<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1996
REGISTRATION NO. 333-05649
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COMPUTER SCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<CAPTION>
<S> <C> <C>
NEVADA 7371, 7373, 7376 95-2043126
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NO.)
</TABLE>
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
(310) 615-0311
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HAYWARD D. FISK, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
COMPUTER SCIENCES CORPORATION
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
(310) 615-0311
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
RONALD S. BEARD, ESQ.
PETER F. ZIEGLER, ESQ.
BRADFORD P. WEIRICK, ESQ.
GIBSON, DUNN & CRUTCHER
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Continental Acquisition, Inc.,
a Delaware corporation and wholly owned subsidiary of Computer Sciences
Corporation, a Nevada corporation ("CSC"), with and into The Continuum
Company, Inc., a Delaware corporation ("Continuum"), as described in the
Agreement and Plan of Merger dated as of April 28, 1996 (the "Merger
Agreement") attached as Annex A to the Joint Proxy Statement/Prospectus
forming part of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMPUTER SCIENCES CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
ITEM IN FORM S-4 CAPTION IN PROSPECTUS
---------------- ---------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover Page of Prospectus;
Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.......... Summary; The Merger; Price Range of Common
Stock
4. Terms of the Transaction................. Incorporation by Reference; Summary; The
Merger; The Merger Agreement; Description
of CSC Common Stock; Comparison of
Stockholder Rights
5. Pro Forma Financial Information.......... Unaudited Pro Forma Combined Condensed
Financial Statements
6. Material Contracts with the Company Being
Acquired................................ The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
8. Interests of Named Experts and Counsel... Relationship with Independent Public
Accountants; Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
10. Information with Respect to S-3
Registrants............................. Incorporation by Reference; Summary; The
Companies; Description of CSC Common Stock
11. Incorporation of Certain Information by
Reference............................... Incorporation by Reference
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
15. Information with Respect to S-3
Companies............................... Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies......... Not Applicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited...... Outside Front Cover Page of Prospectus;
Incorporation by Reference; Summary; The
CSC Annual Meeting; The Continuum Special
Meeting; The Merger; The Merger Agreement;
Security Ownership of Certain Beneficial
Owners and Management; Description of CSC
Capital Stock; Comparison of Stockholder
Rights; Additional Matters for
Consideration at the CSC Annual Meeting
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited
or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE>
COMPUTER SCIENCES CORPORATION
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
July 1, 1996
DEAR STOCKHOLDER:
You are cordially invited to attend the Annual Meeting of Stockholders of
Computer Sciences Corporation ("CSC") to be held at 11:00 a.m., Pacific
Daylight Time, on Wednesday, July 31, 1996, at the Sheraton Gateway Hotel, Los
Angeles Airport, 6101 West Century Boulevard, Los Angeles, California 90045.
At this important meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
April 28, 1996 (the "Merger Agreement"), by and among CSC, Continental
Acquisition, Inc., a wholly-owned subsidiary of CSC ("Sub"), and The Continuum
Company, Inc. ("Continuum"), and the issuance of shares of common stock, $1.00
par value per share, of CSC, pursuant thereto. Pursuant to the Merger
Agreement, Sub will be merged (the "Merger") with and into Continuum and
Continuum will become a wholly-owned subsidiary of CSC. You will also be asked
to consider and vote upon a proposal to approve an amendment to CSC's Restated
Articles of Incorporation increasing CSC's authorized common stock from
75,000,000 shares to 275,000,000 shares (the "Charter Amendment").
Pursuant to the Merger, each outstanding share of Continuum common stock
will be converted into 0.79 of a share of CSC common stock (the "Exchange
Ratio"). The proposed Merger is described in the accompanying Joint Proxy
Statement/Prospectus, the forepart of which includes a summary of the terms of
the Merger and certain other information relating to the proposed transaction.
The Board of Directors of CSC has retained the investment banking firm of
Goldman, Sachs & Co. ("Goldman Sachs") to act as CSC's financial advisor in
connection with the Merger. Goldman Sachs has advised the Board that in its
opinion, as of April 28, 1996, the Exchange Ratio was fair to CSC. A copy of
the opinion of Goldman Sachs is included in the enclosed Joint Proxy
Statement/Prospectus as Annex B thereto and you are urged to, and should, read
such opinion in its entirety.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, CSC AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AND THE CHARTER AMENDMENT AND RECOMMENDS THAT YOU VOTE TO APPROVE THE
MERGER AND THE CHARTER AMENDMENT.
Stockholders will also be asked at the Annual Meeting to vote for the
election of nominees to the CSC Board of Directors. The nominees for the Board
of Directors are more fully described in the accompanying Joint Proxy
Statement/Prospectus.
The Merger requires the approval of a majority of the votes cast on the
proposal, provided that the total vote cast thereon represents over 50% of the
total number of shares of CSC common stock entitled to vote on the proposal.
The Charter Amendment requires the affirmative vote of a majority of the
outstanding shares of CSC common stock entitled to vote thereon, so failure to
vote will have the same effect as a vote against the Charter Proposal. Since
CSC does not have a sufficient number of authorized but unissued shares to
effect the Merger, approval of the Merger is conditioned upon approval of the
Charter Amendment. Approval of the Charter Amendment is also conditioned upon
approval of the Merger. It is important that your shares be represented at the
Annual Meeting, regardless of the number you hold. Therefore, please sign,
date and return your proxy card as soon as possible, whether or not you plan
to attend the Annual Meeting. This will not prevent you from voting your
shares in person if you subsequently choose to attend the Annual Meeting.
Sincerely,
/s/ William R. Hoover
William R. Hoover
Chairman of the Board
/s/ Van B. Honeycutt
Van B. Honeycutt
President and Chief Executive
Officer
<PAGE>
COMPUTER SCIENCES CORPORATION
2100 EAST GRAND AVENUE
EL SEGUNDO, CALIFORNIA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 31, 1996
The Annual Meeting of Stockholders of Computer Sciences Corporation, a
Nevada corporation ("CSC"), will be held at the Sheraton Gateway Hotel, Los
Angeles Airport, 6101 West Century Boulevard, Los Angeles, California 90045 at
11:00 a.m. Pacific Daylight Time, on Wednesday, July 31, 1996 for the
following purposes:
1. To approve and adopt an Agreement and Plan of Merger, dated as of
April 28, 1996 (the "Merger Agreement"), among CSC, Continental
Acquisition, Inc., a wholly-owned subsidiary of CSC ("Sub"), and The
Continuum Company, Inc. ("Continuum"), and the issuance of shares of common
stock, $1.00 par value per share, of CSC, pursuant thereto. Pursuant to the
Merger Agreement, (i) Sub will be merged with and into Continuum (the
"Merger") and Continuum will become a wholly-owned subsidiary of CSC, and
(ii) each outstanding share of Continuum common stock, $0.10 par value per
share (other than shares owned by Continuum as treasury stock or by its
subsidiaries (excluding 7,837 shares held in the name of Paxus Corporation
Limited) or by CSC or its subsidiaries, all of which shall be canceled),
will be converted into 0.79 of a share of CSC common stock, including the
associated CSC preferred stock purchase rights. A copy of the Merger
Agreement is attached as Annex A to the Joint Proxy Statement/Prospectus
accompanying this Notice.
2. To approve an amendment to the Restated Articles of Incorporation of
CSC increasing the number of shares of common stock authorized for issuance
from 75,000,000 shares to 275,000,000 shares.
3. To elect nominees to the CSC Board of Directors.
4. To transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on June 21, 1996 as
the record date for the determination of the holders of CSC's common stock
entitled to notice of, and to vote at, the meeting. The Merger and other
related matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the annexes thereto, which form a part of this
notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE YOUR
REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A POSTAGE-PREPAID
ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING THE MEETING
MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors,
/s/ Hayward D. Fisk
Hayward D. Fisk
Vice President, General Counsel and
Secretary
Dated: July 1, 1996
<PAGE>
- --------------------------------------------------------------------------------
Please mark
your votes as
indicated in
this example [X]
1. To approve and adopt an Agreement and Plan of Merger, dated as of April 28,
1996, among CSC, Continental Acquisition, Inc., a wholly-owned subsidiary of
CSC, and The Continuum Company, Inc., and the issuance of shares of common
stock, $1.00 par value per share, of CSC (the "Common Stock") pursuant
thereto (the "Merger Proposal"). Approval of the Merger Proposal is
conditioned upon approval of the Charter Amendment Proposal.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To approve an amendment to the Restated Articles of Incorporation of CSC
increasing the number of shares of Common Stock authorized for issuance from
75,000,000 shares to 275,000,000 shares (the "Charter Amendment Proposal").
Approval of the Charter Amendment Proposal is conditioned upon approval of
the Merger Proposal.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To elect nominees to the CSC Board of Directors
FOR all WITHHOLD
nominees AUTHORITY
(Except as to vote for all
marked to the Nominees listed
contrary*) below
[_] [_]
INSTRUCTIONS:
To withhold authority to vote for any individual nominee, strike out that
nominee's name in the list below:
NOMINEES:
Howard P. Allen, Irving W. Bailey, II, Van B. Honeycutt, William R. Hoover,
Richard C. Lawton, Leon J. Level, F. Warren McFarlan and James R. Mellor
4. To transact such other business as may properly come before the meeting and
any adjournments or postponements thereof.
Dated: ______________________________________, 1996
___________________________________________________
Signature
___________________________________________________
Signature
Please date, sign and return this Proxy promptly
whether or not you plan to attend the meeting. If
signing for a corporation or partnership or an
agent, attorney or fiduciary, indicate the capacity
in which you are signing. If you do attend the
meeting and elect to vote by ballot, such vote will
supersede this Proxy.
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD
YOUR VOTES*
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
IMPORTANT NOTICE TO SHAREHOLDERS
RETURNING YOUR COMPLETED PROXY CARD PREVENTS ESCHEATMENT
It is very important that you return your voted proxy card to CSC and that CSC
has your current address.
Most states have escheat laws which require CSC to report all accounts when
they meet that state's criteria for abandoned property. While the specified
number of years varies by state, escheatment generally occurs when CSC mail
addressed to you is continually returned undelivered and there is no other
contact. CSC then must invalidate the stock certificate(s) of the escheated
shareholders and turn over the representative shares to the state of the
shareholder's last known residence. After delivery to the state, the stock
often is sold and claimants are given only the proceeds of the sale, which may
or may not be to your benefit, depending on the subsequent trend of the stock
price. In addition, it can take many months to retrieve custody of the stock or
the proceeds from its sale.
Therefore, if you have moved, please give us your new address below:
- --------------------------------------- ----------------------
Name(s) under which stock is held Social Security Number
- --------------------------------------- ----------------------
Street address City, State, Zip Code
Do you have multiple accounts/Hold stock under more than one name?
Yes No
--- ---
NOTE: CSC EMPLOYEES ARE REQUESTED TO NOTIFY THEIR LOCAL HUMAN RESOURCES
REPRESENTATIVE OF ANY ADDRESS CHANGE.
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS, JULY 31, 1996
The undersigned hereby appoints VAN B. HONEYCUTT, LEON J. LEVEL and HAYWARD
D. FISK, and each of them, with full power of substitution and discretion in
each of them, as the proxy or proxies of the undersigned to represent the
undersigned and to vote all shares of Common Stock of Computer Science
Corporation which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of Computer Sciences Corporation
to be held at the Sheraton Gateway Hotel, Los Angeles Airport, 6101 West
Century Boulevard, Los Angeles, 90045, at 11:00 a.m. on July 31, 1996 and at
any adjournment thereof, upon the election of directors, the approval of the
proposed Charter Amendment, the approval of the proposed Merger and any other
matter properly coming before the meeting.
If more than one of such proxies or substitutes shall be present and vote, a
majority thereof shall have the powers hereby granted; and if only one of them
shall be present and vote, he shall have the powers hereby granted.
This card also provides voting instructions for shares, if any, held in the
Company's employee benefit plans.
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN, OR IF NO DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR APPROVAL OF THE PROPOSED
CHARTER AMENDMENT AND THE PROPOSED MERGER.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING THEREOF.
NOTE: THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
PROXY
PLEASE SIGN ON THE REVERSE SIDE OF THIS CARD AND RETURN PROMPTLY TO MIDTOWN
STATION, P.O. BOX 955, NEW YORK, NEW YORK 10138-0811. IF YOU DO NOT SIGN AND
RETURN A PROXY, OR ATTEND THE MEETING AND VOTE BY BALLOT,
YOUR SHARES CANNOT BE VOTED.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Affix
First
Class
Postage
CSC
COMPUTER SCIENCES CORPORATION
C/O CHASEMELLON SHAREHOLDER SERVICES L.L.C.
RECORDKEEPING SERVICES
P.O. BOX 590
RIDGEFIELD PARK, NJ 07660
<PAGE>
THE CONTINUUM COMPANY, INC.
9500 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759
July 1, 1996
TO OUR STOCKHOLDERS:
You are cordially invited to attend a Special Meeting of Stockholders of The
Continuum Company, Inc. ("Continuum") at Continuum's headquarters, 9500
Arboretum Boulevard, Austin, Texas, on Wednesday, July 31, 1996, at 1:00 p.m.,
Austin time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
April 28, 1996 (the "Merger Agreement"), providing for the merger of a wholly-
owned subsidiary of Computer Sciences Corporation ("CSC") with and into
Continuum, pursuant to which Continuum will become a wholly-owned subsidiary
of CSC. Under the terms of the Merger Agreement, each outstanding share of
common stock of Continuum will be converted into 0.79 of a share of common
stock of CSC (the "Exchange Ratio"). The Merger Agreement and the proposed
merger are discussed in more detail in the accompanying Joint Proxy
Statement/Prospectus.
