for a
period of time extending more than one year from the date of this Agreement
or calling for the Company to pay a consideration or incur costs of more
than Fifty Thousand Dollars ($50,000).
Annex 4.22(c) is organized by the relevant subcategory described
above and sets forth, with respect to each Contract, the names of the
parties thereto, the date of the Contract, and all amendments or
modifications thereto.
(d) The Company has in all material respects performed, and is
now performing in all material respects, the obligations of, and the
Company is not in default (or to the Company's Knowledge, would by the
lapse of time or the giving of notice or both be in default) in respect of,
any Contract referred to in an Annex to this Section 4.22. To the
Company's Best Knowledge, each of the Contracts or other instruments shown
on an Annex referred to in this Section 4.22 is in full force and effect
and is a valid and enforceable obligation against the Company, and to the
Knowledge of the Company against the other party thereto in accordance with
its terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting
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creditors' rights, and, with respect to the remedy of specific performance,
equitable doctrines applicable thereto).
4.23 Litigation. There are no suits, claims, actions, arbitrations,
litigations, or legal, administrative or other proceedings (including
without limitation permit revocations, permit amendments, or administrative
complaints of discrimination) or governmental investigations, pending or to
the Company's Knowledge, threatened or unasserted but reasonably probable
of assertion affecting the Company, its Assets or the Business. Annex 4.23
sets forth, with respect to each such suit, claim, action, arbitration,
litigation, proceeding or investigation, the forum, the parties thereto,
the subject matter thereof, to the Company's Best Knowledge, the amount of
damages claimed or relief sought. There are no judicial or administrative
actions, proceedings or investigations pending or to the Company's
Knowledge threatened that question the validity of this Agreement or any
action taken or to be taken by the Company in connection with this
Agreement.
4.24 Compliance with Laws.
(a) To the Company's Best Knowledge, the operations and business
of the Company has been conducted, and is being conducted, in material
compliance with all material applicable Laws and the Company has not
received any notification that the Company is in violation of any Laws.
(b) To Company's Best Knowledge, Annex 4.24(b) hereto sets forth
a true and complete list of all material governmental approvals, permits,
licenses, certifications or other authorizations required of the Company to
conduct the Business as presently conducted. All material approvals,
permits, licenses, certifications or other authorizations necessary to
conduct the Business as presently conducted have been obtained except for
such approvals, permits, licenses, certificates or other authorizations the
absence of which, either individually or in the aggregate, would not have a
Material Adverse Effect.
(c) There are no judgments, orders, injunctions, decrees,
stipulations, awards (whether rendered by a Governmental Entity or by
arbitration) or private settlement agreements involving litigation or
threatened litigation involving the Company or against any of its Assets.
All of the foregoing set forth in Annex 4.24(c) are being complied with in
all material respects.
4.25 Computer Software and Intellectual Property.
(a) Company Software Products. Annex 4.25(a) contains a
complete list of all Company Software Products.
(b) Third Party Software. Annex 4.25(b) contains a complete
list of all Third Party Software, and all corresponding license agreements
(including title of agreement, effective date, and names of all parties
thereto) under which any rights to use or distribute Third Party Software
have been granted to Company other than license agreements included in
shrink-wrapped software packages. Company has delivered to Ceridian
complete copies of all such license agreements.
(c) Service Bureau Customers. Annex 4.25(c) contains a list of
all license agreements (including title of agreement, effective date, and
names of all parties thereto) under which Company has granted any rights to
any customer of Company authorizing use of any Company Software Product
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in any manner other than use for the customer's own internal business
operations. Company has delivered to Ceridian complete copies of all such
license agreements.
(d) Source Code Escrow. Annex 4.25(d) contains a list of all
agreements (including title of agreement, effective date, and names of all
parties thereto) under which Company has delivered source code for any
Company Software Product to be held in escrow and released upon the
occurrence of certain events or conditions. Company has delivered to
Ceridian complete copies of all such source code escrow agreements.
(e) Certain Intellectual Property Rights. Annex 4.25(e)
contains a complete list of the following items included in the
Intellectual Property Rights: (1) United States and foreign patents and
patent applications; (2) copyrights in computer programs and other works of
authorship which are registered with any Governmental Entity, or for which
registration applications have been filed; and (3) United States and
foreign trademarks, service marks and trade names, and all registrations or
applications for registration of any such marks or names.
(f) Disclosures.
(i) Company has the exclusive and unrestricted right in the
United States and Canada (and to the Company's Knowledge throughout the
world), to possess, use, modify, and prepare derivative works based on,
manufacture, reproduce, license, sell, distribute and dispose of all
Company Software Products and Intellectual Property Rights, free and clear
of all encumbrances and rights of third parties (other than those license
rights that have been granted by Company to its customers in accordance
with the customer Contracts listed on Annex 4.22(a)(i); to the Company's
Knowledge, has valid and enforceable rights in each of its Intellectual
Property Rights; has the exclusive right to bring actions for the
infringement of, and has taken all necessary actions (in the reasonable
opinion of Company) to perfect or protect its interest in all Intellectual
Property Rights, free and clear of all encumbrances; and has received no
claim that any Company Software Product or any Intellectual Property Right
is in whole or in part invalid, unenforceable, ineffective or in violation
of the rights of others.
(ii) There is no pending claim or litigation and to the
Company's Knowledge, there is no threatened claim or litigation,
contesting the right to use, sell, license or dispose of any Company
Software Product or Intellectual Property Right, nor is there any fact or
alleged fact which would reasonably serve as a basis for any such claim
that could materially limit the protection afforded by the Intellectual
Property Rights to the use, sale, license, or disposition of the Company
Software Products.
(iii) Each Person who participated in the creation of the
Company's Software Products either has executed an assignment of rights of
ownership to the Company or was an employee of the Company acting within
the scope of his or her employment at the time of such creation.
(iv) The Company is in material compliance with the terms
and conditions of all license agreements governing the use of Third Party
Software.
(v) All Third Party Software used by the Company for its
internal business operations (including product development and testing) is
licensed for use only on computer equipment
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located at Company's sites or on computers under control of Company
employees or independent contractors.
(vi) The Company has taken all reasonable steps to
safeguard and maintain the secrecy and confidentiality of all trade secrets
and proprietary or confidential business and technical information included
in the Intellectual Property Rights, including, without limitation,
entering into appropriate confidentiality or disclosure agreements with all
employees, officers, directors, consultants, independent contractors and
licensees that serve Company, the forms of which have been delivered to
Ceridian.
(vii) All documents and materials containing trade secrets
or proprietary or confidential business or technical information of Company
(including without limitation unpublished source code for the Company
Software Products) are presently and as of the Closing Date will be located
at one of the premises identified as Leased Real Property in Annex 4.20(b),
and as applicable, at escrow agents' sites listed on Annex 4.25(f)(vii),
and have not been used, divulged, or appropriated for the benefit of any
Person other than Company, or to the detriment of Company.
(viii) To the Company's Knowledge, no third party is
infringing on any Intellectual Property Right in a manner that could
materially limit the protection afforded by the Intellectual Property
Rights to the use, sale, license or disposition of the Company Software
Products.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not breach, violate or conflict with any material instrument or material
agreement governing any Intellectual Property Right, will not cause the
forfeiture or termination or give rise to a right of forfeiture or
termination of any Intellectual Property Right or in any way materially
impair the right of Company to use, sell, license or dispose of or bring
any action for the infringement of, any Intellectual Property Right or any
Company Software Product.
4.26 No Subsidiaries. The Company has no Subsidiaries. The Company
has never had any Subsidiaries in the prior six years. Annex 4.26 lists,
for each prior Company Subsidiary, the name of the Subsidiary, the state of
incorporation, and the date of dissolution or sale of the Subsidiary.
4.27 Environmental Matters.
(a) To the Company's Knowledge, there are no underground storage
tanks present on any Company Facility.
(b) Annex 4.27(b) accurately describes all of the Environmental
Permits currently held by the Company and the Environmental Permits listed
on Annex 4.27(b) are to the Company's Knowledge, all of the material
Environmental Permits necessary for the continued conduct of any Hazardous
Material Activity of the Company as such activities are currently being
conducted. To the Company's Knowledge, the Company and its Subsidiaries
have complied in all material respects with all covenants and conditions of
any Environmental Permit that is or has been in force with respect to their
Hazardous Materials Activities. To the Company's Knowledge, all
Environmental Permits and all other consents and clearances required by any
Environmental Law have been obtained (other than Environmental Permits,
consents and clearances which, if not obtained, would not result in a
Material Adverse Effect), are valid, and in full force and effect.
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(c) To the Company's Knowledge, the Company and its Subsidiaries
have transferred Hazardous Materials only to those Disposal Sites described
on Annex 4.27(c). To the Company's Knowledge, no action, proceeding,
liability or claim exists or is threatened against the Company or its
Subsidiaries with respect to any transfer of Hazardous Materials from the
Company and its subsidiaries to a Disposal Site.
(d) Company has delivered to Ceridian or made available for
inspection by Ceridian all environmental audits and environmental
assessments of any Company Facility conducted at the request of, or in the
possession of Company.