The Board of Directors of Continuum has retained the investment banking firm
of Lehman Brothers Inc. ("Lehman Brothers") to act as Continuum's financial
advisor in connection with the merger. Lehman Brothers has advised the Board
that in its opinion, as of the date of the Merger Agreement, the Exchange
Ratio was fair, from a financial point of view, to Continuum's stockholders. A
copy of the opinion of Lehman Brothers is included in the enclosed Joint Proxy
Statement/Prospectus as Annex C thereto.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, CONTINUUM AND ITS STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The Merger Agreement and financial and other information concerning the
businesses of Continuum and CSC are included in the enclosed Joint Proxy
Statement/Prospectus. Please review the Joint Proxy Statement/Prospectus
carefully.
The affirmative vote of the holders of two-thirds of the outstanding shares
of Continuum common stock is required to approve and adopt the Merger
Agreement, so failure to vote will have the same effect as a vote against the
Merger Agreement. Accordingly, we urge you to complete, sign, and date the
enclosed proxy card and return it in the enclosed return envelope, whether or
not you plan to attend the meeting. Your vote is important.
Sincerely,
/s/ Ronald C. Carroll
RONALD C. CARROLL
Chairman of the Board
/s/ W. Michael Long
W. MICHAEL LONG
President and Chief Executive
Officer
<PAGE>
THE CONTINUUM COMPANY, INC.
9500 ARBORETUM BOULEVARD
AUSTIN, TEXAS 78759-6399
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 31, 1996
A Special Meeting of Stockholders of The Continuum Company, Inc., a Delaware
corporation ("Continuum"), will be held at Continuum's headquarters, 9500
Arboretum Boulevard, Austin, Texas, at 1:00 p.m., Austin time, on Wednesday,
July 31, 1996, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of April 28, 1996 (the "Merger
Agreement"), relating to the merger of a wholly-owned subsidiary of
Computer Sciences Corporation ("CSC") with and into Continuum, pursuant to
which each outstanding share of common stock, $0.10 par value per share, of
Continuum would be converted into 0.79 of a share of common stock, $1.00
par value per share, of CSC, including the associated CSC preferred stock
purchase rights, all as more fully set forth in the accompanying Joint
Proxy Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Annex A thereto; and
2. To transact any other business that may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on June 21, 1996, are
entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
/s/ John L. Westermann III
John L. Westermann III
Secretary
Austin, Texas
July 1, 1996
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN, AND MAIL THE ENCLOSED
PROXY IN THE ACCOMPANYING ENVELOPE EVEN IF YOU INTEND TO BE PRESENT AT THE
MEETING. NO POSTAGE IS NEEDED IF IT IS MAILED IN THE UNITED STATES. RETURNING
THE PROXY WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON OR TO ATTEND THE
MEETING, BUT WILL ENSURE YOUR REPRESENTATION IF YOU CANNOT ATTEND. THE PROXY
IS REVOCABLE AT ANY TIME PRIOR TO ITS USE.
<PAGE>
- --------------------------------------------------------------------------------
PROXY
THE CONTINUUM COMPANY, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS -- JULY 31, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints Ronald C. Carroll, W.
Michael Long and John L. Westermann III, and each of them, to be his true and
lawful agent and attorney-in-fact, with full power of substitution, to vote all
of the shares of Common Stock registered in the undersigned name on the books
of The Continuum Company, Inc. (the "Company") at the special meeting of
stockholders of the Company to be held on the 31st day of July, 1996, at 1:00
p.m., Austin, Texas time, at the Company's headquarters, 9500 Arborteum
Boulevard, Austin, Texas 78759-6399, and at any and all adjournments thereof,
with all the powers the undersigned would possess if personally present and
participating, without limiting the foregoing, to vote as follows:
PLEASE SIGN ON THE REVERSE SIDE OF THIS CARD
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- --------------------------------------------------------------------------------
Please mark
your votes as
indicated in
this example [X]
1. Approval and adoption of the Agreement and Plan of Merger among Computer
Sciences Corporation, The Continuum Company, Inc. and Continental
Acquisition, Inc.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. If any other business is presented at the meeting or adjournments thereof,
the persons named above will vote in accordance with their judgment on such
matters.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
NOTE: THIS PROXY WILL BE VOTED AS SPECIFIED OR IF NO SPECIFICATION IS MADE IT
WILL BE VOTED IN FAVOR OF PROPOSAL NO. 1.
Date Signed: _______________________________________
(Please fill in date)
____________________________________________________
Signature(s)
____________________________________________________
Signature(s)
Note: When signing as attorney, executor,
administrator, trustee, or guardian, please give
full title. If more than one trustee, all should
sign. It is important that you date your proxy in
the space provided above.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
COMPUTER SCIENCES CORPORATION
AND
THE CONTINUUM COMPANY, INC.
---------------
JOINT PROXY STATEMENT
---------------
COMPUTER SCIENCES CORPORATION
---------------
PROSPECTUS
---------------
This Joint Proxy Statement/Prospectus and the annexes hereto (together,
the"Proxy Statement/Prospectus") is being furnished to the holders of common
stock, par value $1.00 per share (the "CSC Common Stock"), of Computer
Sciences Corporation, a Nevada corporation ("CSC"), in connection with the
solicitation of proxies by the Board of Directors of CSC for use at the Annual
Meeting of Stockholders of CSC to be held at the Sheraton Gateway Hotel, Los
Angeles Airport, 6101 West Century Boulevard, Los Angeles, California 90045 on
July 31, 1996, at 11:00 a.m.. Pacific Daylight Time, and at any and all
adjournments or postponements thereof (the "CSC Annual Meeting"). Unless the
context otherwise requires, all references to CSC Common Stock in this Proxy
Statement/Prospectus include the associated preferred stock purchase rights
(the "Rights") issued by CSC pursuant to the Rights Agreement, amended and
restated as of October 30, 1995, between CSC and ChaseMellon Shareholder
Services, L.L.C. (the "CSC Rights Agreement").
This Proxy Statement/Prospectus is also being furnished to the holders of
common stock, par value $0.10 per share (the "Continuum Common Stock"), of The
Continuum Company, Inc., a Delaware corporation ("Continuum"), in connection
with the solicitation of proxies by the Board of Directors of Continuum for
use at a Special Meeting of Stockholders of Continuum to be held at
Continuum's headquarters, 9500 Arboretum Boulevard, Austin, Texas 78759-6399,
on July 31, 1996, at 1:00 p.m., Austin time, and at any and all adjournments
or postponements thereof (the "Continuum Special Meeting").
This Proxy Statement/Prospectus relates, among other things, to the proposed
merger (the "Merger") of Continental Acquisition, Inc., a wholly-owned
subsidiary of CSC ("Sub"), with and into Continuum pursuant to an Agreement
and Plan of Merger, dated as of April 28, 1996 (the "Merger Agreement"), by
and among CSC, Sub and Continuum, a copy of which is attached as Annex A to
this Proxy Statement/Prospectus. Upon consummation of the Merger, Continuum
will be a wholly-owned subsidiary of CSC. In the Merger, each outstanding
share of Continuum Common Stock (other than shares owned by Continuum as
treasury stock or by its subsidiaries (excluding 7,837 shares held in the name
of Paxus Corporation Limited) or by CSC or its subsidiaries, all of which
shall be canceled) will be converted into 0.79 of a share of CSC Common Stock,
and CSC will assume certain currently outstanding options to purchase
Continuum Common Stock. Cash will be paid in lieu of any fractional shares.
Consummation of the Merger is subject to various conditions, including (i) the
approval and adoption of the Merger Agreement, the issuance of shares of CSC
Common Stock pursuant thereto and an amendment to the Restated Articles of
Incorporation of CSC increasing the authorized number of shares of CSC Common
Stock by the requisite votes of shares of CSC Common Stock at the CSC Annual
Meeting and (ii) the approval and adoption of the Merger Agreement by the
requisite vote of shares of Continuum Common Stock at the Continuum Special
Meeting.
In addition, CSC is soliciting proxies with respect to the election of
nominees to the Board of Directors of CSC.
CSC has filed a Registration Statement on Form S-4 (such Registration
Statement and all exhibits relating thereto and any amendments thereof, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of CSC Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus, along with the
documents and portions of documents incorporated herein by reference, also
constitutes the prospectus of CSC filed as part of the Registration Statement
relating to up to 20,748,963 shares of CSC Common Stock to be issued to
Continuum stockholders in connection with the Merger.
CSC Common Stock is traded on the New York Stock Exchange (the "NYSE") and
the Pacific Stock Exchange (the "PSE") under the symbol "CSC." On June 24,
1996, the closing sales price for CSC Common Stock as reported on the NYSE
Composite Tape was $74 1/8 per share.
All information contained in this Proxy Statement/Prospectus with respect to
CSC and Sub has been provided by CSC. All information contained in this Proxy
Statement/Prospectus with respect to Continuum has been provided by Continuum.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of CSC and Continuum on or about July 1,
1996. A stockholder who has given a proxy may revoke it at any time prior to
its exercise. See "The CSC Annual Meeting--Record Date; Voting Rights;
Proxies" and "The Continuum Special Meeting--Record Date; Voting Rights;
Proxies."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is June 25, 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE
ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE HEREOF OR INCORPORATED BY REFERENCE HEREIN SINCE
THE DATE HEREOF.
AVAILABLE INFORMATION
CSC and Continuum are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following regional offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, Seven World Trade Center, Suite 1300, New York,
New York 10048. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, material filed by CSC
can be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005, and the PSE, 301 Pine Street, San Francisco, California 94104, on
which the shares of CSC Common Stock are listed. Material filed by Continuum
can be inspected at the offices of the NYSE at the address set forth in the
previous sentence.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement of which this Proxy Statement/Prospectus
is a part, and which CSC has filed with the Commission under the Securities
Act. Reference is made to such Registration Statement for further information
with respect to CSC and the securities of CSC offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents, and each statement is qualified in its entirety
by reference to the copy of the applicable document filed with the Commission
or attached as an annex hereto.
INCORPORATION BY REFERENCE
CSC and Continuum hereby incorporate by reference into this Proxy
Statement/Prospectus the following documents previously filed with the
Commission pursuant to the Exchange Act:
1. CSC's Annual Report on Form 10-K for the year ended March 29, 1996;
2. The description of CSC's Rights contained in CSC's Registration
Statement on Form 8-A, filed with the Commission on January 25, 1989;
3. The description of the CSC Common Stock contained in CSC's
Registration Statement on Form 10, as amended;
4. CSC's Current Report on Form 8-K dated May 2, 1996;
5. Continuum's Annual Report on Form 10-K for the year ended March 31,
1996, as amended by the Form 10-K/A dated June 5, 1996 and the Form 10-K/A
dated June 7, 1996;
6. The description of the Continuum Common Stock contained in Continuum's
Registration Statement on Form 8-A (File No. 1-10151) filed with the
Commission on March 22, 1991; and
7. Continuum's Current Report on Form 8-K dated May 1, 1996.
2
<PAGE>
All reports and other documents filed by CSC or Continuum pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the CSC Annual Meeting and the Continuum Special Meeting
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such reports and documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus and the Registration Statement of which it is a part to
the extent that a statement contained herein, or in any other subsequently
filed document that also is incorporated or deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON
TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, INCLUDING ANY BENEFICIAL
OWNER, UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO
CSC, COMPUTER SCIENCES CORPORATION, 2100 EAST GRAND AVENUE, EL SEGUNDO,
CALIFORNIA 90245, ATTENTION: SECRETARY (TELEPHONE NO. (310) 615-0311), OR, IN
THE CASE OF DOCUMENTS RELATING TO CONTINUUM, THE CONTINUUM COMPANY, INC., 9500
ARBORETUM BOULEVARD, AUSTIN, TEXAS 78759-6399. ATTENTION: CHIEF FINANCIAL
OFFICER (TELEPHONE NO. (512) 345-5700). IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 24, 1996.
----------------
The following service mark owned by Continuum appears in this Proxy
Statement/Prospectus: CONTINUUM(R)
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 2
INCORPORATION BY REFERENCE................................................. 2
SUMMARY.................................................................... 5
The Companies............................................................. 5
The Annual Meeting of CSC and Special Meeting of Continuum................ 5
Recommendations of the Boards of Directors................................ 7
Opinions of Financial Advisors............................................ 7
The Merger................................................................ 7
Effective Time of the Merger.............................................. 10
Surrender of Stock Certificates........................................... 10
Interests of Certain Persons in the Merger................................ 10
Certain Considerations.................................................... 10
Certain Federal Income Tax Consequences................................... 11
Comparative Rights of Stockholders........................................ 11
Comparative Per Share Prices.............................................. 11
Certain Other Agreements.................................................. 11
Selected Historical and Unaudited Pro Forma Combined Financial Data....... 12
GENERAL INFORMATION........................................................ 16
THE COMPANIES.............................................................. 16
CSC and Sub............................................................... 16
Continuum................................................................. 17
Recent Developments....................................................... 17
THE CSC ANNUAL MEETING..................................................... 18
Purpose of the CSC Annual Meeting......................................... 18
Record Date; Voting Rights; Proxies....................................... 18
Solicitation of Proxies................................................... 18
Quorum.................................................................... 19
Required Vote............................................................. 19
THE CONTINUUM SPECIAL MEETING.............................................. 20
Purpose of the Continuum Special Meeting.................................. 20
Record Date; Voting Rights; Proxies....................................... 20
Solicitation of Proxies................................................... 20
Quorum.................................................................... 20
Required Vote............................................................. 20
THE MERGER................................................................. 21
General................................................................... 21
Effective Time............................................................ 21
Conversion of Shares; Procedures for Exchange of Certificates............. 21
Background of the Merger.................................................. 22
Reasons for the Merger; Recommendation of the Board of Directors of CSC... 25
Reasons for the Merger; Recommendation of the Board of Directors of
Continuum................................................................ 26
Opinion of CSC's Financial Advisor........................................ 27
Opinion of Continuum's Financial Advisor.................................. 30
Certain Considerations.................................................... 34
Management of CSC After the Merger........................................ 34
Interests of Certain Persons in the Merger................................ 34
Certain Federal Income Tax Consequences................................... 35
Anticipated Accounting Treatment.......................................... 36
Effect on Employee Benefit Plans.......................................... 37
Certain Legal Matters..................................................... 37
Federal Securities Law Consequences....................................... 37
Stock Exchange Listing.................................................... 38
Appraisal Rights.......................................................... 38
Certain Other Agreements.................................................. 38
THE MERGER AGREEMENT....................................................... 39
General................................................................... 39
The Merger................................................................ 39
Effective Time............................................................ 39
Terms of the Merger....................................................... 39
Fractional Shares......................................................... 40
Surrender and Payment..................................................... 40
Conditions to Consummation of the Merger.................................. 40
Representations and Warranties............................................ 42
Conduct of Business Pending the Merger.................................... 42
No Solicitation of Transactions........................................... 43
Employee Benefit Plans.................................................... 44
Pooling of Interests Accounting Treatment................................. 44
Indemnification........................................................... 45
Certain Other Covenants................................................... 45
Termination; Fees and Expenses............................................ 45
Amendment; Waiver......................................................... 47
PRICE RANGE OF COMMON STOCK................................................ 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 49
Certain Stockholders of CSC............................................... 49
Certain Stockholders of Continuum......................................... 51
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 53
DESCRIPTION OF CSC CAPITAL STOCK........................................... 60
General................................................................... 60
Common Stock.............................................................. 60
Preferred Stock........................................................... 60
COMPARISON OF STOCKHOLDER RIGHTS........................................... 61
General................................................................... 61
Size and Classification of the Board of Directors......................... 61
Removal of Directors; Filling Vacancies on the Board of Directors......... 61
Stockholder Action by Written Consent..................................... 62
Meetings of Stockholders.................................................. 62
Required Vote for Authorization of Certain Actions........................ 62
Amendment of Corporate Charter and Bylaws................................. 63
Appraisal and Dissenters' Rights.......................................... 63
State Antitakeover Statutes............................................... 64
Limitation on Directors' Liability........................................ 65
Indemnification of Officers and Directors................................. 65
Cumulative Voting......................................................... 65
Conflict-of-Interest Transactions......................................... 66
Dividends and Other Distributions......................................... 66
Duties of Directors....................................................... 66
CSC Rights Plan........................................................... 67
PROPOSED INCREASE IN AUTHORIZED SHARES OF CSC COMMON STOCK................. 68
ADDITIONAL MATTERS FOR CONSIDERATION AT THE CSC ANNUAL MEETING............. 69
Election of CSC Directors................................................. 69
Report of Compensation Committee on Annual Compensation of Executive
Officers................................................................. 71
CSC Executive Compensation................................................ 74
Comparison of Cumulative Total Return..................................... 77
Compliance With Section 16(a) of the Securities Exchange Act of 1934...... 77
Stockholder Proposals..................................................... 78
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS........................... 78
OTHER MATTERS.............................................................. 78
LEGAL MATTERS.............................................................. 78
EXPERTS.................................................................... 78
Annex A--Merger Agreement
Annex B--Opinion of Goldman, Sachs & Co.
Annex C--Opinion of Lehman Brothers Inc.
Annex D--Form of Amendment to CSC's Restated Articles of Incorporation
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary does not contain a complete
statement of all material information relating to the Merger Agreement and the
Merger, and is subject to, and is qualified in its entirety by, the more
detailed information and financial statements contained or incorporated by
reference in this Proxy Statement/Prospectus. Stockholders of CSC and Continuum
should read carefully this Proxy Statement/Prospectus in its entirety. Certain
capitalized terms used in this summary are defined elsewhere in this Proxy
Statement/Prospectus. Unless otherwise indicated, beneficial ownership
information and share amounts set forth in this Proxy Statement/Prospectus (i)
assume that outstanding options to purchase shares of Continuum Common Stock
and shares of CSC Common Stock will not be exercised prior to the Merger and
(ii) have been adjusted for a three for one stock split of the CSC Common Stock
effected by means of a 200% stock dividend distributed January 13, 1994.
THE COMPANIES
CSC and Sub. CSC was founded in 1959 and is among the world leaders in the
consulting and information technology ("IT") services industry. CSC offers a
broad array of management consulting and professional services to industry and
government. It specializes in the application of advanced and complex IT to
achieve its customers' strategic objectives. CSC's services include
outsourcing, systems integration, IT and management consulting and other
professional services. Sub is a wholly-owned subsidiary of CSC, incorporated on
March 4, 1996. As used herein, the term "CSC" refers to Computer Sciences
Corporation and its consolidated subsidiaries, unless the context otherwise
requires. The principal executive offices of CSC, a Nevada corporation, are
located at 2100 East Grand Avenue, El Segundo, California 90245, and its
telephone number at such offices is (310) 615-0311.
Continuum. Continuum is an international consulting and computer services
firm serving the needs of the global financial services industry for computer
software and services. Continuum provides outsourcing services, including third
party administrative services to the financial services industry, sophisticated
financial services software systems and related software development,
installation, customization, enhancement and maintenance services. On March 15,
1996, Continuum completed its acquisition of Hogan Systems, Inc., a Delaware
corporation ("Hogan"), a provider of integrated computer software applications
and related professional services to financial institutions. As used herein,
the term "Continuum" refers to The Continuum Company, Inc. and its consolidated
subsidiaries, unless the context otherwise requires. The principal executive
offices of Continuum, a Delaware corporation, are located at 9500 Arboretum
Boulevard, Austin, Texas 78759-6399, and its telephone number at such offices
is (512) 345-5700.
THE ANNUAL MEETING OF CSC AND SPECIAL MEETING OF CONTINUUM
Time, Place and Date
CSC. The Annual Meeting of the stockholders of CSC will be held at the
Sheraton Gateway Hotel, Los Angeles Airport, 6101 West Century Boulevard, Los
Angeles, California 90045, on Wednesday, July 31, 1996, at 11:00 a.m., Pacific
Daylight Time (including any and all adjournments or postponements thereof, the
"CSC Annual Meeting").
Continuum. A Special Meeting of the stockholders of Continuum will be held at
Continuum's headquarters, 9500 Arboretum Boulevard, Austin, Texas on Wednesday,
July 31, 1996, at 1:00 p.m., Austin time (including any and all adjournments or
postponements thereof, the "Continuum Special Meeting").
Purposes of the CSC Annual Meeting and Continuum Special Meeting
CSC. At the CSC Annual Meeting, holders of CSC Common Stock will consider and
vote upon (i) a proposal to approve and adopt the Merger Agreement and to
approve the issuance of shares of CSC Common
5
<PAGE>
Stock pursuant to the Merger Agreement (the "Merger Proposal"), (ii) a proposal
to amend the Restated Articles of Incorporation of CSC to increase the number
of shares of CSC Common Stock that CSC will have authority to issue from
75,000,000 to 275,000,000 (the "Charter Amendment Proposal") and (iii) the
election of nominees to the CSC Board of Directors. For a description of the
Merger Proposal, see "The Merger" and "The Merger Agreement." For a description
of the Charter Amendment Proposal, see "Proposed Increase in Authorized Shares
of CSC Common Stock." For a description of the nominees to the CSC Board of
Directors, see "Additional Matters for Consideration at the CSC Annual
Meeting--Election of CSC Directors." Stockholders of CSC will also consider and
vote upon any other matter that may properly come before the meeting.
Continuum. At the Continuum Special Meeting, holders of Continuum Common
Stock will consider and vote upon a proposal to approve and adopt the Merger
Agreement. As a result of the Merger, Continuum will become a wholly-owned
subsidiary of CSC. In the Merger, each outstanding share of Continuum Common
Stock will be converted into 0.79 of a share (the "Exchange Ratio") of CSC
Common Stock. Stockholders of Continuum will also consider and vote upon any
other matter that may properly come before the meeting.
Votes Required; Record Date
CSC. The Merger Proposal requires the approval of a majority of the votes
cast on the Merger Proposal, provided that the total vote cast thereon
represents over 50% of the total number of shares of CSC Common Stock entitled
to vote on the proposal. The Charter Amendment Proposal requires the
affirmative vote of a majority of the outstanding shares of CSC Common Stock
entitled to vote thereon. SINCE CSC DOES NOT HAVE A SUFFICIENT NUMBER OF
AUTHORIZED BUT UNISSUED SHARES OF CSC COMMON STOCK TO EFFECT THE MERGER,
APPROVAL OF THE MERGER PROPOSAL IS CONDITIONED UPON APPROVAL OF THE CHARTER
AMENDMENT PROPOSAL. APPROVAL OF THE CHARTER AMENDMENT PROPOSAL IS ALSO
CONDITIONED UPON APPROVAL OF THE MERGER PROPOSAL. The election of directors
requires the affirmative vote of a majority of the shares of CSC Common Stock
present in person or represented by proxy at the CSC Annual Meeting. Holders of
CSC Common Stock are entitled to one vote per share, except that stockholders
and any proxy holders for such stockholders are entitled to exercise the right
of cumulative voting for the election of directors. In order to exercise the
right of cumulative voting, one or more of the stockholders requesting
cumulative voting must give notice before the vote to the President or
Secretary of CSC that the stockholder desires that the voting for the election
of directors be cumulative.
Only holders of CSC Common Stock at the close of business on June 21, 1996
(the "CSC Record Date") will be entitled to notice of and to vote at the CSC
Annual Meeting. See "The CSC Annual Meeting." As of the CSC Record Date, there
were 56,213,135 shares of CSC Common Stock outstanding and directors and
executive officers of CSC and their affiliates were beneficial owners of
approximately 2.1% of the outstanding shares of CSC Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management--Certain Stockholders of
CSC."
Continuum. The approval and adoption of the Merger Agreement will require
approval by the affirmative vote of the holders of two-thirds of the
outstanding shares of Continuum Common Stock entitled to vote thereon. Holders
of Continuum Common Stock are entitled to one vote per share. Only holders of
Continuum Common Stock at the close of business on June 21, 1996 (the
"Continuum Record Date") will be entitled to notice of and to vote at the
Continuum Special Meeting. See "The Continuum Special Meeting." As of the
Continuum Record Date, there were 24,384,873 shares of Continuum Common Stock
outstanding and DST Systems, Inc. ("DST") was the beneficial owner of
approximately 22.8% of the outstanding shares of Continuum Common Stock.
Pursuant to an agreement with CSC, DST has agreed to vote the shares of
Continuum Common Stock beneficially owned by it in favor of approval and
adoption of the Merger Agreement and any action in furtherance thereof. See
"The Merger--Certain Other Agreements--Stockholder Agreement." As of the
Continuum Record Date, directors and executive officers of Continuum and their
affiliates (excluding DST) were beneficial owners of approximately 5.3% of the
outstanding shares of Continuum Common Stock. See "Security Ownership of
Certain Beneficial Owners and Management--Certain Stockholders of Continuum."
6
<PAGE>
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of CSC and Continuum believe that the terms of the
Merger are fair to, and in the best interests of, the stockholders of their
respective companies, and have unanimously approved the Merger Agreement and
the related transactions. The CSC Board of Directors unanimously recommends
that its stockholders approve the Merger Proposal and the Charter Amendment
Proposal, and the Continuum Board of Directors unanimously recommends that its
stockholders approve and adopt the Merger Agreement and the transactions
contemplated thereby. See "The Merger--Background of the Merger," "--Reasons
for the Merger; Recommendation of the Board of Directors of CSC," "--Reasons
for the Merger; Recommendation of the Board of Directors of Continuum," and "--
Interests of Certain Persons in the Merger." The CSC Board of Directors also
unanimously recommends that its stockholders elect each of the nominees to the
CSC Board of Directors. See "Additional Matters for Consideration at the CSC
Annual Meeting--Election of CSC Directors."
OPINIONS OF FINANCIAL ADVISORS
Goldman, Sachs & Co. ("Goldman Sachs") has delivered its written opinion to
the Board of Directors of CSC dated April 28, 1996 stating that, as of such
date, the Exchange Ratio pursuant to the Merger Agreement was fair to CSC.
Lehman Brothers Inc. ("Lehman Brothers") has delivered its written opinion to
the Board of Directors of Continuum dated April 28, 1996 stating that, as of
such date, the Exchange Ratio contemplated by the Merger was fair, from a
financial point of view, to the holders of Continuum Common Stock.
For information on the respective assumptions made, matters considered and
limitations of the reviews undertaken by Goldman Sachs and Lehman Brothers, see
"The Merger--Opinion of CSC's Financial Advisor," and "The Merger--Opinion of
Continuum's Financial Advisor." STOCKHOLDERS OF EACH OF CSC AND CONTINUUM,
RESPECTIVELY, ARE URGED TO, AND SHOULD, READ IN THEIR ENTIRETY THE FULL TEXT OF
THE WRITTEN OPINIONS OF GOLDMAN SACHS AND OF LEHMAN BROTHERS ATTACHED AS
ANNEXES B AND C, RESPECTIVELY, TO THIS PROXY STATEMENT/PROSPECTUS AND
INCORPORATED HEREIN BY REFERENCE.
THE MERGER
Merger Consideration
In the Merger, each outstanding share of Continuum Common Stock (other than
shares owned by Continuum as treasury stock or by its subsidiaries (excluding
7,837 shares held in the name of Paxus Corporation Limited) or by CSC or its
subsidiaries, all of which shall be canceled) will be automatically converted
(subject to certain provisions described herein with respect to fractional
shares) into 0.79 of a fully paid and nonassessable share of CSC Common Stock.