(e) To Company's Knowledge, all operations and facilities of the
Company are and have been in material compliance with all Environmental
Laws, and there is no contamination or violation of any Environmental Law
which could have a Material Adverse Effect on the Company.
(f) To the Company's Knowledge, neither the Company nor any of
its Subsidiaries is liable for any investigation, remediation or removal
of Hazardous Materials from any Disposal Site, including from the Company's
Facilities or any other sites to which Hazardous Materials have been
delivered by the Company, its Subsidiaries, or any other Person who has
received directly or indirectly any Hazardous Material from the Company or
any of its Subsidiaries.
(g) To the Company's Knowledge, no action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or threatened, concerning or relating to any Environmental Permit
or any Hazardous Materials Activity of the Company at any Company Facility.
4.28 Employee Plans and Arrangements.
(a) Neither the Company nor any Related Party sponsors,
maintains, administers, contributes to or has or could reasonably be
expected to have any Liability with respect to any ERISA Benefit Plan other
than an ERISA Benefit Plan specifically listed on Annex 4.28(a) (a "Company
ERISA Benefit Plan"). No Company ERISA Benefit Plan is subject to Code
Section 412 or Part 3 of Subtitle B of Title I of ERISA or Title IV of
ERISA. Neither the Company nor any Related Party has or could reasonably
be expected to have any Liability to any Person in connection with any
"voluntary employees' beneficiary association" within the meaning of Code
Section 501(c)(9), "welfare benefit fund" within the meaning of Code
Section 419, "qualified asset account" within the meaning of Code Section
419A or "multiple employer welfare arrangement" within the meaning of ERISA
Section 3(40).
(b) Neither Company nor any Related Party sponsors, maintains,
administers, contributes to, is a party to or has or could reasonably be
expected to have any Liability with respect to (i) any Non-ERISA Benefit
Arrangement (a "Company Non-ERISA Benefit Arrangement"), or (ii) any
employment agreement, collective bargaining agreement, consulting
agreement, confidentiality agreement, agreement not to compete or other
labor agreement between the Company or a Related Party and any individual
who provides or provided personal services to the Company or a Related
Party as an employee or otherwise or such individual's employer or agent.
(c) True and complete copies of each of the following documents
have been delivered or made available to Ceridian: (i) each Company Non-
ERISA Benefit Arrangement or, an accurate description of any Non-ERISA
Benefit Arrangement that is not in writing and an accurate description
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of the individuals covered by each such arrangement; (ii) all written
documents of any nature establishing the terms and conditions of each
Employee Agreement or an accurate description of any Employee Agreement
that is not in writing; (iii) all written documents of any nature
establishing the terms and conditions of each Company ERISA Benefit plan
and related trust or insurance agreements or contracts evidencing any
funding vehicle with respect thereto; (iv) the three most recent annual
reports on Treasury Form 5500, including all schedules and attachments,
with respect to any plan for which such a report is required; (v) the form
of summary plan description, including any summary of material
modifications thereto or other modifications communicated to participants;
and (vi) the most recent determination letter with respect to each Company
ERISA Benefit Plan intended to qualify under Section 401(a) of the Code and
the full and complete application therefor submitted to the Internal
Revenue Service.
(d) Each Company ERISA Benefit Plan and Company Non-ERISA
Benefit Arrangement and Employee Agreement is and has been maintained and
administered in compliance in all material respects with the documents or
instruments governing the Plan, Arrangement or Agreement (or in accordance
in all material respects with the written descriptions thereof provided in
Annex 4.28(d) in the case of an unwritten Company Non-ERISA Benefit
Arrangement or Employee Agreement), except in the case of any change in
applicable governing Laws that are not yet required to be incorporated into
the instruments or documents governing the Plan, Arrangement or Agreement,
in which case the Plan, Arrangement or Agreement has in operation been
maintained and administered in accordance in all material respects with
applicable Laws at all times on and after the effective date of such
change. Each Company ERISA Benefit Plan that is intended to be qualified
under Code Section 401(a) is and has at all times been so qualified in form
and operation.
(e) There are no facts or circumstances relating to any ERISA
Benefit Plan or Company Non-ERISA Benefit Arrangement that could, directly
or indirectly, subject Company or any Related Party to (i) any excise tax
or other liability under Chapters 43 or 47 of Subtitle D of the Code, (ii)
any penalty, tax or other liability under Code Sections 6651, 6652 and 6690
or (iii) any civil penalty or other liability under Section 502(c) of
ERISA.
(f) No payment made or benefit provided pursuant to any Company
ERISA Benefit Plan, Company Non-ERISA Benefit Arrangement or Employee
Agreement will be nondeductible to the Company or any Related Party because
of the applicability of Code Section 280G, nor will the Company or any
Related Party be required to gross up or otherwise compensate any recipient
in connection with the imposition of any excise tax (including any interest
or penalties related thereto) pursuant to Code Section 4999. Neither the
Company nor any Related Party will incur any Liability in connection with
severance benefits which become payable solely by reason of the
Transaction. The Transaction will not result in the acceleration of
accruals, funding, vesting or payment of any contribution or benefit under
any Company ERISA Benefit Plan, Company Non-ERISA Benefit Arrangement or
Employee Agreement.
(g) Other than as required by COBRA, Company does not maintain
or provide nor is it obligated to maintain or provide post-retirement or
post-termination health, medical, life or other welfare benefits for
employees or former employees of the Company. No promise, or other
commitment exists that would prevent Ceridian or the Company from amending
or terminating any arrangement providing health, medical, life, or other
welfare benefits in respect of any current or former employee of the
Company without liability therefor. Except as set forth in the applicable
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government instruments, neither Company nor any other Person has created
any impediment to the amendment, termination, merger of or transfer of
assets and liabilities with respect to any Company ERISA Benefit Plan,
Company Non-ERISA Benefit Arrangement or Employee Agreement.
(h) All contributions or benefit obligations in connection with
any ERISA Benefit Plan, Company Non-ERISA Benefit Arrangement or Employee
Agreement have been fully paid or properly accrued in accordance with GAAP
in the Financial Statements of the Company. All obligations to provide
medical, dental, vision, life, accidental death and dismemberment or long-
term disability benefits pursuant to any Company ERISA Benefit Plan,
Company Non-ERISA Benefit Arrangement or Employee Agreement are either
fully insured (except for amounts not covered by reason of co-payments,
deductibles, participant contributions or similar allowances) or will be
provided by an HMO with respect to which the Company's sole Liability is to
pay premiums.
(i) There are no pending or, to Company's Knowledge, threatened
audits or investigations by any Governmental Entity, claims (other than
undisputed claims for benefits arising in the ordinary course), suits,
grievances or other proceedings, and there are, to the Company's Knowledge,
no facts or circumstances that could give rise thereto, involving, directly
or indirectly, any Company ERISA Benefit Plan, Company Non-ERISA Benefit
Arrangement, or Employment Agreement.
(j) Each stock option granted by the Company that was intended
to be an "incentive stock option" satisfied the requirements of Code
Section 422. Each stock option granted by the Company that was intended to
be a non-qualified stock option subject to the provisions of Code Section
83 was granted in connection with the performance of services for the
Company by the individual to whom the option was granted. All outstanding
options which are unexercised at the time of the Transaction may be
canceled by the Company or Acquisition Sub without any Liability to any
Person.
(k) Notwithstanding any other provision of this Agreement, the
representations and warranties given by the Company in this Section 4.28 do
not apply to any ERISA Benefit Plan or non-ERISA Benefit Arrangement
sponsored, administered, or maintained by Prudential at any time whether or
not on behalf of employees of the Company or any Related Party.
4.29 Employees.
(a) Company never had and does not currently have any employees
represented by collective bargaining agents.
(b) The Company has complied in all material respects with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours. The Company does not have
and could not be reasonably expected to have any material Liability to any
former employee or individual who provided services to the Company in a
capacity other than as an employee other than Liability arising under the
express terms of a Company ERISA Benefit Plan, Company Non-ERISA Benefit
Arrangement or Employee Agreement.
(c) There is no strike, labor dispute, work slowdown or work
stoppage actually pending or threatened, against the Company or any of its
key subcontractors or suppliers. No collective bargaining representation
petition is pending or threatened against the Company.
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(d) As of the Closing Date, the Company will have paid or
reserved on its books obligations for vacation pay, severance pay, layoff
or termination benefits required by GAAP to be reserved immediately prior
to the Closing Date including, but not limited to, by reason of any action
taken under this Agreement.
(e) All employees of the Business (except employees of temporary
employment services, and self-employed independent contractors) are
employees of the Company.
(f) Annex 4.29(f) lists the names, titles, date of employment,
current base compensation rates, and estimated vacation and sick time
accrued for each employee of the Company as of a recent date, and the
amount of bonuses paid during the most recent full fiscal year to each
employee.
4.30 Compensation Plans. The Company is not a party, nor is it
subject to any plan, contract or understanding providing for any
nondeferred cash compensation in the form of bonuses, commissions, or
similar obligations of any kind, including any incentive compensation,
bonus, retention bonus, sale bonus, or similar obligations relating to the
Transaction, and complete and accurate copies of all such plans, contracts,
and understandings, or complete written descriptions of any such plan,
contract, or understanding that is not in writing have been provided to
Ceridian.