Cash will be paid in lieu of fractional shares. Upon consummation of the
Merger, Sub will be merged with and into Continuum and Continuum, as the
surviving corporation in the Merger (the "Surviving Corporation"), will become
a wholly-owned subsidiary of CSC. See "The Merger Agreement--Terms of the
Merger."
Based upon the shares outstanding as of the CSC Record Date and the Continuum
Record Date, the stockholders of Continuum will own approximately 25.5% of the
outstanding CSC Common Stock following consummation of the Merger. Such
percentage could change prior to the Merger depending on the number of shares
of CSC Common Stock and Continuum Common Stock issued prior to the Merger upon
exercise of the CSC and Continuum stock options outstanding as of such record
dates.
At the Effective Time, each outstanding option to purchase shares of
Continuum Common Stock (a "Continuum Stock Option") issued by Continuum
pursuant to a Continuum stock option plan or certain stock option agreements,
or issued by Hogan pursuant to a Hogan stock option plan and assumed by
Continuum in
7
<PAGE>
connection with its acquisition of Hogan, whether vested or unvested, shall be
assumed by CSC. Each Continuum Stock Option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Continuum Stock Option, the same number of shares of CSC Common Stock as
the holder of such Continuum Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time, at a price per share equal to the
aggregate exercise price for the Continuum Stock Option divided by the number
of full shares of CSC Common Stock deemed purchasable pursuant to such
Continuum Stock Option. With respect to any Continuum Stock Option that
provides for the acceleration of vesting in the event that the Continuum Common
Stock achieves certain public trading thresholds, such trading price thresholds
shall be adjusted by dividing the threshold by the Exchange Ratio. At the
Continuum Record Date, there were outstanding Continuum Stock Options to
purchase an aggregate of 3,197,348 shares of Continuum Common Stock at an
average exercise price of $26.61 per share (which is equivalent to 2,525,904
shares of CSC Common Stock at an average exercise price of $33.68 per share).
Approval by the CSC stockholders of the Merger Proposal includes approval of
CSC's assumption of the stock option plans and nonqualified stock option
agreements pursuant to which the Continuum Stock Options were issued. See "The
Merger--Interests of Certain Persons in the Merger."
Conditions to the Merger; Termination
The obligations of CSC and Continuum to consummate the Merger are subject to
various conditions, including, but not limited to: (i) obtaining requisite
stockholder and governmental approvals; (ii) the absence of any preliminary or
permanent injunction or other order by any federal or state court which
prevents the consummation of the Merger; (iii) approval for listing on the
NYSE, subject to official notice of issuance, of the CSC Common Stock to be
issued in connection with the Merger; (iv) receipt of an opinion of counsel at
the closing of the Merger in respect of certain federal income tax consequences
of the Merger; (v) receipt of an accountant's letter to the effect that the
Merger qualifies for "pooling of interests" accounting treatment; and (vi) the
absence of changes in the business of CSC and Continuum that would have a
material adverse effect on CSC or Continuum. See "The Merger Agreement--
Conditions to Consummation of the Merger."
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval and adoption of the Merger Agreement by
the stockholders of Continuum: (i) by mutual consent of CSC and Continuum; and
(ii) by either CSC and Sub or Continuum if the Merger shall not have been
consummated by December 31, 1996 (provided the terminating party's failure to
fulfill its obligations under the Merger Agreement is not the reason that the
Merger has not been consummated), or if the Merger has been enjoined or
otherwise prohibited by a final nonappealable court order or other governmental
action. The Merger Agreement may also be terminated by CSC and Sub in the event
the Continuum Board of Directors recommends to the Continuum stockholders a
Superior Proposal (as defined), or withdraws, modifies or changes its approval
or recommendation of the Merger Agreement or the Merger, or fails to call, give
notice of, convene or hold the Continuum Special Meeting. The Merger Agreement
may also be terminated under certain other circumstances. See "The Merger
Agreement--Termination; Fees and Expenses."
Listing
It is a condition to the Merger that the shares of CSC Common Stock to be
issued in the Merger be authorized for listing on the NYSE, subject to official
notice of issuance.
Appraisal Rights
Under the General Corporation Law of the State of Delaware ("DGCL") and the
Nevada General Corporation Law ("NGCL"), the holders of Continuum Common Stock
and CSC Common Stock are not entitled to any appraisal rights with respect to
the Merger. See "The Merger--Appraisal Rights"; "Comparison of Stockholder
Rights--Appraisal and Dissenters' Rights."
8
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Governmental Approvals Required
The Merger is subject to the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). CSC and Continuum have filed pre-merger notification forms with the
Federal Trade Commission (the "FTC") and the Department of Justice under the
HSR Act with respect to CSC's acquisition of Continuum, and CSC and DST have
filed pre-merger notification forms with the FTC and the Department of Justice
with respect to DST's ownership of shares of CSC Common Stock following the
Merger. Early termination of the required waiting periods was granted with
respect to both filings on June 6, 1996. See "The Merger--Certain Legal
Matters."
Certain aspects of the Merger may require notifications to, and/or approvals
from authorities in certain of the foreign jurisdictions in which CSC and/or
Continuum currently operate. CSC and Continuum believe that all such material
filings and approvals have been made or obtained, or will be made or obtained,
as the case may be. See "The Merger--Certain Legal Matters."
Anticipated Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon the receipt of (i) an opinion from Deloitte & Touche LLP, the independent
auditors of CSC, confirming that the Merger will be accounted for as a "pooling
of interests" and (ii) written confirmation from Ernst & Young LLP, the
independent auditors of Continuum, that Continuum is eligible to be party to a
merger accounted for as a "pooling of interests" and that it is not aware of
any matters which would prohibit such treatment in connection with the Merger.
See "The Merger--Anticipated Accounting Treatment" and "The Merger Agreement--
Conditions to Consummation of the Merger."
Termination Fee
Continuum will be required to pay CSC a fee of $45 million (the "Termination
Fee") in the event that CSC and Sub terminate the Merger Agreement because the
Continuum Board of Directors recommends a Superior Proposal or withdraws or
changes its recommendation of the Merger Agreement. Continuum will also be
required to pay the Termination Fee in certain circumstances if the Merger
Agreement is terminated (i) by CSC and Sub because of a breach of any of
Continuum's representations, warranties or covenants which is not cured within
a specified period, and within 12 months of such termination, a Third Party
Acquisition occurs or an agreement is entered into by Continuum with respect to
a Third Party Acquisition, or (ii) by Continuum or CSC and Sub because the
Merger Agreement is not approved by the Continuum stockholders at the Continuum
Special Meeting at a time when an offer for a Third Party Acquisition has been
made, is under consideration by Continuum or has been publicly announced. If
the Merger Agreement is terminated by CSC because the Merger Agreement is not
approved by the Continuum stockholders at the Continuum Special Meeting, or
Continuum breaches one of its representations, warranties or covenants,
Continuum shall be obligated (unless a Termination Fee is required) to
reimburse CSC and Sub for actual expenses not to exceed $2 million.
If the Merger Agreement is terminated by Continuum because the CSC
stockholders do not approve the Merger Proposal or the Charter Amendment
Proposal at the CSC Annual Meeting or CSC or Sub breaches one of its
representations, warranties or covenants, CSC shall be obligated to reimburse
Continuum for actual expenses not to exceed $2 million.
In all other cases, CSC and Continuum will each bear its own expenses.
See "The Merger Agreement--Termination; Fees and Expenses."
9
<PAGE>
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or such later time as CSC
and Continuum may agree upon and set forth in the Certificate of Merger (the
"Effective Time"). The Effective Time is currently expected to occur on or
shortly after August 1, 1996, subject to approval by the stockholders of CSC
and Continuum of the matters described herein and satisfaction or waiver of the
other conditions precedent to the Merger set forth in the Merger Agreement. See
"The Merger--Effective Time" and "The Merger Agreement--Conditions to the
Consummation of the Merger."
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, ChaseMellon Shareholder
Services, L.L.C., or another agent designated by CSC, in its capacity as
exchange agent for the Merger (the "Exchange Agent"), will send a transmittal
letter to each Continuum stockholder of record at the Effective Time. The
transmittal letter will contain instructions with respect to the surrender of
certificates representing Continuum Common Stock to be exchanged for CSC Common
Stock and cash in lieu of fractional shares. Holders of certificates which
prior to the Effective Time represented Continuum Common Stock will not be
entitled to receive any payment of dividends or other distributions with
respect to CSC Common Stock until such certificates have been surrendered for
certificates representing CSC Common Stock. See "The Merger--Conversion of
Shares; Procedures for Exchange of Certificates."
CONTINUUM STOCKHOLDERS SHOULD NOT FORWARD CONTINUUM COMMON STOCK CERTIFICATES
TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. CONTINUUM
STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Continuum Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of Continuum management and
the Continuum Board of Directors have certain interests in the Merger that are
in addition to the interests of stockholders of Continuum generally. These
interests arise from, among other things, certain employee benefit and bonus
plans, indemnification arrangements and other matters which CSC will assume or
has agreed to provide after the Merger. See "The Merger--Interests of Certain
Persons in the Merger."
CERTAIN CONSIDERATIONS
In deciding whether to approve the Merger Proposal and the Charter Amendment
Proposal or to approve and adopt the Merger Agreement, as the case may be,
stockholders of CSC and Continuum should carefully evaluate the matters set
forth under "The Merger--Certain Considerations." Factors to be considered
include the following: (i) the relative stock prices of CSC Common Stock and
Continuum Common Stock at the Effective Time may vary significantly from the
prices as of the date of execution of the Merger Agreement or the date of this
Proxy Statement/Prospectus or the date of the CSC Annual Meeting or the
Continuum Special Meeting; and (ii) the Exchange Ratio is fixed and will not be
adjusted based on changes in the relative stock prices of the CSC Common Stock
and the Continuum Common Stock. See "The Merger--Certain Considerations."
10
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"), so that no gain or loss
would be recognized by CSC, Continuum or the stockholders of Continuum, except
for gain or loss attributable to cash received in lieu of fractional shares.
Vinson & Elkins L.L.P., counsel to Continuum, has delivered to Continuum's
Board of Directors its opinion, dated the date of this Proxy
Statement/Prospectus, that the Merger will qualify as a tax-free reorganization
within the meaning of section 368(a) of the Code. See "The Merger--Certain
Federal Income Tax Consequences."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Continuum currently are governed by Delaware
law, Continuum's Certificate of Incorporation, and Continuum's Bylaws. Upon
consummation of the Merger, stockholders of Continuum will become stockholders
of CSC, which is a Nevada corporation, and their rights as stockholders of CSC
will be governed by Nevada law, CSC's Restated Articles of Incorporation, as
further amended by the Charter Amendment Proposal, CSC's Bylaws, and the CSC
Rights Agreement. For a discussion of various differences between the rights of
stockholders of Continuum and the rights of stockholders of CSC, see
"Comparison of Stockholder Rights."
COMPARATIVE PER SHARE PRICES
On Friday, April 26, 1996, the last sales prices of CSC Common Stock and
Continuum Common Stock as reported on the NYSE Composite Tape were $78 1/8 per
share and $45 3/8 per share (based upon the Exchange Ratio, Continuum
equivalent $61.72), respectively. The public announcement of the Merger
Agreement occurred prior to the commencement of trading on Monday, April 29,
1996. On June 24, 1996, the last sales prices of CSC Common Stock and Continuum
Common Stock prior to printing this Proxy Statement/Prospectus as reported on
the NYSE Composite Tape were $74 1/8 per share and $58 per share (based upon
the Exchange Ratio, Continuum equivalent $73.42), respectively. See "Price
Range of Common Stock."
CERTAIN OTHER AGREEMENTS
Stockholder Agreement. Concurrently with the execution of the Merger
Agreement, DST and CSC entered into an agreement (the "Stockholder Agreement")
relating to 5,549,141 shares of Continuum Common Stock beneficially owned by
DST (the "DST Shares"), representing approximately 22.8% of the shares
outstanding as of June 21, 1996. Under the Stockholder Agreement, DST has
agreed to vote the DST Shares in favor of approval and adoption of the Merger
Agreement and any actions in furtherance thereof. DST has also agreed not to
directly or indirectly (i) sell, pledge, or otherwise dispose of the DST
Shares, (ii) grant any proxy or power of attorney with respect to the DST
Shares, or deposit the DST Shares into a voting agreement, or (iii) take any
action that would make any of its representations or warranties as to its
beneficial ownership of Continuum Common Stock untrue or incorrect. See "The
Merger--Certain Other Agreements."
Registration Rights Agreement. Concurrently with the execution of the Merger
Agreement, DST and CSC entered into an agreement (the "Registration Rights
Agreement") relating to certain existing registration rights of DST with
respect to shares of Continuum Common Stock that it currently owns. Under the
Registration Rights Agreement, CSC and DST agreed that, subject to certain
conditions, the registration rights of DST with respect to its Continuum Common
Stock granted pursuant to Section 11 of the Agreement dated September 30, 1993,
among Continuum, Continuum Acquisition, Inc. and Vantage Computer Systems, Inc.
("Vantage") will be assumed by CSC and will apply to all of the shares of CSC
Common Stock issued to DST in the Merger. See "The Merger--Certain Other
Agreements."
Data Processing Services Agreement. In connection with the Merger Agreement,
DST and CSC entered into an agreement in principle (the "Data Processing
Agreement") relating to the orderly transfer of the data processing services
provided to Continuum by DST, to data centers operated by CSC, following
consummation of the Merger. See "The Merger--Certain Other Agreements."