4.31 All Compensation and Benefit Data Accurate. All written
information furnished by Company to Ceridian with respect to Company ERISA
Benefit Plans, Company Non-ERISA Benefit Arrangements, and Employee
Agreements is accurate and complete in all material respects.
4.32 Insurance. Annex 4.32 contains a true and complete list of all
casualty, liability, business interruption and other insurance policies
held by the Company. All such policies are in full force and effect and
the Company has not received any notice that the insurers intend to
terminate or materially increase the premiums payable under any of such
policies.
4.33 Taxes.
(a) (i) All Company Tax Returns have been properly and timely
filed and Taxes shown thereon as due have been timely paid.
(ii) There is no (nor is there any pending request for an)
agreement, waiver or consent providing for an extension of time with
respect to the assessment or collection of, or statute of limitations
regarding, any Taxes or the filing of any Tax Returns that is currently in
effect and no power of attorney granted by or with respect to Company with
respect to any Tax matter is currently in force.
(iii) There is no pending audit, examination or
investigation with respect to any Company Tax Returns, nor is there pending
any notice of the initiation thereof been received; there is no action,
suit, proceeding (administrative or court), claim, demand, deficiency or
additional assessment pending, or threatened with respect to any Company
Tax Returns.
(iv) The Company has not agreed, requested, or been
requested to make, and is not required to make, any adjustment to taxable
income for any taxable period after the Closing under Sections 481(a) or
263A of the Code or any comparable provision of state or foreign tax laws
by reason of a change in accounting method or otherwise.
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(v) There are no Encumbrances on any Asset or property of
Company arising out of, connected with, or related to any Company Tax
(other than for any Company Tax that is delinquent). Company has complied
(and until closing will comply) with all applicable Laws relating to the
withholding of Taxes and the payment of withheld Taxes to the applicable
Governmental Entity.
(vi) The Company is not a party to, is not bound by, and
has no obligation (or potential obligation) under any Tax Agreement.
(vii) Company is not a party to any agreement with an
Affiliate relating to a foreign sales corporation or "FSC" within the
meaning of Section 922 of the Code; or a domestic international sales
corporation or "DISC" within the meaning of Section 992 of the Code.
(viii) All Tax years (or periods) with respect to the
Federal income tax liabilities of Company, and its Assets or operations are
closed.
(ix) Other than the elections made in the Tax Returns
provided to or made available to Ceridian, no agreement, consent, or
election for foreign, Federal, state or local tax purposes which would
affect or be binding on the Company after the Closing has been filed or
entered into by the Company. No consent has been filed with respect to
the Company under Section 341(f) of the Code.
(b) There have been (or there will be) provided to or made
available for inspection by Ceridian true and complete copies of all
Company Tax Returns and related work papers and all revenue agent (or
other) reports, deficiency notices, protests, assessments, agreements,
certificates and all other items relating to Company Taxes which have not
been finally determined by operation of law, agreement or otherwise.
(c) Notwithstanding any other provision of this Agreement, the
representations and warranties given by the Company in this Section 4.33 do
not apply to any Taxes for which Prudential has indemnified the Company
pursuant to the Tesseract Corporation Investor Rights Agreement dated March
12, 1993 among Company, TILP, and Prudential.
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4.34 Bank Accounts. Annex 4.34 sets forth a true and complete list of
all of the (a) names and locations of all banks, trust companies, savings
and loan associations, brokerage firms, and other financial institutions at
which the Company maintains accounts of any nature, lock boxes, or safety
deposit boxes, and the names of all persons authorized to draw thereon or
make withdrawals therefrom and (b) the account number for each account
identified in clause (a).
4.35 Intentionally omitted.
4.36 Insider Transactions. To the Company's Best Knowledge, no
director or officer of the Company or any associate (as such term is
defined under Rule 12b-2 of the Securities Exchange Act) has any material
interest in any Asset used in connection with or pertaining to the
Business.
4.37 Powers of Attorney, Guarantees, Suretyships.
(a) The Company has not granted, and there are not outstanding,
any general or special powers of attorney or comparable delegations of
authority, which would be binding upon Ceridian, Acquisition Sub or the
Company or any of their respective Assets, after the Closing.
(b) The Company has no Liability as guarantor, surety, co-
signer, endorser, co-maker, indemnitor, or obligor in respect of the
obligation, indebtedness or potential Liability of any Person.
4.38 No Brokerage or Other Fees. Except for Salomon Brothers, no
broker, finder, or financial advisor has acted for the Company in
connection with this Agreement or the Transactions contemplated hereby, and
no Person is entitled to any brokerage or finder fee or commission from the
Company in respect to this Agreement or any such Transaction.
4.39 Disclosure. No representation or warranty by the Company in this
Agreement or Exhibits, Schedules and Annexes attached hereto when read
together and taken as a whole, contains any untrue statement of material
fact or omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which
they were made, false or misleading.
4.40 Intentionally Omitted.
4.41 No Information Contrary. To the Company's Knowledge, no
inaccuracy exists in Article V.
4.42 Vote Required by Merger. Annex 4.42 contains a list of the
series and classes of the Company's stock together with the percentage of
affirmative votes required from each series and class to approve the
Transaction.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CERIDIAN AND ACQUISITION SUB
Ceridian and Acquisition Sub hereby represent and warrant to the
Company that the following statements are true and correct.
5.01 Organization and Good Standing of Ceridian and Acquisition Sub.
Each of Ceridian and Acquisition Sub:
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation;
(b) has all requisite power and authority to carry on its
business as it is now being conducted and to own all its material
properties and assets and the governmental authorizations necessary for it
to own or lease its properties and assets and to carry on its business as
it is now being conducted, except for such powers and authorizations the
absence of which either individually or in the aggregate would not have a
Material Adverse Effect on Ceridian, in the case of Ceridian, or
Acquisition Sub, in the case of Acquisition Sub; and
(c) is qualified to do business and in good standing in each
state and jurisdiction where such qualification is required, except in
those states where the failure to be so qualified would not have a Material
Adverse Effect on Ceridian, in the case of Ceridian, or Acquisition Sub, in
the case of Acquisition Sub.
5.02 Authority, Validity of Agreement. Each of Ceridian and
Acquisition Sub have all requisite corporate power and authority to enter
into this Agreement and to perform the obligations hereunder and to
consummate the Transaction. The execution and delivery of this Agreement
and the consummation of the Transaction have been duly authorized by all
necessary action on the part of Ceridian and Acquisition Sub and no other
approval is required for the performance by Ceridian or Acquisition Sub of
their respective obligations hereunder. This Agreement has been duly
executed and delivered by Ceridian and Acquisition Sub. This Agreement
constitutes a valid and binding obligation of Ceridian and Acquisition Sub,
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting creditors' rights, and with respect to the
remedy of specific performance, equitable doctrines applicable thereto).
5.03 Consents and Approvals of Governmental Authorities. Except as
contemplated by the Merger, and required by HSR, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required with respect to Ceridian or Acquisition Sub
in connection with the execution delivery and performance of this Agreement
or the consummation by Ceridian and Acquisition Sub of the Transaction.
5.04 Other Consents. No consent, waiver or approval of, or notice to,
any third party is required or necessary to be obtained by Ceridian or
Acquisition Sub in connection with the execution and delivery of this
Agreement and the performance of Ceridian's or Acquisition Sub's
obligations hereunder.
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5.05 No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions
contemplated hereby or thereby will not, constitute (i) a breach or
violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of it or its subsidiaries or to which it or its
subsidiaries (or any of their respective properties) is subject, which
breach, violation or default would have a Material Adverse Effect on it, or
enable any person to enjoin the Merger or (ii) a breach or violation of, or
a default under, the certificate or articles of incorporation or by-laws of
it or any of its Significant Subsidiaries.
5.06 Board Approval. The Board of Directors of Ceridian or a duly
authorized Committee thereof, has duly authorized the Agreement and has
duly authorized its execution and delivery.
5.07 No Brokerage Fees. No broker, finder, or financial advisor has
acted for Ceridian in connection with this Agreement or the Transactions
contemplated hereby, and no Person is entitled to any brokerage or finder
fee or commission from Ceridian with respect to this Agreement or any such
Transaction.
5.08 No Information Contrary. To Ceridian's Knowledge, no inaccuracy
exists in Article IV.
ARTICLE VI
CASTLE PROJECT
6.01 Performance of Work Under Castle Project. The parties agree
that, as of execution of this Agreement, Company shall immediately use its
best efforts to diligently perform the Company activities in the Castle
Project described in the Annex 6.01; provided, however, that Ceridian has
executed the Company's standard form license agreement (for One Dollar
($1.00) consideration) for the products to be used for the Castle Project,
which license agreement shall expire upon the earlier of the termination of
this Agreement or Closing Date. If this Agreement should be terminated
other than pursuant to Section 10.01(d), Ceridian agrees to reimburse
Company for its customary hourly charges for time expended plus out-of-
pocket expenses incurred pursuant to this Section from the execution of
this Agreement through termination.