11
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables present selected historical financial data of CSC and
Continuum, and selected unaudited pro forma combined financial data after
giving effect to the Merger under the pooling of interests method of
accounting. CSC's historical financial data for each of the annual periods
presented have been derived from its audited consolidated financial statements
previously filed with the Commission. Continuum's historical financial data for
each of the annual periods presented also have been derived from its financial
statements previously filed with the Commission, and reflect Continuum's
acquisitions of Hogan and Paxus Corporation Limited ("Paxus"), which were
accounted for as pooling of interests transactions.
The selected unaudited pro forma combined financial data have been derived
from, or prepared on a basis consistent with, the unaudited pro forma combined
condensed financial statements included herein. This data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred or that will occur after
consummation of the Merger.
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE COMPANIES'
HISTORICAL AND PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS AND NOTES
THERETO, EITHER INCORPORATED BY REFERENCE OR INCLUDED HEREIN. SEE "UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
CSC
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------
MARCH 29, MARCH 31, APRIL 1, APRIL 2, APRIL 3,
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues................ $4,242,422 $3,372,502 $2,582,670 $2,479,847 $2,113,351
Income before taxes..... 231,392 173,712 149,083 128,249 109,223
Earnings before
cumulative effect of
accounting change(1)... 141,692 110,739 90,930 78,149 68,177
Earnings per common
share before cumulative
effect of accounting
change(1).............. $ 2.48 $ 2.09 $ 1.77 $ 1.55 $ 1.37
Weighted average common
shares outstanding..... 57,214 52,975 51,385 50,276 49,647
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 104,867 $ 155,310 $ 126,820 $ 111,477 $ 115,739
Working capital......... 383,811 303,593 195,875 332,273 265,563
Total assets............ 2,595,790 2,333,660 1,806,380 1,460,922 1,375,386
Long-term debt.......... 405,471 310,317 273,344 295,316 349,410
Total debt.............. 475,779 447,745 323,801 312,039 389,710
Stockholders' equity.... 1,305,694 1,148,559 805,680 695,380 606,810
</TABLE>
- --------
(1) In the fiscal year ended April 1, 1994, CSC adopted SFAS 109 and changed
its method of accounting for income taxes from the deferred method to the
asset-and-liability method, resulting in a $4.9 million increase in net
income, or $0.09 per common share.
12
<PAGE>
CONTINUUM
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA*
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues...................... $498,338 $415,524 $313,720 $300,981 $317,849
Income (loss) before taxes.... (34,462) 47,102 (24,162) 8,506 (5,627)
Income (loss) from continuing
operations................... (32,261) 32,498 (23,508) 119 (13,426)
Earnings (loss) per common
share from continuing
operations................... $ (1.35) $ 1.37 $ (1.10) $ 0.01 $ (0.70)
Weighted average common shares
outstanding.................. 23,879 23,700 21,390 19,323 19,095
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 9,006 $ 52,289 $ 21,038 $ 75,563 $ 76,829
Working capital............... 33,978 80,216 45,582 62,887 59,513
Total assets.................. 340,281 296,381 257,180 242,554 262,293
Long-term debt................ 21,163 25,379 19,149 24,513 13,000
Total debt.................... 29,194 28,121 22,225 46,915 38,717
Stockholders' equity.......... 111,443 138,961 102,971 86,628 84,554
</TABLE>
- --------
* As described below, during the fiscal years ended March 31, 1996 and 1994,
Continuum recorded nonrecurring charges of $76.1 million ($61.7 million net
of tax benefits) and $48.6 million ($38.9 million net of tax benefits),
respectively, related to its acquisitions.
During the quarter ended March 31, 1996, Continuum acquired Hogan. The
selected financial data includes the results of Hogan, accounted for as a
pooling of interests, for all periods. In connection with the Hogan
acquisition and the restructuring of its expanded business, Continuum charged
$50.1 million to operations ($35.7 million after tax benefits). These charges
included transaction costs of $9.6 million, restructuring costs of $9.8
million, and adjustments to the carrying value of certain operating assets of
$30.7 million.
During the quarter ended December 31, 1995, Continuum acquired all of the
shares of SOCS Holding, a Paris-based software and services company ("SOCS"),
for $37.6 million. The estimated excess of the purchase price over the net
assets acquired totaled $43.7 million, with $2.4 million assigned to purchased
software, $15.3 million assigned to goodwill, and $26 million assigned to
purchased research and development, which was expensed in connection with the
acquisition.
During the quarter ended September 30, 1993, Continuum acquired Paxus and
Vantage. The selected financial data includes the results of Paxus, accounted
for as a pooling of interests, for all periods presented. In connection with
the Vantage and Paxus acquisitions, Continuum charged to operations purchased
research and development of $16 million and restructuring costs of $32.6
million ($22.9 million after tax benefits), resulting in a loss for fiscal
1994. Losses prior to fiscal 1994 result from retroactively including the
operating losses of Paxus.
Hogan paid dividends of $0.15 per share in fiscal 1992 and 1993, and $0.17
per share in fiscal 1994 and 1995. Hogan did not pay a dividend in fiscal
1996.
13
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statement of earnings data for the
fiscal years ended March 29, 1996, March 31, 1995 and April 1, 1994 assumes
that the Merger occurred at the beginning of the periods presented. The
following unaudited pro forma combined balance sheet data as of March 29, 1996
assumes that the Merger occurred as of that date.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED*
-----------------------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues............................ $ 4,740,760 $ 3,788,026 $ 2,896,390
Income before taxes................. 196,930 220,814 124,921
Earnings before cumulative effect of
accounting change.................. 109,431 143,237 67,422
Earnings per common share before
cumulative effect of accounting
change............................. $ 1.43 $ 1.99 $ 0.99
Weighted average common shares out-
standing........................... 76,534 71,851 68,366
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 113,873
Working capital..................... 396,689
Total assets........................ 2,923,071
Long-term debt...................... 426,634
Total debt.......................... 504,973
Stockholders' equity................ 1,383,037
</TABLE>
- --------
* Each of Continuum's fiscal years ended on March 31.
See Continuum's Annual Report on Form 10-K, as amended, for the fiscal year
ended March 31, 1996, which is incorporated herein by reference, for
information regarding Continuum's acquisitions of Hogan on March 15, 1996 and
SOCS on December 28, 1995.
Hogan paid dividends of $0.15 per share in fiscal 1992 and 1993, and $0.17
per share in fiscal 1994 and 1995. Hogan did not pay a dividend in fiscal 1996.
14
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are certain per common share data of CSC and Continuum on an
historical basis, an unaudited pro forma basis for CSC, and an equivalent
unaudited pro forma basis for Continuum. The unaudited CSC pro forma data was
derived by combining historical consolidated financial information of CSC and
Continuum, giving effect to the Merger under the pooling of interests method of
accounting for business combinations. The equivalent unaudited pro forma data
for Continuum was calculated by multiplying the unaudited CSC pro forma per
common share data by the Exchange Ratio.
This information should be read in conjunction with the historical financial
statements of CSC and Continuum incorporated by reference in this Proxy
Statement/Prospectus and the unaudited pro forma combined condensed financial
statements included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED*
----------------------------
MARCH 29, MARCH 31, APRIL 1,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
CSC
HISTORICAL PER COMMON SHARE DATA:
Earnings before cumulative effect of account-
ing change................................... $ 2.48 $2.09 $ 1.77
Book value.................................... 23.30
UNAUDITED PRO FORMA PER COMMON SHARE DATA:
Earnings before cumulative effect of account-
ing change................................... $ 1.43 $1.99 $ 0.99
Book value.................................... 18.41
CONTINUUM
HISTORICAL PER COMMON SHARE DATA:
Net income (loss)............................. $(1.35) $1.37 $(1.10)
Book value.................................... 4.61
EQUIVALENT UNAUDITED PRO FORMA PER COMMON SHARE
DATA:
Earnings before cumulative effect of account-
ing change................................... $ 1.13 $1.57 $ 0.78
Book value.................................... 14.55
</TABLE>
- --------
* Each of Continuum's fiscal years ended on March 31.
Per share amounts for earnings (loss) before cumulative effect of accounting
change were computed based on the number of average shares outstanding during
the period.
Per share amounts for book value were computed based on the number of shares
outstanding as of the end of the period presented.
See Continuum's Annual Report on Form 10-K, as amended, for the fiscal year
ended March 31, 1996, which is incorporated herein by reference, for
information regarding Continuum's acquisitions of Hogan on March 15, 1996 and
SOCS on December 28, 1995.
It has been CSC's policy to invest earnings in the growth of its business
rather than distribute earnings as cash dividends. Accordingly, CSC has not
distributed any cash dividends during the three years ended March 29, 1996.
Continuum has not paid cash dividends on Continuum Common Stock since the
first quarter of its fiscal year ended March 31, 1987 and, if the Merger is not
consummated, has no current intention to pay any such cash dividends. The
Merger Agreement does not permit Continuum to pay cash dividends on Continuum
Common Stock.
Hogan paid dividends of $0.15 per share in fiscal 1992 and 1993, and $0.17
per share in fiscal 1994 and 1995. Hogan did not pay a dividend in fiscal 1996.
15
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to stockholders of each
of CSC and Continuum in connection with the solicitation of proxies by and on
behalf of the Boards of Directors of CSC and Continuum, respectively, for use
at the CSC Annual Meeting and the Continuum Special Meeting, as the case may
be. The CSC Annual Meeting will be held at 11:00 a.m. Pacific Daylight Time,
on Wednesday, July 31, 1996 at the Sheraton Gateway Hotel, Los Angeles
Airport, 6101 West Century Boulevard, Los Angeles, California 90045. The
Continuum Special Meeting will be held at 1:00 p.m., Austin time, on
Wednesday, July 31, 1996 at Continuum's headquarters, 9500 Arboretum
Boulevard, Austin, Texas 78759-6399. This Proxy Statement/ Prospectus and the
related forms of proxy for each of CSC and Continuum are first being mailed to
their respective stockholders on or about July 1, 1996.
THE COMPANIES
CSC AND SUB
CSC was founded in 1959 and is among the world leaders in the information
technology ("IT") services industry. CSC offers a broad array of professional
services to industry and government, and specializes in the application of
advanced and complex IT to achieve its customers' strategic objectives. CSC's
services include:
OUTSOURCING--Operating all or a portion of a customer's technology
infrastructure, including systems analysis, applications development,
network operations and data center management.
SYSTEMS INTEGRATION--Designing, developing, implementing and integrating
complete information systems.
IT AND MANAGEMENT CONSULTING AND OTHER PROFESSIONAL SERVICES--Advising
clients on a wide range of issues, including how to shape their strategies
and operations to become market leaders, the strategic acquisition and
utilization of IT, and "business reengineering"--redesigning operations to
achieve efficiencies and improve competitive position.
For more than three decades, CSC has provided IT services to the United
States federal government, ranging from traditional systems integration and
outsourcing to advanced technical undertakings and complex project management.
In 1986, federal contracts accounted for 70% of CSC's revenues. To accelerate
its growth and take advantage of competencies gained as a leader in the
federal sector, CSC decided at this time to devote substantial resources to
further develop its commercial business.
As a result of this strategy, CSC has increased its penetration of the
domestic and international commercial markets and diversified its businesses.
CSC's revenues from commercial markets have grown at a compound annual growth
rate ("CAGR") of 27% from fiscal 1986 through fiscal 1996. During the most
recent five years (fiscal 1991 through 1996), CSC's commercial revenues have
grown at a faster rate, achieving a 32% CAGR. The proportion of CSC's revenues
earned from commercial business has more than doubled in the last ten years,
increasing from 30% for fiscal 1986 to 63% for fiscal 1996. CSC's strategy is
to continue to expand its commercial market share through internal growth and
acquisitions in targeted services and geographic markets, while maintaining a
leading position in the federal market.
CSC believes that its technology and systems expertise and large project
management skills gained through years of experience in providing IT services
to the federal government position it to compete effectively in U.S. and
international commercial markets. CSC also believes that its competitive
position is enhanced by its leadership position in management consulting and
the full spectrum of services that it provides.
Internationally, CSC operates in Belgium, France, Germany, the Netherlands
and the United Kingdom. In addition, CSC, through its operations in the
Pacific Rim, is a leading systems integration, outsourcing and software
development provider in Australia and New Zealand. CSC provides substantially
the same services to its international customers that it provides to U.S.
customers.
16
<PAGE>
CSC is incorporated under the laws of the State of Nevada. Its principal
executive offices are located at 2100 East Grand Avenue, El Segundo,
California 90245, and its telephone number is (310) 615-0311.
Sub is a wholly-owned subsidiary of CSC, and was incorporated under the laws
of the State of Delaware on March 4, 1996. Sub conducted no business prior to
entering into the Merger Agreement.
CONTINUUM
Continuum is an international consulting and computer services firm serving
the needs of the global financial services industry for computer software and
services. Continuum provides outsourcing services, including third party
administrative services, to the financial services industry, sophisticated
financial services software systems, and related software development,
installation, customization, enhancement, and maintenance services.
Outsourcing services offered by Continuum range from the remote processing of
a single financial services software application to the complete replacement
of a customer's data processing department. The software systems marketed by
Continuum streamline the work processes and automate the administrative
functions of financial services companies, such as issuing insurance policies,
administering deposits, and complying with complex government regulations and
reporting requirements. Continuum offers a wide range of banking, life
insurance, general insurance (also known as non-life or property and casualty
insurance), and reinsurance software applications, including products with
extensive adaptations to the specific regional requirements of the world's
major financial services markets. Continuum's product line includes systems
designed for use on a variety of hardware platforms, including mainframe
computers, mid-range computers, workstations and local area networks.