ARTICLE VII
OBLIGATIONS PRIOR TO CLOSING
7.01 Covenants and Agreements of Company. Company covenants and
agrees as follows:
(a) Conduct of Company. From the date hereof until the Closing,
Company shall: (1) operate the Business in the Ordinary Course (except as
provided in this Agreement) in the continuing best interest of Company;
(2) maintain, in accordance with past practices, its properties and
equipment in good repair, working order and condition (except for ordinary
wear and tear); (3) use all reasonable efforts to preserve its work force
and the present goodwill and relationships between Company and its
principals, agents, lessors, licensors, licensees, suppliers, customers and
others having business relationships with Company; (4) use its reasonable
efforts to keep in full force and
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effect insurance relating to the Business at least comparable in amount and
scope of coverage to that now maintained; (5) maintain its books and
records in the Ordinary Course and; (6) replace equipment as necessary to
maintain the proper operation of the Business (provided however, that
capital expenditures in excess of the limits identified in Section 4.11(k)
shall be made only with the consent of Acquisition Sub).
(b) Negative Covenants. From the date hereof until the Closing,
Company shall not (except as provided in this Agreement) undertake any
transactions out of the Ordinary Course or which would, individually or in
the aggregate, have a Material Adverse Effect on the Business.
(c) Investigation. Upon reasonable notice, at reasonable hours,
and on reasonable terms, Ceridian and its counsel, accountants, and other
representatives may, prior to the Closing, make or cause to be made such
investigation of the business and condition of Company and the Business as
Ceridian deems reasonably necessary or advisable and Company shall fully
cooperate with such investigation, including, without limitation,
permitting Ceridian and its authorized representatives to have access to
all of the premises, books and records, accounts, financial statements,
Contracts, and other commitments of the Business, and such other material
as may be requested by Ceridian, relating to the operation of the Business.
Company shall cause the officers and representatives of Company to furnish
Ceridian with originals or copies of all the foregoing records, documents,
information and data and to cooperate with and assist Ceridian in compiling
and reviewing the foregoing.
(d) No Solicitation or Negotiation. Until such time as this
Agreement may be terminated pursuant to Article X hereof, Company shall
not, directly or indirectly, (1) solicit, facilitate, initiate or engage in
negotiations with or encourage the submission of a proposal by any Person
concerning the sale of Company, the Business, or substantial Assets outside
the Ordinary Course, or (2) supply any confidential information concerning
the Business to any such Person.
7.02 Consents. Company shall use its reasonable efforts to obtain on
or before the Closing all consents, approvals or waivers from other parties
to any Contract or other instrument or document where failure to so obtain
would have a Material Adverse Effect on the Business and that is necessary
to perform the obligations set forth in this Agreement to consummate the
Transaction, or to make the representations and warranties set forth in
Article IV hereof true and correct in all material respects. Ceridian and
Acquisition Sub shall use their reasonable efforts to obtain on or before
the Closing all consents, approvals or waivers necessary to perform their
obligations set forth in this Agreement to consummate the Transaction, or
to make the representations and warranties set forth in Article V hereof
true and correct in all material respects.
7.03 Regulatory Filings. If not filed prior to the execution of this
Agreement, Company and Acquisition Sub shall each comply promptly with the
notice and reporting requirements of the HSR Act or similar laws of any
jurisdiction with respect to the Transaction, and shall comply
substantially with any additional requests for information, including
requests for production of documents and production of witnesses for
interviews or depositions by the Antitrust Division of the United States
Department of Justice or the Federal Trade Commission or similar
administrative agencies of any jurisdiction (the ``
Antitrust
Authorities''
). Acquisition Sub and Company shall each use their best
efforts and shall cooperate with and assist the other in the diligent
prosecution of such application, including using their best efforts to
satisfy or remove any initial objections to the Transaction, from the
28
<PAGE>
Antitrust Authorities so that applicable waiting periods will be terminated
or allowed to expire without objection.
7.04 Satisfaction of Conditions. Each party shall use its respective
best efforts and cooperate with the other in good faith to the extent
reasonably required in order to satisfy the conditions set forth in
Article VIII and to fully accomplish the Transaction in an expeditious
fashion. No party shall take or fail to take any action within such
party's reasonable control, the effect of which would be to prevent or
unreasonably delay the satisfaction of any condition to its or the other
party's obligations contained in Article VIII or the consummation of this
Agreement in accordance with its terms.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 Conditions Precedent to the Obligation of Company. The
obligation of Company to complete the Transaction is subject to the
satisfaction (or waiver by Company) of all of the following conditions:
(a) Representations and Warranties. The representations and
warranties contained in Article V shall be true and correct in all respects
as of and at the Closing Date with the same effect as though made on the
Closing Date unless the consequence of the failure of the representations
and warranties to be true and correct, individually or in the aggregate,
does not have a Material Adverse Effect on Ceridian.
(b) Performance of the Covenants. Ceridian and Acquisition Sub
shall have performed or complied in all respects with all agreements and
covenants required by this Agreement to be performed by it prior to or on
the Closing Date unless the consequence of the failure to conform or comply
with any agreement or covenant, individually or in the aggregate, does not
have a Material Adverse Effect on Ceridian.
(c) Delivery of Required Items. Ceridian and Acquisition Sub
shall have delivered the items specified in Section 9.03.
(d) Governmental Matters. No statute, ordinance or regulation,
or order or injunction of any court or administrative agency of competent
jurisdiction shall be in effect that restrains or prohibits the parties
hereto from carrying out the Transaction and all applicable waiting periods
under the HSR Act shall have expired without objection to the Transaction
by the Government Entity having jurisdiction.
(e) No Litigation Pending or Threatened. There shall be no
action or proceeding pending or threatened (except actions or proceedings
with no reasonable likelihood of significance to the Transaction) by or
before any court or governmental authority challenging the Transaction or
any transaction related thereto or seeking to restrain, prevent, or change
the Transaction or seeking damages in conjunction with, or by reason of,
the Transaction.
(f) No Material Adverse Effect. No event or events shall have
taken place after the signing of this Agreement which, individually or in
the aggregate, have a Material Adverse Effect on the Business Condition of
Ceridian.
29
<PAGE>
(g) The consents, waivers, or approvals described in Section
7.02 to be obtained by Ceridian and Acquisition Sub shall have been
obtained.
(h) Approval of Company Shareholders. The shareholders of
Company shall have approved the Transaction, this Agreement and the Plan of
Merger as required by applicable law and the Company's Articles of
Incorporation and Bylaws.
8.02 Conditions Precedent to the Obligation of Ceridian and
Acquisition Sub. The obligation of Ceridian and Acquisition Sub to
complete the Transaction is subject to the satisfaction (or waiver by
Ceridian and Acquisition Sub) of all the following conditions:
(a) Representations and Warranties. The representations and
warranties contained in Article IV shall be true and correct in all
respects as of and at the Closing Date with the same effect as though made
on the Closing Date unless the consequence of the failure of the
representations and warranties to be true and correct, individually or in
the aggregate, does not have a Material Adverse Effect on the Company.
(b) Performance of Covenants. The Company shall have performed
or complied in all respects with all agreements and covenants required by
this Agreement to be performed by them prior to or on the Closing Date
unless the consequence of the failure to conform or comply with any
agreement or covenant, individually or in the aggregate, does not have a
Material Adverse Effect on the Company.
(c) Delivery of Required Items. Company shall have delivered to
Ceridian at the Closing the items described in Section 9.02.
(d) Governmental Matters. No statute, ordinance or regulation,
or order or injunction of any court or Governmental agency of competent
jurisdiction shall be in effect which restrains or prohibits the parties
hereto from carrying out the Transaction and all applicable waiting periods
under the HSR Act shall have expired without objection to the Transaction
by the Government Entity having jurisdiction.
(e) No Litigation Pending or Threatened. There shall be no
action or proceeding pending or threatened (except actions or proceedings
with no reasonable likelihood of significance to the Transaction) by or
before any court or governmental authority challenging the Transaction or
any transaction related thereto or seeking to restrain, prevent, or change
the Transaction or seeking damages in conjunction with, or by reason of,
the Transaction.
(f) No Material Adverse Effect. No event or events shall have
taken place after the signing of this Agreement which, individually or in
the aggregate, have a Material Adverse Effect on the Business Condition of
Company or except for such event or events described on the Schedules and
Annexes hereto.
(g) Consents. The consents, approvals or waivers described in
Section 7.02 to be obtained by Company shall have been obtained.
(h) Employment Agreements. The Company shall have delivered the
executed originals of the Employee Agreeements identified in Section 1.22
30
<PAGE>
(i) Company Shareholder Approval. The Company's shareholders
shall have approved the Transaction, this Agreement and the Plan of Merger
as required by applicable law and the Company's Articles of Incorporation
and Bylaws.
ARTICLE IX
THE CLOSING
9.01 Time and Place, Effective Date. The Closing shall take place at
9:00 a.m. local time on the Closing Date at the offices of McCutchen,
Doyle, Brown & Enersen, Three Embarcadero Center, San Francisco, CA, or
such other time, date or place as the parties may agree. All actions taken
at the Closing shall be deemed to occur simultaneously.