Continuum's fee-based services business, which currently provides over 93%
of Continuum's revenues, is built around Continuum's proprietary application
software systems, and emphasizes the cultivation and preservation of long-term
relationships with customers. Continuum's outsourcing contracts tend to be
long-term relationships with good probabilities of ongoing renewal. The
implementation of Continuum's software systems often generates significant
service revenues because the unique nature of each financial services
company's products and operations requires customization. Continuum's
workforce of approximately 4,300 persons (at March 31, 1996) is composed
principally of skilled professionals with extensive, specialized knowledge of
software development, data processing, and financial services operations.
On March 15, 1996, Continuum acquired Hogan, a provider of integrated
software applications and related consulting services to banks and other
financial institutions worldwide. On December 28, 1995, Continuum acquired
SOCS, a Paris-based provider of insurance application software and related
services to the French insurance industry. On May 3, 1995, Continuum acquired
Ra Group Limited, a leading provider of software systems to insurance brokers
in the United Kingdom. See Continuum's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996, which is incorporated herein by reference.
Continuum was incorporated under the laws of the State of Texas in 1968, and
reincorporated in the State of Delaware in August 1987. The principal
executive offices of Continuum are located at 9500 Arboretum Boulevard,
Austin, Texas 78759-6399, and its telephone number is (512) 345-5700.
RECENT DEVELOPMENTS
Continuum has entered into an agreement to acquire the Australian and New
Zealand subsidiaries of McDonnell Information Systems Group Plc ("MDIS") for
cash of approximately US$11,000,000. MDIS is a leading supplier of computer
software systems to hospitals in Australia and New Zealand, predominantly for
patient administration and clinical information. The transaction is subject to
the approval of the shareholders of MDIS and regulatory approval in Australia.
The transaction is expected to be consummated in late July or early August,
1996.
17
<PAGE>
THE CSC ANNUAL MEETING
PURPOSE OF THE CSC ANNUAL MEETING
At the CSC Annual Meeting, holders of CSC Common Stock will consider and
vote upon the Merger Proposal, the Charter Amendment Proposal and the election
of nominees to the CSC Board of Directors. THE MERGER PROPOSAL AND THE CHARTER
AMENDMENT PROPOSAL ARE EACH CONDITIONED UPON THE APPROVAL OF THE OTHER BY THE
REQUISITE VOTE OF THE STOCKHOLDERS OF CSC. Approval of the Merger Proposal by
the holders of CSC Common Stock will also constitute approval of the
assumption by CSC of the stock option plans and nonqualified stock option
agreements pursuant to which the Continuum Stock Options were issued. For a
description of the Merger Proposal, see "The Merger" and "The Merger
Agreement." For a description of the Charter Amendment Proposal, see "Proposed
Increase in Authorized Shares of CSC Common Stock." For a description of the
nominees to the CSC Board of Directors, see "Additional Matters for
Consideration at the CSC Annual Meeting--Election of CSC Directors." CSC
stockholders will also consider and vote upon such other matters as may
properly be brought before the meeting.
THE BOARD OF DIRECTORS OF CSC HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL
AND THE CHARTER AMENDMENT PROPOSAL AND RECOMMENDS A VOTE FOR THE MERGER
PROPOSAL AND THE CHARTER AMENDMENT PROPOSAL. THE BOARD OF DIRECTORS ALSO HAS
UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE FOR THE NOMINEES TO THE BOARD OF
DIRECTORS.
RECORD DATE; VOTING RIGHTS; PROXIES
The CSC Board of Directors has fixed the close of business on June 21, 1996
as the CSC Record Date for determining holders entitled to notice of and to
vote at the CSC Annual Meeting.
As of the CSC Record Date, there were 56,213,135 shares of CSC Common Stock
issued and outstanding, each of which entitles the holder thereof to one vote.
All shares of CSC Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH SHARES OF CSC COMMON STOCK WILL BE VOTED IN FAVOR OF THE MERGER PROPOSAL,
THE CHARTER AMENDMENT PROPOSAL AND THE ELECTION OF THE NOMINEES TO THE CSC
BOARD OF DIRECTORS. CSC does not know of any matters other than as described
in the Notice of Annual Meeting that are to come before the CSC Annual
Meeting. If any other matter or matters are properly presented for action at
the CSC Annual Meeting, the persons named in the enclosed form of proxy and
acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment, unless such authorization is withheld. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of CSC by signing
and returning a later dated proxy, or by voting in person at the CSC Annual
Meeting; however, mere attendance at the CSC Annual Meeting will not in and of
itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the CSC Annual Meeting will be tabulated
by the election inspectors appointed for the meeting and will determine
whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. Broker non-votes are not counted as entitled to vote on a matter in
determining the number of affirmative votes required for approval of the
matter, but are counted as present for quorum purposes. The term "broker non-
votes" refers to shares held by a broker in street name which are present by
proxy but are not voted on a matter pursuant to rules prohibiting brokers from
voting on non-routine matters, such as approval of the Merger Proposal and
Charter Amendment Proposal, without instructions from the beneficial owner of
the shares.
SOLICITATION OF PROXIES
This solicitation is made by the Board of Directors of CSC and the cost of
solicitation will be borne by CSC. Solicitation other than by mail may be made
personally, by telephone or by facsimile, by regularly
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employed officers and employees of CSC who will not be additionally
compensated therefor. CSC will request persons holding stock in their names
for others, such as trustees, brokers and nominees, to forward proxy material
to their principals and request authority for the execution of the proxy and
will reimburse such persons for their expenses in so doing. In addition, CSC
has engaged the services of Morrow & Co., Inc. with respect to proxy
soliciting matters at an expected cost to CSC of approximately $11,500, not
including incidental expenses.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of all of the shares of CSC Common Stock entitled to vote thereat is
necessary to constitute a quorum at the CSC Annual Meeting.
REQUIRED VOTE
As a prerequisite to the listing on the NYSE of the shares of CSC Common
Stock to be issued pursuant to the Merger Agreement, the NYSE requires that
the Merger Proposal be approved by a majority of the votes cast on the Merger
Proposal, provided that the total vote cast on the Merger Proposal represents
a majority of the shares of CSC Common Stock entitled to vote thereon. The
approval of the Charter Amendment Proposal requires the affirmative vote of a
majority of the outstanding shares of CSC Common Stock entitled to vote
thereon. SINCE CSC DOES NOT HAVE A SUFFICIENT NUMBER OF AUTHORIZED BUT
UNISSUED SHARES OF CSC COMMON STOCK TO EFFECT THE MERGER, APPROVAL OF THE
MERGER PROPOSAL IS CONDITIONED UPON APPROVAL OF THE CHARTER AMENDMENT
PROPOSAL. APPROVAL OF THE CHARTER AMENDMENT PROPOSAL IS ALSO CONDITIONED UPON
APPROVAL OF THE MERGER PROPOSAL.
The election of the nominees to the Board of Directors of CSC requires the
affirmative vote of a majority of the shares of CSC Common Stock present in
person or represented by proxy at the CSC Annual Meeting.
THE MATTERS TO BE CONSIDERED AT THE CSC ANNUAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF CSC. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE CONTINUUM SPECIAL MEETING
PURPOSE OF THE CONTINUUM SPECIAL MEETING
At the Continuum Special Meeting, holders of Continuum Common Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement
and such other matters as may properly be brought before the meeting.
THE BOARD OF DIRECTORS OF CONTINUUM HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The Continuum Board of Directors has fixed the close of business on June 21,
1996 as the Continuum Record Date for determining holders entitled to notice
of and to vote at the Continuum Special Meeting.
As of the Continuum Record Date, there were 24,384,873 shares of Continuum
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of Continuum Common Stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated in such proxies. IF NO
INSTRUCTIONS ARE INDICATED, SUCH SHARES OF CONTINUUM COMMON STOCK WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Continuum does not
know of any matters other than as described in the Notice of Special Meeting
of Stockholders that are to come before the Continuum Special Meeting. If any
other matter or matters are properly presented for action at the Continuum
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A stockholder who
has given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Continuum at Continuum's address
indicated in the Notice of Special Meeting of Stockholders, by signing and
returning a later dated proxy, or by voting in person at the Continuum Special
Meeting; however, mere attendance at the Continuum Special Meeting will not in
and of itself have the effect of revoking the proxy.
An automated system administered by Continuum's transfer agent, American
Stock Transfer & Trust Company, will tabulate votes at the Continuum Special
Meeting. Abstentions and broker non-votes will be treated as present for
quorum purposes, but will not be not counted as voted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and employees
of Continuum may solicit proxies from Continuum stockholders by personal
interview, telephone, telegram or otherwise. Continuum will bear its own cost
of solicitation of proxies. Brokerage houses, fiduciaries, nominees and others
will be reimbursed for their reasonable charges and out-of-pocket expenses in
forwarding proxy materials to beneficial owners of stock held in their names.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Continuum Common Stock
entitled to vote thereat is necessary to constitute a quorum at the Continuum
Special Meeting.
REQUIRED VOTE
The approval and adoption of the Merger Agreement and the transactions
contemplated thereby require the affirmative vote of the holders of two-thirds
of the outstanding shares of Continuum Common Stock. As of the Continuum
Record Date, DST was the beneficial owner of approximately 5,549,141 of the
outstanding shares of Continuum Common Stock. Pursuant to an agreement with
CSC, DST has agreed to vote the shares of Continuum Common Stock beneficially
owned by it in favor of approval and adoption of the Merger Agreement and any
action in furtherance thereof. See "The Merger--Certain Other Agreements--
Stockholder Agreement."
THE MATTERS TO BE CONSIDERED AT THE CONTINUUM SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF CONTINUUM. ACCORDINGLY, STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
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THE MERGER
This section of the Proxy Statement/Prospectus and the next section,
entitled "The Merger Agreement," describe certain aspects of the proposed
Merger. To the extent that it relates to the Merger Agreement, the following
description does not purport to be complete and is qualified in its entirety
by reference to the Merger Agreement which is attached as Annex A to this
Proxy Statement/Prospectus. All stockholders are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approvals of the CSC and Continuum stockholders required therefor are obtained
and all other conditions to the Merger are satisfied or waived. Upon
consummation of the Merger, Sub will be merged with and into Continuum and
Continuum will become a wholly-owned subsidiary of CSC.
Upon consummation of the Merger, each outstanding share of Continuum Common
Stock (other than (i) shares held by Continuum as treasury stock or by its
subsidiaries (excluding 7,837 shares held in the name of Paxus Corporation
Limited) and (ii) shares held by CSC or its subsidiaries, all of which shall
be canceled) will be automatically converted (subject to provisions with
respect to fractional shares) into 0.79 of a fully paid and nonassessable
share of CSC Common Stock. Cash will be paid in lieu of fractional shares.
Based upon the shares outstanding as of the CSC Record Date and the
Continuum Record Date, the stockholders of Continuum will own approximately
25.5% of the outstanding CSC Common Stock following consummation of the
Merger. Such percentage could change prior to the Merger depending on the
number of shares of CSC Common Stock and Continuum Common Stock issued prior
to the Merger upon exercise of the CSC and Continuum stock options outstanding
as of such record dates.
EFFECTIVE TIME
The Effective Time of the Merger will occur upon the filing of a Certificate
of Merger with the Secretary of State of the State of Delaware (the
"Certificate of Merger") or at such later time as CSC and Continuum may agree
upon and set forth in the Certificate of Merger. The filing of the Certificate
of Merger will occur on a date specified by the parties which is no later than
the second business day after satisfaction of the latest to occur of the
conditions set forth in Article 5 of the Merger Agreement. The Merger
Agreement may be terminated by either party if the Merger shall not have been
consummated on or before December 31, 1996 and under certain other conditions.
See "The Merger Agreement--Conditions to Consummation of the Merger" and "The
Merger Agreement--Termination; Fees and Expenses."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion, at the Exchange Ratio, of Continuum Common Stock into CSC
Common Stock will occur automatically at the Effective Time.
As soon as reasonably practicable after the Effective Time, a transmittal
letter will be mailed by the Exchange Agent to each stockholder of Continuum
of record as of the Effective Time, informing such stockholder of the
procedures to follow in forwarding his or her Continuum stock certificates to
the Exchange Agent. Upon receipt of such Continuum stock certificates, the
Exchange Agent will deliver a certificate representing full shares of CSC
Common Stock to such stockholder and cash in lieu of any fractional shares
pursuant to the terms of the Merger Agreement and in accordance with the
transmittal letter, together with any dividends or other distributions to
which such stockholder is entitled.
If any issuance of shares of CSC Common Stock in exchange for shares of
Continuum Common Stock is to be made to a person other than the Continuum
stockholder in whose name the certificate is registered at the Effective Time,
it will be a condition of such exchange that the certificate so surrendered be
properly endorsed
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or otherwise in proper form for transfer and that the Continuum stockholder
requesting such issuance either pay any applicable stock transfer tax or
establish to the satisfaction of CSC that such tax has been paid or is not
payable.
After the Effective Time, there will be no further transfers of Continuum
Common Stock on the stock transfer books of Continuum. If a certificate
representing Continuum Common Stock is presented for transfer, it will be
canceled and a certificate representing the appropriate number of whole shares
of CSC Common Stock and cash in lieu of fractional shares and any dividends
and distributions will be issued in exchange therefor.
After the Effective Time and until surrendered, certificates representing
shares of Continuum Common Stock will be deemed to represent only the right to
receive upon such surrender a certificate representing the number of whole
shares of CSC Common Stock into which such shares of Continuum Common Stock
are converted and any cash in lieu of any fractional shares all as
contemplated by the Merger Agreement. No dividends or other distributions, if
any, payable to holders of CSC Common Stock will be paid to the holders of any
certificates for shares of Continuum Common Stock until such certificates are
surrendered. Upon surrender of such certificates, all such declared dividends
and distributions which shall have become payable with respect to such CSC
Common Stock in respect of a record date after the Effective Time will be paid
to the holder of record of the whole shares of CSC Common Stock represented by
the certificate issued in exchange therefor, without interest. Neither CSC nor
Continuum shall be liable to any holder of shares of Continuum Common Stock
for any shares of CSC Common Stock (or dividends thereon) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
CONTINUUM STOCKHOLDERS SHOULD NOT FORWARD CONTINUUM COMMON STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL
LETTERS. CONTINUUM STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
BACKGROUND OF THE MERGER
The timing, terms and conditions of the Merger Agreement are the result of
arms-length negotiations between representatives of CSC and Continuum. Set
forth below is a summary of the negotiations.