9.02 Company's Obligations at Closing. At Closing, Company shall
execute and/or deliver to Ceridian, against execution and/or delivery by
Ceridian of the items specified in Section 9.03:
(a) a certificate of an executive officer of the Company
certifying that the representations and warranties of the Company are true
and correct in all material respects as of the Closing Date and that
Company has performed or complied in all material respects with the
obligations required to be performed by it prior to or on the Closing Date;
(b) certified copies of resolutions of the Board of Directors of
Company authorizing the Transaction and approving this Agreement and the
Merger;
(c) certified copies of action by the shareholders of the
Company certifying the authorization of the Transaction and approving this
Agreement and the Merger;
(d) the minute books and stock transfer books of Company;
(e) the Plan of Merger, in substantially the form attached
hereto as Exhibit A, together with a certificate executed by an officer of
Company to be filed with the Plan of Merger;
(f) the executed originals of the Employment Agreements attached
as copies hereto as Exhibits B1, B2, B3, B4, B5, B6 and B7;
(g) resignations from each of Company's directors and officers,
from those positions, effective as of the Closing Date;
(h) all other certificates, Schedules, Exhibits, Annexes and
attachments, in completed form, which are required by the provisions of
this Agreement;
(i) legal opinion of Gibson, Dunn & Crutcher, counsel to
Company, in substantially the form attached hereto as Exhibit C.
9.03 Ceridian's Obligations at Closing. At the Closing, Ceridian and
Acquisition Sub shall execute and/or deliver to the Company, against
execution and/or delivery by the Company of the items specified in Section
9.03:
31
<PAGE>
(a) the certificate of an executive officer of Ceridian
certifying that the representations and warranties of Ceridian are true and
correct in all material respects as of the Closing Date and that Ceridian
has performed or complied in all material respects with the obligations
required to be performed by Ceridian prior to or on the Closing Date;
(b) certified copies of resolutions of the Executive Committee
of the Board of Directors of Ceridian authorizing the Transaction and
approving this Agreement and the Merger;
(c) certified copies of joint resolutions of the Board of
Directors and the sole Shareholder of Acquisition Sub authorizing the
Transaction and approving this Agreement and the Merger;
(d) the Merger Consideration, for delivery to the Transfer
Agent;
(e) the Plan of Merger, together with a certificate executed by
an officer of Acquisition Sub to be filed with the Plan of Merger;
(f) all other certificates, Schedules, Exhibits, and
attachments, in completed form, which are required by the provisions of
this Agreement; and
(g) legal opinion of A. Reid Shaw, counsel to Ceridian, in
substantially the form attached hereto as Exhibit D.
9.04 Instruments. All instruments delivered at Closing shall be dated
as of the Closing Date and shall be reasonably satisfactory to the party
receiving the benefit thereof.
ARTICLE X
TERMINATION
10.01 Termination. This Agreement, the Merger and the Transaction
contemplated hereby may be terminated:
(a) by mutual consent of Ceridian and Company at any time;
(b) by either Ceridian or Company if the Closing has not
occurred on or before August 31, 1994;
(c) by either Ceridian or the Company, if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and such order, decree, ruling or other action shall
have become final and nonappealable;
(d) by Ceridian if there has been a material breach on the part
of Company in the representations, warranties or covenants of Company in
this Agreement;
(e) by Company if there has been a material breach by Ceridian
in the representations, warranties or covenants of Ceridian in this
Agreement.
32
<PAGE>
10.02 Effect of Termination. If this Agreement is terminated
pursuant to Sections 10.01(a), 10.01(b), or 10.01(c), this Agreement shall
terminate and be of no further force and effect and neither Ceridian, nor
Company, nor any of their Affiliates, nor any of their respective
directors, officers, or employees, shall have any liability to any of the
others except that Sections 10.03, 10.04, and Article XIII shall survive
any such termination; provided, however that a termination by the non-
breaching party under Section 10.01(d) or 10.01(e) shall not relieve the
breaching party for any breach of or failure to perform any covenant or
agreement required by this Agreement to be performed by such breaching
party or to constitute a waiver of any remedy available for such breach or
failure.
10.03 Return and Destruction of Documents. In the event of
termination hereunder without Closing, each of Ceridian and Company (the
"receiving party") shall promptly redeliver to the other party (the
"disclosing party") all documents and other material received from the
disclosing party and its Affiliates furnished or made available to the
receiving party or its advisors or agents, and the receiving party shall
not retain any copies, extracts or other reproductions in whole or in part
of any such material. The receiving party shall destroy (and certify such
destruction to the disclosing party) all documents, memoranda, notes and
other writings whatsoever prepared by the receiving party or its advisors
or agents based on any such material.
10.04 Continuing Effect of Confidentiality. In the event of
termination of this Agreement without Closing, the parties agree that the
confidentiality obligations contained in the Confidentiality Agreement
between them dated February 24, 1994 shall remain in full force and effect.
ARTICLE XI
OBLIGATIONS AFTER CLOSING
11.01 Further Assurances. At or after the Closing Date, the parties
hereto shall prepare, execute and deliver, with each to bear its own
expenses thereof, such further instruments, and shall take or cause to be
taken such other or further action, as Ceridian or Acquisition Sub shall
reasonably request at any time or from time to time in order to perfect,
confirm or evidence the Transaction or to give effect to the provisions of
this Agreement.
11.02 Certain Agreements. The parties shall comply with their
obligations with respect to those post-closing matters described in
Articles II, III, VI, and XIII.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
12.01 Survival. The representations and warranties of the parties
contained in Articles IV and V of this Agreement shall not survive beyond
the Closing or the termination of this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
33
<PAGE>
13.01 No Publicity, Advertisement Without Prior Consultation.
Except after consultation with the parties, no party shall (and each of the
parties shall use its best efforts to assure that none of its officers,
directors, employees, agents or advisors shall) publicize, advertise,
announce or describe to any governmental authority or other third Person,
the terms of this Agreement, the parties hereto or the Transaction, or the
possibility thereof, except as required by Law or as required pursuant to
this Agreement.
13.02 Severability. Any portion or provision of this Agreement
which is invalid, illegal or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
portions or provisions hereof in such jurisdiction or, to the extent
permitted by law, rendering that or any other portion or provision hereof
invalid, illegal or unenforceable in any other jurisdiction.
13.03 Article, Section, Annex, Schedule, and Exhibit Headings. The
Article, Section, Annex, Schedule and Exhibit headings included in this
Agreement are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement. Schedules, Annexes
and Exhibits referred to in this Agreement are an integral part of this
Agreement.
13.04 Counterparts. This Agreement and any documents executed
pursuant hereto may be executed in any number of counterparts, each one of
which shall be an original and all of which shall constitute one and the
same document.
13.05 Gender and Number. In this Agreement (unless the context
requires otherwise), the masculine, feminine and neuter genders and the
singular and the plural include one another.
13.06 Expenses. Except as set forth in the Certain Matters
Agreement, the parties shall each bear their own fees and expenses incurred
in connection with this Agreement and the Transaction.
13.07 Notices. All notices given pursuant to this Agreement shall
be in writing and be personally delivered or mailed with postage prepaid,
by registered or certified mail, return receipt requested to the address
indicated below or such other address as a party may from time to time
specify in writing to the other party. If so mailed and also sent by
telegram or facsimile machine, the notice will conclusively be deemed to
have been received on the business day next occurring 24 hours after the
latest to occur of such mailing and telegraphic or facsimile communication;
otherwise, no notice shall be deemed given until it actually arrives at the
address in question. The addressees to which notice are initially to be
sent are as follows:
(a) If to Ceridian or Acquisition Sub to:
Ceridian Corporation
8100 34th Avenue South
Minneapolis, Minnesota 55425
Attention: President, Ceridian Employer Services
Facsimile No.: (612) 853-5300
34
<PAGE>
with a copy to:
Ceridian Corporation
8100 34th Avenue South
Minneapolis, Minnesota 55425
Attention: Office of General Counsel
Facsimile No.: (612) 853-3413
(b) If to Company, to:
Tesseract Corporation
475 Sansome Street
San Francisco, CA 94111
13.08 No Third Party Beneficiaries. No Person not a party to this
Agreement shall be entitled to assert any claim hereunder. This Agreement
shall be binding upon and inure to the benefit only of the parties hereto
and their respective successors. Notwithstanding any other provisions to
the contrary except with respect to such successors, it is not intended and
shall not be construed for the benefit of any third party or any Person not
a signatory hereto. In no event shall this Agreement constitute a third
party beneficiary contract. The foregoing provisions shall not be deemed
to restrict the rights of the parties under the Employment Agreements.
13.09 Governing Law. This Agreement is governed by and is to be
construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to the conflict of law principles thereof.
13.10 Modifications, Amendments or Waivers. Except as otherwise
provided herein, provisions of this Agreement may be modified, amended or
waived only by a written document specifically identifying this Agreement
and signed by a duly authorized executive officer of a party.
13.11 Remedies of Parties Cumulative. The remedies of the parties
hereto contained in this Agreement are cumulative with one another and with
any other remedies which the parties hereto may have at law, in equity,
under any agreements of any type or otherwise, and the exercise or failure
to exercise any remedy shall not preclude the exercise of that remedy at
another time or of any other remedy at any time.
13.12 Assignment, Successors and Assigns. Without the other party's
written consent, this Agreement and the rights and obligations hereunder,
shall not be assignable by any party hereto. This Agreement shall be
binding upon, and inure to the benefit of, the respective successors and
permitted assigns of the parties hereto.
13.13 Remedies. The obligations of Ceridian, Acquisition Sub, and
Company, under this Agreement are unique. The parties acknowledge that it
would be extremely impracticable to measure damages resulting from any
default under this Agreement. Accordingly, it is agreed that a party not in
default under this Agreement may sue in equity for specific performance, in
addition to any other available rights and remedies.
35
<PAGE>
13.14 Joint Preparation. For purposes of construction, this
Agreement has been jointly prepared by the parties and the provisions of
this Agreement shall not be construed more strictly against any party
hereto as a result of its participation in such preparation.
13.15 Schedules, Annexes and Exhibits. The Schedules, Annexes and
Exhibits referred to above are attached hereto and incorporated as an
integral part of this Agreement.
13.16 Attorneys Fees. If any party to this Agreement initiates any
legal action or lawsuit against any other party relating to this Agreement
or any agreement executed pursuant hereto, the prevailing party in such
action or amount shall be entitled to receive reimbursement from the other
party for all reasonable attorneys' fees, expert fees and other costs and
expenses incurred by the prevailing party in respect of such proceeding.
13.17 Entire Agreement. This Agreement (including the Schedules,
Annexes and Exhibits hereto) constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been executed on behalf of each
of the parties hereto as of the day and year first above written.
CERIDIAN CORPORATION TESSERACT CORPORATION
By: /s/James D. Miller By: /s/Woodson M. Hobbs
Its Vice President Its President
By: /s/A. Reid Shaw By: /s/Carolyn Jensen
Its Assistant Secretary Its Chief Financial Officer
BRAEMAR ACQUISITION CORP.
By: /s/James D. Miller
Its President
By: /s/A. Reid Shaw
Its Secretary
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
of Tesseract Corporation
San Francisco, California
We have audited the accompanying balance sheets of Tesseract Corporation
(the "Company") as of December 31, 1993 and 1992, and the related
statements of income, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amount and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1993 and
1992, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/Deloitte & Touche
February 18, 1994
TESSERACT CORPORATION
BALANCE SHEETS
December 31, 1993 and 1992
(dollars in thousands)
ASSETS
1993 1992
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 7,811 $ 7,083
Accounts receivable, less allowance for doubtful
accounts of $230 in 1993 and $242 in 1992 (note 1) 7,676 12,232
Other current assets (including $80 in 1993 and 1992
of a loan due from an officer) . . . . . . . . . . 474 192
Total current assets . . . . . . . . . . . 15,961 19,507
Property, net (note 2) . . . . . . . . . . . . . . 2,029 1,600
Capitalized software costs, net of accumulated
amortization of $1,753 in 1993 and $908 in 1992
(note 1) . . . . . . . . . . . . . . . . . . . . . 3,435 3,255
Deferred taxes and other assets (note 3) . . . . . . 788 978
Total assets . . . . . . . . . . . . . . . $ 22,213 $ 25,340
LIABILITIES AND STOCKHOLDERS' EQUITY
1993 1992
Current liabilities:
Trade accounts payable . . . . . . . . . . . . . . . $ 395 $ 427
Accrued liabilities . . . . . . . . . . . . . . . . 6,818 7,302
Deferred revenue . . . . . . . . . . . . . . . . . 7,803 10,959
Total current liabilities . . . . . . . . 15,016 18,688
Deferred revenue and other non-current liabilities . 664 391
Total liabilities . . . . . . . . . . . . 15,680 19,079
Stockholders' equity:
Mandatory redeemable preferred stock, no par value:
Series A, (preference in liquidation -$4,199),
issued and outstanding 2,400,000 shares . . . 4,199 --
Series B, (preference in liquidation - $6,238),
issued and outstanding 1,000,000 shares . . . 6,238 --
Series C, (preference in liquidation - $6,000),
issued and outstanding 12,615,113 shares. . . 6,000
Series D, (preference in liquidation - $1,453),
issued and outstanding 3,055,834 shares . . . 1,453 --
Series E, (preference in liquidation - $989),
issued and outstanding 2,079,039 shares . . . 989 --
Common stock, no par value, Series A , issued and
outstanding 400,001 shares, Series B, none
outstanding, Series C, (preference in liquidation -
$183), issued and outstanding 148,664 shares . . . 55 --
Contributed capital . . . . . . . . . . . . . . . . 375 19,254
Accumulated deficit . . . . . . . . . . . . . . . . (12,776) (12,993)
Total stockholders' equity . . . . . . . . 6,533 6,261
Total liabilities and stockholders' equity $ 22,213 $ 25,340
See notes to the financial statements.
2
TESSERACT CORPORATION
STATEMENTS OF INCOME
For the Years Ended December 31, 1993 and 1992
(dollars in thousands)
1993 1992
Revenues:
License fees . . . . . . . . . . . . . . . . . . . . $ 5,696 $ 10,488
Maintenance . . . . . . . . . . . . . . . . . . . . 10,730 9,333
Consulting and other services . . . . . . . . . . . 12,468 12,085
Total revenues . . . . . . . . . . . . . 28,894 31,906
Operating expenses:
Cost of revenues:
Amortization of capitalized software costs . . . 844 904
Costs of license, maintenance, consulting and
other services . . . . . . . . . . . . . . . 10,120 12,848
Sales and marketing . . . . . . . . . . . . . . . . 6,629 7,637
Product development . . . . . . . . . . . . . . . . 6,213 5,366
General and administrative . . . . . . . . . . . . . 2,645 2,577
Restructuring costs (note 9) . . . . . . . . . . . . 2,314 --
Total operating expenses . . . . . . . . 28,765 29,332
Operating income . . . . . . . . . . . . . . . . . . . 129 2,574
Interest income . . . . . . . . . . . . . . . . . . . 234 218
Income before income taxes . . . . . . . . . . . . . . 363 2,792
Income tax expense . . . . . . . . . . . . . . . . . 146 1,138
Net income . . . . . . . . . . . . . . . . . . . . . . $ 217 $ 1,654
See notes to the financial statements.
3
TESSERACT CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1993 and 1992
(dollars in thousands)
1993 1992
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 217 1,654
$
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 1,427 1,205
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 4,556 (500)
Other current assets . . . . . . . . . . . . . (282) (1)
Deferred taxes and other assets . . . . . . . . 190 290
Trade accounts payable . . . . . . . . . . . . (32) 151
Accrued liabilities . . . . . . . . . . . . . . (484) 262
Deferred revenue . . . . . . . . . . . . . . . (3,156) 1,195
Deferred revenue and other non-current
liabilities . . . . . . . . . . . . . . . . . 273 391
Net cash provided by operating activities . . . . 2,709 4,647
Cash flows from investing activities:
Purchase of property . . . . . . . . . . . . . . . (1,011) (1,509)
Additions to capitalized software costs . . . . . . (1,025) (1,521)
Net cash used by investing activities . . . . . . (2,036) (3,030)
Cash flows from financing activities:
Exercise of stock options . . . . . . . . . . . 55 --
Increase in cash and cash equivalents . . . . . . . . 728 1,617
Beginning cash and cash equivalents . . . . . . . . . 7,083 5,466
Ending cash and cash equivalents . . . . . . . . . . $ 7,811 $ 7,083
Noncash investing and financing activities:
Write-off of fully amortized capitalized software $ 1,730
costs . . . . . . . . . . . . . . . . . . . . . .
See notes to the financial statements.
4
TESSERACT CORPORATION
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1993 and 1992
(dollars in thousands)
<CAPTION>
Series A Series B Series C Series D Series E Total
Preferred Preferred Preferred Preferred Preferred Common Contributed Accumulated Stockholders'
Stock Stock Stock Stock Stock Stock Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1991 $ -- $ -- $ -- $ -- $ -- $ -- $ 19,254 $ (14,647) $ 4,607
Net income . . . . . . . . -- -- -- -- -- -- -- 1,654 1,654
Balances, December 31, 1992 -- -- -- -- -- -- 19,254 (12,993) 6,261
Recapitalization (note 4) . 4,000 6,000 6,000 1,453 989 -- (18,442) -- --
Stock options exercised,
548,665 shares. . . . . . -- -- -- -- -- 55 -- -- 55
Preferred Series A and B
dividends accrued . . . . 199 238 -- -- -- -- (437) -- --
Net income . . . . . . . . -- -- -- -- -- -- -- 217 217
Balances, December 31, 1993 $ 4,199 $ 6,238 $ 6,000 $ 1,453 $ 989 $ 55 $ 375 $ (12,776) $ 6,533
See notes to the financial statements.
5
TESSERACT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Tesseract Corporation (the "Company"), designs, develops,
markets and supports computer-based human resource solutions to
customers seeking performance, features and flexibility. Founded
in 1972, the Company also provides implementation, consulting and
development services to its customers. The Company was acquired
by and became a wholly-owned subsidiary of a major financial
institution ("the Prior Controlling Shareholder") in 1986, at
which time there was a step-up in basis. On March 24, 1993, the
Prior Controlling Shareholder sold controlling interest in the
Company. In 1992, certain amounts of revenues and expenses
resulted from transactions with the Prior Controlling Shareholder
and may not necessarily be indicative of conditions that would
have existed or the results of operations if the Company had been
operated as an unaffiliated entity.