Van B. Honeycutt, President and Chief Executive Officer of CSC, initiated a
meeting with W. Michael Long, President and Chief Executive Officer of
Continuum, at Continuum's headquarters in Austin, Texas, on December 14, 1995.
At the meeting, Mr. Honeycutt expressed to Mr. Long CSC's preliminary interest
in discussing an acquisition of Continuum.
On January 5, 1996, Messrs. Honeycutt and Long, together with two other
executive officers from each of CSC and Continuum, met in Houston. At the
meeting, representatives of CSC and Continuum made presentations regarding
their business and financial plans and market strategies, and the parties
discussed generally the possibility of a stock-for-stock merger and the desire
that any transaction be accounted for as a pooling of interests. These general
discussions continued at a meeting held at CSC's headquarters in El Segundo,
California, on January 10, 1996 attended by Messrs. Honeycutt and Long and
other executive officers of CSC and Continuum. On January 10, 1996, CSC and
Continuum entered into a Confidentiality Agreement that included a provision
that prohibited CSC from pursuing an acquisition of Continuum without
Continuum's consent for a period of five years.
At a special meeting of the Board of Directors of CSC on January 12, 1996,
management of CSC made a presentation to the CSC Board regarding the
discussions that had taken place with Continuum. At that meeting, management
outlined the general parameters under which a transaction would be discussed
and described the potential benefits to CSC from a merger with Continuum.
Members of the Board asked a number of questions regarding Continuum and, at
the conclusion of the meeting, the CSC Board authorized management of CSC to
proceed with the discussions with Continuum.
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On three occasions between January 15 and January 25, 1996, Messrs.
Honeycutt and Long met to explore further the possible advantages of a merger.
Thomas A. McDonnell, President and Chief Executive Officer of DST and a
director of Continuum, participated in the first of these three meetings. At
these meetings, the parties discussed generally the business synergies that
could be derived from the transaction and the possible business issues that
might arise. Although major business issues remained unresolved at these
meetings, Messrs. Honeycutt and Long agreed that CSC and Continuum should
proceed to perform "due diligence" investigations and reviews of each other's
businesses for purposes of evaluating further a possible combination of the
two companies.
On January 19, 1996, CSC retained Goldman Sachs to act as its financial
advisor in connection with its negotiation of a possible merger with
Continuum. In early February 1996, Continuum retained Lehman Brothers to act
as Continuum's financial advisor in connection with several business matters,
including a possible combination with CSC.
At a regularly scheduled meeting of the CSC Board on February 5, 1996,
management of CSC made a presentation to the CSC Board regarding the status of
the discussions with Continuum. At the meeting, representatives of management
discussed and analyzed Continuum's and Hogan's financial statements and
businesses, and analyzed the possible benefits that might be derived from an
acquisition of Continuum.
Between February 7 and February 20, 1996, representatives of CSC, Goldman
Sachs and CSC's legal counsel performed due diligence regarding Continuum in
Austin at the offices of Continuum's legal counsel. After entering into a
Confidentiality Agreement with Hogan on February 20, 1996, representatives of
CSC and its financial and legal advisors performed due diligence regarding
Hogan in Dallas from February 21 to March 2, 1996. During the last four days
of February 1996, representatives of Continuum and Lehman Brothers conducted a
due diligence investigation of CSC at its headquarters in El Segundo.
In late February, members of Continuum's management and CSC's management,
along with their respective legal and financial advisors, began to negotiate
the specific terms of the possible merger. During the same period, CSC's
management discussed with DST's management several matters relevant to CSC's
willingness to enter into a merger agreement with Continuum, including DST's
agreement (i) to vote its shares of Continuum Common Stock in favor of a
merger agreement and, (ii) subject to the occurrence of the merger, to
transfer its data processing services for Continuum to data centers operated
by CSC. Counsel to CSC forwarded a first draft of the form of merger agreement
to Continuum on February 22, 1996, and negotiations proceeded on the
provisions of the initial draft, and subsequent drafts, during the week of
February 26. On February 29, 1996, and continuing into the first week of March
1996, Messrs. Honeycutt and Long met in person and telephonically to discuss
various outstanding business matters relating to the possible merger,
including the range of exchange ratios at which CSC might be willing to
acquire Continuum, the size of the break-up fee and the agreements required to
be reached with DST.
On March 4, 1996, CSC notified the members of its Board of Directors that a
special Board meeting would be convened on March 6, 1996 to consider and vote
upon the possible acquisition of Continuum. On March 5, 1996, Messrs.
Honeycutt and Long spoke by telephone in an attempt to resolve the then
outstanding business issues. During their conversation, Messrs. Honeycutt and
Long were unable to reach agreement on several fundamental issues, including
the merger exchange ratio, the size of the breakup fee and the terms of the
agreements that CSC would require from DST, and they concluded that, in light
of the substantial differences between the parties' positions, it did not make
sense to pursue negotiations further. As a result of that discussion,
Continuum and CSC terminated their merger negotiations, and CSC canceled the
special meeting of its Board to consider the possible transaction. At that
time, each party requested the other to return or destroy all confidential
materials that it had obtained from the other as part of its due diligence
investigation.
Prior to the termination of negotiations on March 5, 1996, management of
Continuum had kept the Board of Directors of Continuum generally informed of
management's discussions with CSC concerning a possible business combination
and had provided its Board with extensive background information on CSC. At a
meeting
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of the Continuum Board held in Atlanta on April 2, 1996, representatives of
management and Lehman Brothers briefed the directors on the basic terms of the
transaction that had been under discussion and the reasons for the termination
of those discussions.
Later, in early April 1996, Mr. Honeycutt spoke with Mr. Long by telephone
to request a meeting. The two met in Phoenix on April 10, 1996, and at that
meeting Mr. Honeycutt informed Mr. Long that CSC had given further
consideration to a possible merger with Continuum and that CSC was prepared to
reconsider its earlier position respecting several open business matters,
including an acceptable merger exchange ratio, if Continuum was prepared to
enter into negotiations. Following additional telephone conversations between
Messrs. Honeycutt and Long, representatives of Continuum and Lehman Brothers
met in Phoenix on April 17 and 18, 1996 with representatives of CSC and
Goldman Sachs. After lengthy discussions, Messrs. Honeycutt and Long reached a
general understanding that if they were able to resolve other business issues,
they would present to their respective Boards a merger proposal on the basis
of an exchange ratio of 0.79 of a share of CSC Common Stock for each share of
Continuum Common Stock. Both parties acknowledged that their general
understanding regarding the proposed exchange ratio was conditioned upon each
party's satisfaction with the results of additional due diligence to be
performed (and CSC's ability in the due diligence process to substantiate the
assumptions it had made regarding Continuum that had formed a basis for the
proposed exchange ratio) and the resolution of all outstanding business
issues, including the size of the potential breakup fee, the completion of
certain agreements between CSC and DST relating to the transaction and other
issues.
Following the meeting in Phoenix, representatives of CSC and Continuum and
their respective legal and financial advisors exchanged drafts of the Merger
Agreement and continued to discuss unresolved business, legal and accounting
matters relating to a combination of CSC and Continuum. Representatives of CSC
performed additional due diligence respecting Continuum in Austin from April
22-26, 1996. On April 24, 1996, CSC entered into an agreement in principle
with DST respecting the post-merger transfer of the data processing services
provided by DST to Continuum to data centers operated by CSC, thereby
resolving a material business condition to CSC's willingness to enter into a
definitive merger agreement. Representatives of Continuum and CSC and their
respective legal and financial advisors resolved the remaining issues relating
to the combination of CSC and Continuum in a series of telephone discussions
concluding on Saturday, April 27, 1996, and they agreed upon a form of merger
agreement for presentation to the Boards of Directors of the two companies.
On Sunday, April 28, 1996, CSC's Board of Directors held a special meeting
at CSC's headquarters in El Segundo. At that meeting, members of management of
CSC provided an analysis of CSC's due diligence with respect to Continuum,
CSC's legal advisors summarized the material terms of the Merger Agreement and
Goldman Sachs made a presentation to the Board of the results of its financial
analysis of the transaction and delivered its oral opinion (subsequently
confirmed by delivery of a written opinion) that, as of such date, the
Exchange Ratio was fair to CSC (see "--Opinion of CSC's Financial Advisor").
After questioning management and its advisors regarding the transaction,
reviewing the results of CSC's due diligence with respect to Continuum,
reviewing the material terms of the Merger Agreement and receiving Goldman
Sachs' fairness opinion, CSC's Board determined that the terms of the Merger,
including the issuance of shares of CSC Common Stock in the Merger, were fair
to and in the best interests of CSC and the holders of CSC Common Stock, and
unanimously approved the Merger Agreement and authorized the execution and
delivery thereof. See "--Reasons for the Merger; Recommendation of the Board
of Directors of CSC." After the meeting, Mr. Honeycutt communicated the
results of the meeting to Mr. Long.
Continuum's Board of Directors also met on April 28. At that meeting,
members of management of Continuum provided an analysis of Continuum's due
diligence with respect to CSC, Continuum's legal advisor summarized the
material terms of the Merger Agreement and Lehman Brothers made a presentation
to the Board of the results of its financial analysis of the transaction and
rendered an opinion that, as of such date, the Exchange Ratio was fair, from a
financial point of view, to Continuum's stockholders (see "--Opinion of
Continuum's Financial Advisor"). After questioning management and its advisors
regarding the transaction, reviewing the results of Continuum's due diligence
investigation of CSC, reviewing the material terms of the
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Merger Agreement and receiving Lehman Brothers' opinion, Continuum's Board
determined that the Merger was fair to and in the best interests of Continuum
and the holders of Continuum Common Stock, and unanimously approved the Merger
Agreement and authorized the execution and delivery thereof. See "--Reasons
for the Merger; Recommendation of the Board of Directors of Continuum."
Shortly after the conclusion of the Continuum Board meeting, Continuum and
CSC executed and delivered the Merger Agreement. Before the commencement of
trading on Monday, April 29, 1996, CSC and Continuum issued a joint press
release announcing their execution of the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF CSC
As a part of its ongoing strategy to increase its business in commercial
markets, CSC routinely evaluates strategic vertical market opportunities, and
has identified the insurance, banking and diversified financial services
industries as markets in which CSC could achieve greater penetration with a
more focused strategy and market presence.
CSC believes that the distinctions between the financial services markets--
insurance, banking, securities and mutual funds--are blurring, and that the
financial services industry as a whole is consolidating. Globally, regulatory
restrictions are easing, allowing integrated financial services organizations
to expand their product and service offerings. As a consequence, diversified
financial services organizations are becoming more dependent on innovative
information technologies and are relying more heavily upon a variety of IT
services, including business process reengineering, management consulting,
systems integration and outsourcing.
Continuum is a leading provider of IT services to the insurance, banking and
emerging diversified financial services markets, with more than 850 customers.
Continuum's financial services customer base includes 43% of the financial
services providers listed in Fortune's Global 500 published August 17, 1995.
This is a result, in part, of Continuum's recent acquisition of Hogan, which
has been a leading provider of information technology services to the banking
industry. Hogan's clientele of over 130 financial institutions includes 32 of
the largest 80 banking institutions in the United States, and Continuum's
insurance clients include almost 70% of the top 50 North American life
insurance companies.
CSC believes that the Merger will provide CSC with a substantial presence in
the financial services market, strengthening its competitive position within
this market in outsourcing, business process reengineering and systems
integration services. The Merger will also provide greater geographic
diversity for CSC's business.
Outsourcing. As the financial services markets converge, financial services
organizations must now offer an increasingly complex array of products and
services, and face increasing competition. This has forced these organizations
to focus on their core competencies, while outsourcing non-core functions such
as information technology, back-office administration and telesales and
teleservices. CSC believes that the Merger will combine Continuum's commercial
presence with CSC's financial strength, outsourcing experience and technology
infrastructure, including substantially lower cost data center computing
capacity, which will enhance CSC's ability to take advantage of the burgeoning
financial services outsourcing market.
Business Reengineering. CSC believes that the Merger will also position CSC
to capitalize on its reputation and presence in the business reengineering
market, since Continuum's substantial customer base should provide significant
opportunities to cross-market CSC's services to existing Continuum customers
and to leverage the companies' combined resources.
Systems Integration. CSC also believes that the Merger will provide
opportunities for growth in its sales of systems integration services. The
convergence of the financial services markets is resulting in the
consolidation of various disparate, disconnected back-office systems. These
systems must be integrated, upgraded and in some cases replaced for seamless
customer sales and service and for quality decision making. The Continuum
product offerings, including workflow management systems, customer information
systems,
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executive information systems and data warehousing, allow the customer to
surround these legacy back-office systems to improve their utility and
productivity while preserving the client's investment in those systems.
Continuum also offers products to replace all or part of a customer's back-
office systems. As a result of the Merger, CSC will be able to capitalize on
those product offerings by packaging its systems integration services around
Continuum's software solutions.
Geographic Diversity. The Merger would further diversify CSC's business
geographically, especially in the Pacific Rim. This geographic distribution is
important not only due to the increasing globalization of the financial
services industry, but also due to the opportunity it creates for CSC to
expand its business operations in growth markets.