Cash and cash equivalents are stated at cost, which
approximates market value, and consist of demand deposits, money
market securities and treasury bills, purchased with an original
maturity of three months or less.
Accounts receivable includes billed and unbilled balances.
The unbilled balances represent future amounts of software
license fees and certain consulting and development fees to be
billed based on the contractual terms of an agreement. Such
amounts totaled $3,489,000 and $6,727,000 at December 31, 1993
and 1992, respectively.
Property is stated at cost. Amortization and depreciation
are computed using the straight-line method based on estimated
useful lives of three to seven years. Leasehold improvements are
amortized over the shorter of the lease term or the estimated
useful life for leasehold improvements.
Capitalized software costs include certain costs of
internally developed software and are presented at the lower of
cost or net realizable value. Capitalization of such costs
begins upon the establishment of technological feasibility for
the product. Software development costs incurred internally by
the Company totaled $7,237,000 and $6,885,000 in 1993 and 1992,
respectively. Capitalized internal development costs amounted to
$1,024,000 and $1,521,000 in 1993 and 1992, respectively.
Capitalized software costs associated with products which have
not yet been made available for general release amounted to
$495,000 and $1,204,000 as of December 31, 1993 and 1992,
respectively.
Amortization of capitalized software costs begins when the
products are available for general release to customers and is
computed using the greater of straight-line or net sales method
on a product by product basis over the economic life of the
software which is generally three to five years.
6
Amortization of step-up in basis as a result of the 1986
purchase of the Company includes amortization of capitalized
software using the straight-line method. This particular
amortization expense totaled $412,000 in 1992. The assets
recorded as a result of the step-up in basis were fully amortized
as of December 31, 1992.
Revenue Recognition - The Company derives revenue from
licensing the Company's proprietary software products under
noncancellable, perpetual license agreements and providing
services including implementation support, training and warranty.
In accordance with the AICPA's Statement of Position 91-1 the
Company allocates a portion of the contractual license fee to
these services, which are included in the original license of the
Company's product, and recognizes the revenue as the services are
performed. The remainder of the license fee is recognized upon
delivery of the product, provided a signed noncancellable license
agreement exists, all significant vendor obligations have been
completed and collection is probable.
Revenue from maintenance agreements for maintaining,
supporting and providing periodic upgrades of the Company's
software products is recognized ratably over the maintenance
contract period. Revenue recognition is deferred until
collection is deemed probable.
Revenue from consulting and development agreements is
recognized as the related services are performed or certain
milestones are met. Accruals or reserves are provided for
consulting and development agreements where there are contingent
liabilities or potential collectibility issues.
Deferred revenue results from billed receivables, unbilled
license receivables and cash collections for which revenue has
not been recognized on software license, maintenance, consulting
and development agreements.
Income Taxes - Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes". There was no material
cumulative effect of adopting SFAS No. 109 on the Company's
financial statements for the fiscal year 1993. Deferred income
taxes arise from temporary differences between the tax basis of
assets and liabilities and their reported amounts in the
financial statements. Prior to 1993, the Company accounted for
income taxes in accordance with Accounting Principles Board
Opinion No. 11.
Major Customer - One customer comprised 13% and 12% of
revenues in 1993 and 1992, respectively.
Reclassifications - Certain items in the financial
statements for the year ended December 31, 1992 have been
reclassified to conform with the current year's presentation.
7
2. Property
Property is stated at cost net of accumulated depreciation and
includes the following (in thousands):
December 31, December 31,
1993 1992
Equipment $ 2,156 $ 1,785
Furniture and Fixtures 931 782
Purchased Software 809 318
Total $ 3,896 $ 2,885
Accumulated Depreciation and
Amortization (1,867) (1,285)
Property - Net $ 2,029 $ 1,600
Depreciation and amortization expense of property and other
assets totaled $669,000 and $388,000 in 1993 and 1992,
respectively.
3. Income Taxes
Income tax expenses consist of (in thousands):
1993 1992
Current tax expense
Federal $ 52 $ 520
State -- 142
Subtotal 52 662
Deferred tax expense
Federal (12) 362
State 106 114
Subtotal 94 476
Total $ 146 $1,138
The effective income tax rate differs from the amount computed by
applying the federal statutory income tax rate as follows:
1993 1992
Federal Income Tax Rate 34% 34%
State Income Taxes net of Federal 6% 6%
Other -- 1%
40% 41%
8
The Company's deferred tax assets at December 31, 1993 and
January 1, 1993 are as follows (in thousands):
December 31, January 1,
Assets 1993 1993
State Operating Loss Carryforward $ 859 $ 771
Accrued Liabilities and Other 529 208
Phantom Stock -- 557
Deferred Revenue Recognized for Tax 93 --
Excess Book Depreciation and
Amortization over Tax 58 9
1,539 1,545
Valuation Allowance for State
Operating Loss Carryforward (859) (771)
$ 680 $ 774
As of December 31, 1992, deferred tax assets result from
timing differences in the recognition of income for financial
reporting and tax purposes. The deferred tax provision for the
year ended December 31, 1992 represents the portion of income
reversing in this period.
For state income tax purposes, the Company has available net
operating loss carryforwards of $9,555,000 which begin expiring
in the year ended 2005.
Prior to the sale of controlling interest in March 1993,
income taxes presented were computed on a separate company basis.
However, the Company filed on a consolidated basis with the Prior
Controlling Shareholder's federal income tax return in 1992 and
the stub period of 1993. The Prior Controlling Shareholder
utilized the Company's net operating losses for federal income
tax purposes and has made cash payments to the Company for
benefits used in 1993 of $1,030,000.
4. Stockholders' Equity
Recapitalization
As of December 31, 1992, the Company's outstanding stock
consisted of 1,000 shares of common stock, which was 100% owned
by the Prior Controlling Shareholder. On March 24, 1993, the
Prior Controlling Shareholder sold its controlling interest in
the Company. As a result of this transaction, the stockholder's
equity of the Company was recapitalized to consist of several
series of preferred and common stock.
9
Preferred Stock
At December 31, 1993, preferred stock consisted of:
Number of
Shares Liquidation Mandatory
Authorized Preference Convertible Redemption Dividend
Series A 2,400,000 Yes Yes Yes 6.25% cumulative
Series B 1,000,000 Yes No Yes 5.00% cumulative
Series C 12,615,113 Yes Yes Yes 9.00% non-cumulative
Series D 5,134,873 Yes Yes Yes 9.00% non-cumulative
Series E 2,079,039 Yes Yes Yes 9.00% non-cumulative
Liquidation Preference - Liquidation amounts per share, in
order of preference, prior to any distribution to common
shareholders, are as follows:
Preference
Amount
per share
Series A $ 1.6670 plus unpaid, cumulative dividends
Series C $ 0.4756
Series B $ 6.0000
Series D $ 0.4756
Series E $ 0.4756
Series A has preference of liquidation amount plus unpaid,
cumulative dividends before holders of Series C and B. Series C
has preference of liquidation amount before Series B and then
Series C and B receive all unpaid, cumulative or declared
dividends pro rata in accordance with the applicable dividends.
Following Series A, C and B, holders of Series D and E have
liquidation preference to any series of common stock.
Conversion - Each share of Series A preferred stock is
convertible, at the option of the holder, into one share of
Series B non-voting common stock at any time on or after March
31, 1996, or automatically upon a public offering, sales
transaction or the Company's optional redemption of shares.
Each share of Series C and Series D preferred stock is
convertible into one share of Series A common stock at the
option of the holder or automatically upon a public offering of
common stock meeting specified criteria. Each share of Series E
preferred stock is convertible into one share of Series B non-
voting common stock at the option of the holder or automatically
upon a public offering of common stock meeting specified
criteria.
10
Redemption - All outstanding shares of the Series A
preferred stock may be redeemed at the option of the Company at
$1.667 per share plus unpaid, cumulative dividends until the
mandatory redemption date of March 31, 1996 and at the option of
the holder upon a public offering or sale of the Company.
All outstanding shares of Series B preferred stock may be
redeemed at the option of the Company at $6.00 per share plus
unpaid, cumulative dividends and may be redeemed at the option of
the holder upon a public offering or when the Company's Adjusted
Net Worth exceeds the Net Worth Minimum and the Company has the
availability of Excess Cash as defined in the restated Articles
of Incorporation or upon sale of the Company.
Each share of Series C, D and E preferred stock becomes
redeemable at the option of the holder at $.4756 per share when
no shares of Series A and Series B preferred stock are
outstanding.
Dividends - Dividends with respect to Series A and Series B
preferred shares are cumulative at an annual rate of $.10417 per
share and $.30 per share, respectively. Dividends at an annual
rate of $.0428 per share may be declared at the discretion of the
Board of Directors with respect to Series C, D and E preferred
stock and are non-cumulative.
Voting - Series C and D have voting rights. Series A, B and
E have limited voting rights as defined in the Restated Articles
of Incorporation.
Common Stock
At December 31, 1993 common stock consisted of:
Number of Shares
Authorized Voting
Series A 30,582,948 Yes
Series B 4,479,039 No
Series C 2,250,013 Yes
Series C common shares have liquidation preference of $1.228
per share after payment has been made to holders of the preferred
stock of the full amount of the liquidation preference.
Each share of Series B common stock is convertible into
Series A common stock upon a Series E preferred stock
conversion.
Each share of Series C common stock will convert
automatically into Series A Common Stock upon a public offering
of common stock meeting specified criteria.
Non-cumulative dividends may be declared and paid at the
discretion of the Board of Directors only after payment of all
cumulative dividends on Series A and B preferred stock and all
current year dividends on Series C, D and E preferred stock.
11
Stock Options
Under the terms of the Tesseract Corporation 1993 Series A
Common Stock Incentive Plan, options to purchase up to 2,400,000
shares of Series A common stock may be granted. Incentive stock
options must be granted at not less than fair market value at the
date of grant as determined by the Board of Directors.
Generally, the options vest and are exercisable at a rate of 25%
at the end of the first year then 2.08% per month over the
remaining three year period. Options canceled are available for
future grants. The term of each option is 10 years.
The activity in the 1993 Series A Common Stock Incentive Plan is
as follows:
Exercise Number of
Price Shares
Granted $0.10 2,450,600
Exercised $0.10 (400,000)
Canceled $0.10 (834,850)
Outstanding, December 31, 1993 1,215,750
At December 31, 1993, there were no exercisable options to
purchase shares and 784,250 shares were available for future
grant under the plan.
Under the terms of the Tesseract Corporation 1993 Series C
Common Stock Incentive Plan, stock options to purchase up to
2,250,013 shares of Series C common stock may be granted.
Incentive stock options must be granted at not less than fair
market value at the date of grant as determined by the Board of
Directors. The options are exercisable at the rate of 2.08% per
month over a four year period. The term of each option is 10
years.
The activity in the 1993 Series C Common Stock Incentive Plan is
as follows:
Exercise Number of
Price Shares
Granted $0.10 2,240,795
Exercised $0.10 (148,664)
Canceled $0.10 (885,068)
Outstanding, December 31, 1993 1,207,063
At December 31, 1993, options to purchase 224,873 shares
were exercisable and there were no shares available for future
grant under the Series C Common Stock Incentive Plan.
12
5. Phantom Stock Compensation Plan
Effective January 1, 1991, the Company adopted a phantom
stock plan as a means to provide incentive compensation to its
employees. Phantom stock compensation expense was $855,000 in
1992 and the accrued liability was $1,489,000 at December 31,
1992.
In connection with the change in controlling interest, the
employees voted to terminate the Phantom Stock Compensation Plan.
As a result, the Company paid $1,478,000 for amounts vested. The
Series C common stock options referred to above were granted to
employees with unvested phantom stock amounts.
6. Employee Benefit Plan
The Company has a long-term retirement investment program,
the 401(k) savings plan. All employees of the Company are
eligible to participate in the 401(k) plan on the first day of
the month following six calendar months of employment with the
Company provided 1,000 hours of service have been completed. The
Company is required to match contributions equal to 50% of the
first 6% of each participant's salary. These matching
contributions vest 25% per year. Company matching contributions
totaled $361,000 and $297,000 in 1993 and 1992, respectively.
7. Related Party Transactions
An indirect stockholder earns an annual management fee of
$275,000. Cash payment may not be made until all unpaid,
cumulative preferred dividends have been paid. The total expense
was $223,000 for 1993.
An indirect stockholder was paid $96,000 for consulting
services provided in 1993.
During 1993, an indirect stockholder managed approximately
$2 million of the Company's excess cash for which no fee was
charged. Investment income earned during 1993 totaled
approximately $50,000.
An interest free loan is receivable from an officer in the
amount of $80,000 at December 31, 1993 and 1992 which is due in
full no later than January 31, 1995.
Revenues earned and management expense related to the Prior
Controlling Shareholder totaled $309,935 and $32,000 in 1993,
respectively. Revenues earned related to the Prior Controlling
Shareholder totaled $236,000 in 1992. Management expense of
$127,000, computer equipment of $416,000 and intercompany tax
expense of $882,000 were incurred related to the Prior
Controlling Shareholder in 1992.
13
8. Commitments
The Company leases, under operating leases, office space and
equipment with varying expiration dates through 1999, with one
equipment lease having a renewal option. The leases generally
provide for minimum annual rent payments, including some
escalations and the payment of increases of operating expenses
over the base year amounts of these leases.
Future minimum lease payments under non-cancelable operating
leases at December 31, 1993 are as follows:
1994 $1,371,000
1995 1,357,000
1996 1,363,000
1997 1,646,000
1998 1,710,000
Thereafter 56,000
Total $7,503,000
Rent expense related to such leases was $1,123,000 and
$862,000 in 1993 and 1992, respectively.
The Company is engaged in various legal proceedings
incidental to its normal business activities. In the opinion of
the Company, none of such proceedings is material in relation to
the Company's financial position.
9. Restructuring Costs
During 1993, the Company reviewed its operating strategies
in order to improve competitiveness and future profitability.
The Company adopted a plan to restructure its operations which
resulted in a restructuring charge to operating income of
$2,314,000 in 1993 which consisted primarily of severance and
relocation costs. At December 31, 1993, the restructuring
liability was $1,106,000.
14
</TABLE>
<PAGE>
TESSERACT CORPORATION
BALANCE SHEETS
March 31, 1994 and 1993
(dollars in thousands)
ASSETS
March 31, March 31,
1994 1993
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 8,541 $ 7,538
Accounts receivable, less allowance for doubtful
accounts of $230 in 1994 and $242 in 1993. . . . . 6,052 9,025
Other current assets (including $83 in 1994 and $80
in 1993 of loans due from officers) . . . . . . . 552 325
Total current assets . . . . . . . . . . . 15,145 16,888
Property, net . . . . . . . . . . . . . . . . . . . 2,010 1,827
Capitalized software costs, net of accumulated
amortization of $2,083 and $1,064 at March 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . 3,685 3,457
Deferred taxes and other assets . . . . . . . . . . 768 718
Total assets . . . . . . . . . . . . . . . $ 21,608 $ 22,890
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1994 1993
Current liabilities:
Trade accounts payable . . . . . . . . . . . . . . . $ 398 $ 646
Accrued liabilities . . . . . . . . . . . . . . . . 5,485 5,275
Deferred revenue . . . . . . . . . . . . . . . . . 9,554 10,745
Total current liabilities . . . . . . . . 15,437 16,666
Deferred revenue and other non-current liabilities . 664 363
Total liabilities . . . . . . . . . . . . 16,101 17,029
Stockholders' equity:
Mandatory redeemable preferred stock, no par value:
Series A, (preference in liquidation -$4,261),
issued and outstanding 2,400,000 shares . . . 4,261 --
Series B, (preference in liquidation - $6,313),
issued and outstanding 1,000,000 shares . . . 6,313 --
Series C, (preference in liquidation - $6,000),
issued and outstanding 12,615,113 shares. . . 6,000
Series D, (preference in liquidation - $1,453),
issued and outstanding 3,055,834 shares . . . 1,453 --
Series E, (preference in liquidation - $989),
issued and outstanding 2,079,039 shares . . . 989 --
Common stock, no par value, Series A , issued and
outstanding 400,001 shares, Series B, none
outstanding, Series C, (preference in liquidation -
$183), issued and outstanding 157,227 shares . . . 56 --
Contributed capital . . . . . . . . . . . . . . . . 238 19,254
Accumulated deficit . . . . . . . . . . . . . . . . (13,803) (13,393)
Total stockholders' equity . . . . . . . . 5,507 5,861
Total liabilities and stockholders' equity $ 21,608 $ 22,890
See notes to the financial statements.
1
TESSERACT CORPORATION
STATEMENTS OF INCOME
For the Three Months Ended March 31, 1994 and 1993
(dollars in thousands)
Three Three
Months Months
March 31, March 31,
1994 1993
Revenues:
License fees . . . . . . . . . . . . . . . . . . . . $ 48 725
$
Maintenance . . . . . . . . . . . . . . . . . . . . 2,635 2,566
Consulting and other services . . . . . . . . . . . 1,833 3,252
Total revenues . . . . . . . . . . . . . 4,516 6,543
Operating expenses:
Cost of revenues:
Amortization of capitalized software costs . . . 242 155
Costs of license, maintenance, consulting and
other services . . . . . . . . . . . . . . .
1,569 3,138
Sales and marketing . . . . . . . . . . . . . . . . 949 1,743
Product development . . . . . . . . . . . . . . . . 2,754 1,451
General and administrative . . . . . . . . . . . . . 782 642
Restructuring costs . . . . . . . . . . . . . . . . -- --
Total operating expenses . . . . . . . . 6,296 7,129
Operating income . . . . . . . . . . . . . . . . . . . (1,780) (586)
Interest income . . . . . . . . . . . . . . . . . . . 73 56
Income before income taxes . . . . . . . . . . . . . . (1,707) (530)
Income tax expense . . . . . . . . . . . . . . . . . (681) (131)
Net income . . . . . . . . . . . . . . . . . . . . . . $ (1,026) (399)
$
See notes to the financial statements.