The Board of Directors of CSC believes that the Merger is fair to, and in
the best interests of, CSC and its stockholders. The CSC Board of Directors
has unanimously approved the terms of the Merger and unanimously recommends
that CSC's stockholders vote FOR the Merger Proposal.
In reaching its conclusions that the Merger is fair to, and in the best
interests of, CSC and its stockholders, the CSC Board of Directors considered,
among other things, the following factors: (i) its knowledge of the business,
operations, properties, assets, financial condition, operating results and
prospects of CSC and Continuum; (ii) current industry, economic and market
conditions; (iii) presentations by CSC's management and by Goldman Sachs,
CSC's financial advisor, with respect to Continuum and CSC; (iv) the opinion
of Goldman Sachs as to the fairness of the Exchange Ratio to CSC (see "--
Opinion of CSC's Financial Advisor"); (v) the terms of the Merger Agreement
(see "The Merger Agreement"); (vi) the structure and accounting treatment of
the transaction; (vii) the compatibility of the respective business
philosophies of CSC and Continuum; and (viii) the opportunity for CSC
stockholders to participate in a larger, more diversified company.
The foregoing discussion of the information and factors considered and given
weight by the CSC Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the CSC Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the CSC Board of Directors may have given different weights to different
factors.
THE CSC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CSC
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF CONTINUUM
The Board of Directors of Continuum has unanimously approved and adopted the
Merger Agreement, has unanimously determined that the Merger is fair to, and
in the best interests of, Continuum and its stockholders, and unanimously
recommends that holders of shares of Continuum Common Stock vote FOR approval
and adoption of the Merger Agreement.
In reaching its decision to approve and adopt the Merger Agreement and to
recommend that Continuum stockholders vote to approve and adopt the Merger
Agreement, Continuum's Board of Directors considered, among other things, the
following factors: (i) the Merger's enhancement of Continuum's goal of
becoming the leading provider of IT and outsourcing solutions to the
integrated financial services industry by leveraging the combined strengths
and resources of Continuum and CSC, including, for example, combining
Continuum's industry expertise and proprietary software products in insurance
and banking with CSC's project management skills, systems integration skills,
low cost data processing infrastructure and financial resources; (ii) the
premium over the pre-announcement market price of Continuum Common Stock
represented by the Exchange Ratio; (iii) the participation of Continuum
stockholders in the synergies and growth possibilities created by the Merger;
(iv) the greater depth and breadth of the market for CSC Common Stock as
compared to the market for Continuum Common Stock; (v) cultural similarities
and common goals and perspectives of CSC's and
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Continuum's management teams; (vi) historic earnings and strength of CSC and
favorable market perception of CSC stock; (vii) the terms of the Merger
Agreement; (viii) the opinion of Continuum's financial advisor, Lehman
Brothers, as to the fairness, from a financial point of view, of the Exchange
Ratio to Continuum stockholders; (ix) the tax-free nature of the transaction
that allows for Continuum stockholders to defer recognition of taxable gains
for U.S. federal income tax purposes; and (x) the opportunities for Continuum
employees created by the growth prospects of the combined companies.
The foregoing discussion of the information and factors considered by the
Continuum Board of Directors is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Continuum Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Continuum Board of Directors may have given different weights to different
factors. For a discussion of the interests of certain members of Continuum's
management and Continuum's Board of Directors in the Merger, see "The Merger--
Interests of Certain Persons in the Merger."
THE CONTINUUM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
CONTINUUM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF CSC'S FINANCIAL ADVISOR
On April 28, 1996, Goldman Sachs delivered its written opinion to the Board
of Directors of CSC that, as of the date of such opinion, the Exchange Ratio
pursuant to the Merger Agreement was fair to CSC.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED APRIL 28, 1996,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS ANNEX
B TO THIS PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF CSC ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Stockholders and Annual
Reports on Form 10-K of Continuum and CSC for the five fiscal years ended
March 31, 1995; (iii) certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of Continuum and CSC; (iv) certain other communications
from Continuum and CSC to their respective stockholders; and (v) certain
internal financial analyses and forecasts for Continuum and CSC prepared by
their respective managements. Goldman Sachs also held discussions with members
of the senior management of Continuum and CSC regarding the past and current
business operations, financial condition, and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price
and trading activity for the Continuum Common Stock and the CSC Common Stock,
compared certain financial and stock market information for Continuum and CSC
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the computer and information services industry specifically
and in other industries generally and performed such other studies and
analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs has not made an
independent evaluation or appraisal of the assets and liabilities of Continuum
and CSC or any of their respective subsidiaries and Goldman Sachs has not been
furnished with any such evaluation or appraisal.
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The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the CSC
Board of Directors on April 28, 1996:
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Continuum Common Stock and
the CSC Common Stock and the relationship between movements of such common
stock and movements in composite indices of certain financial
services/systems integration companies and certain transaction
processing/outsourcing companies selected by Goldman Sachs (respectively,
the "Financial Services/Systems Integration Index" and the "Transaction
Processing/ Outsourcing Index"). The Financial Services/Systems Integration
Index is composed of the following companies: Affiliated Computer Services
Inc., American Management Systems Inc., BISYS Group Inc., Continuum, FIserv
Inc., Policy Management Systems Corp., SEI Corp. and SunGard Data Systems
Inc. The Transaction Processing/Outsourcing Index is composed of the
following companies: Automatic Data Processing Inc., BDM International
Inc., Ceridian Corp., Electronic Data Systems, Equifax Inc., First Data
Corp. and National Data Corp. This analysis indicated that, since April 19,
1993, the CSC Common Stock has outperformed both the Financial
Services/Systems Integration Index and the Transaction
Processing/Outsourcing Index, while the Continuum Common Stock has
performed in line with both indices.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to CSC and Continuum to
corresponding financial information, ratios and public market multiples for
the publicly traded corporations composing the Transaction
Processing/Outsourcing Index (the "Transaction Processing/Outsourcing
Selected Companies") and the Financial Services/Systems Integration Index
(the "Financial Services/Systems Integration Selected Companies"). Goldman
Sachs calculated and compared various financial multiples and ratios. The
multiples of CSC and Continuum were calculated using prices of $78.13 per
share of CSC Common Stock and $45.38 per share of Continuum Common Stock,
the respective closing prices of the CSC Common Stock and the Continuum
Common Stock on the NYSE on April 26, 1996. The multiples and ratios for
CSC and Continuum and for each of the Transaction Processing/Outsourcing
Selected Companies and the Financial Services/Systems Integration Selected
Companies were based on the most recent publicly available information.
With respect to the Transaction Processing/Outsourcing Selected Companies
and the Financial Services/Systems Integration Selected Companies, Goldman
Sachs considered levered market capitalization (i.e., market value of
common equity plus estimated market value of debt less cash) as a multiple
of LTM sales, as a multiple of LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") and as a multiple of LTM earnings
before interest and taxes ("EBIT"). Goldman Sachs' analyses of the
Transaction Processing/Outsourcing Selected Companies and the Financial
Services/Systems Integration Selected Companies indicated levered multiples
of LTM sales, which ranged from .66x to 4.39x and 1.60x to 4.09x,
respectively, LTM EBITDA, which ranged from 10.2x to 14.9x and 6.9x to
19.8x, respectively, and LTM EBIT, which ranged from 15.2x to 26.2x and
12.7x to 26.7x, respectively, compared to levered multiples of 1.18x, 10.3x
and 20.0x, respectively, for CSC and levered multiples of 2.91x, 17.9x and
23.2x, respectively, for Continuum. Goldman Sachs also considered for the
Transaction Processing/Outsourcing Selected Companies and the Financial
Services/Systems Integration Selected Companies LTM price/earnings ratios,
which ranged from 25.3x to 37.1x and 19.5x to 38.4x, respectively, compared
to 33.0x for CSC and 28.7x for Continuum; estimated calendar year 1996 and
1997 price/earnings ratios (using Institutional Brokers Estimate System
("IBES") median estimates), which ranged from 21.3x to 31.5x and 16.1x to
30.7x, respectively, for estimated calendar year 1996, compared to 28.0x
for CSC and 26.8x for Continuum and from 17.6x to 26.3x and 13.7x to 25.5x,
respectively, for estimated calendar year 1997, compared to 23.9x for CSC
and 22.6x for Continuum; and a five-year long-term growth rate of earnings
(provided by IBES) ranging from 14.0% to 20.0% and 15.0% to 22.5%,
respectively, compared to 17.0% for CSC and 19.0% for Continuum.
(iii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the information services
industry since June, 1993 (the "Selected Transactions"). Such analysis
indicated that for the Selected Transactions (i) levered aggregate
consideration as a multiple of
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LTM sales ranged from .4x to 5.1x, as compared to 3.22x for the levered
aggregate consideration to be received in the Merger and (ii) levered
aggregate consideration as a multiple of LTM EBIT ranged from 8.3x to
33.9x, as compared to 26.9x for the aggregate consideration to be paid in
the Merger.
(iv) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger. Using a range of earnings estimates
for Continuum (which fully reflect the acquisition of Hogan) and CSC
prepared by their respective managements and IBES median growth rates and
consensus earnings estimates (as of April 26, 1996) for the fiscal years
ending March 28, 1997 and April 3, 1998, Goldman Sachs compared the
earnings per share ("EPS") of CSC Common Stock, on a standalone basis, to
the EPS of the common stock of the combined companies on a pro forma basis
before taking into account estimates by Continuum's management of potential
annualized pre-tax cost savings and operating synergies, which CSC's
management reviewed with the CSC Board of Directors and provided to Goldman
Sachs. Goldman Sachs assumed that the Merger would be accounted for using
pooling of interests accounting. Based on such analyses, and excluding
nonrecurring charges attributable to the Merger, the proposed transaction
would result in an impact on fiscal 1997 EPS which ranged from dilution of
2.0% to accretion of 0.2% and would result in an accretive impact on fiscal
1998 EPS.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to Continuum or CSC or the contemplated transaction. The analyses
were prepared solely for purposes of Goldman Sachs' providing its opinion to
the CSC Board of Directors as to the fairness of the Exchange Ratio to CSC and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Continuum, CSC, Goldman Sachs or any other
person assumes responsibility if future results are materially different from
those forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of CSC
was one of many factors taken into consideration by the CSC Board of Directors
in making its determination to approve the Merger Agreement. The foregoing
summary does not purport to be a complete description of the analysis
performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. CSC selected Goldman
Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the Merger. Goldman Sachs is familiar with CSC having provided
certain investment banking and financial advisory services to it from time to
time, including having acted as lead manager of CSC's public offering of its
Common Stock in January, 1995 and having acted as CSC's financial advisor in
connection with and having participated in certain of the negotiations leading
to the Merger Agreement.
Pursuant to a letter agreement dated January 19, 1996 (the "Engagement
Letter"), CSC engaged Goldman Sachs to act as its financial advisor in
connection with the possible acquisition of all or a portion of the stock or
assets of Continuum. Pursuant to the terms of the Engagement Letter, CSC has
agreed to pay Goldman Sachs a transaction fee of $7 million upon consummation
of the Merger, or, in the event the transaction is terminated or otherwise not
consummated, a fee of $3 million or 10% of any termination fee received by
CSC, whichever is less, if such event occurs and a termination fee is paid to
CSC. CSC has agreed to reimburse Goldman Sachs for
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its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
OPINION OF CONTINUUM'S FINANCIAL ADVISOR
Continuum retained Lehman Brothers to act as its financial advisor in
connection with the Merger. In connection with such engagement, Continuum
requested that Lehman Brothers render its opinion as to the fairness, from a
financial point of view, to Continuum's stockholders of the Exchange Ratio to
be offered to such stockholders in the Merger.
On April 28, 1996, in connection with the evaluation of the Merger Agreement
by the Continuum Board of Directors, Lehman Brothers made a presentation to
the Continuum Board with respect to the Merger and rendered an opinion that,
as of such date, and subject to certain assumptions, factors and limitations
set forth in such written opinion, the Exchange Ratio to be offered to the
stockholders of Continuum was fair, from a financial point of view, to
Continuum's stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS IS ATTACHED AS ANNEX
C TO THIS PROXY STATEMENT/PROSPECTUS. CONTINUUM STOCKHOLDERS MAY READ THIS
OPINION IN ITS ENTIRETY FOR A DISCUSSION OF ASSUMPTIONS MADE, FACTORS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN
RENDERING SUCH OPINION. LEHMAN BROTHERS' OPINION ADDRESSES ONLY THE
CONSIDERATION TO BE RECEIVED BY CONTINUUM STOCKHOLDERS PURSUANT TO THE MERGER
AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CONTINUUM
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CONTINUUM SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF LEHMAN BROTHERS SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
No limitations were imposed by Continuum on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that Lehman Brothers was not authorized to solicit any
indications of interest from any third party with respect to the purchase of
all or a part of Continuum's business. Lehman Brothers was not requested to
and did not make any recommendation to the Board of Directors of Continuum as
to the form or amount of the consideration to be offered to Continuum's
stockholders in the Merger, which was determined through arms-length
negotiations between Continuum and CSC. In arriving at its opinion, Lehman
Brothers did not ascribe a specific range of value to Continuum, but made its
determination as to fairness, from a financial point of view, to Continuum's
stockholders of the Exchange Ratio on the basis of the financial and
comparative analyses summarized below. Lehman Brothers' opinion is for the use
and benefit of the Board of Directors of Continuum and was rendered to the
Board of Directors in connection with its consideration of the Merger. Lehman
Brothers was not requested to opine as to, and its opinion does not in any
manner address, Continuum's underlying business decision to proceed with or
effect the Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Merger Agreement and the specific terms of the Merger, (ii) the Agreement and
Plan of Merger dated as of December 10, 1995 by and among Hogan, Continuum and
Continuum Acquisition Corporation, a wholly-owned subsidiary of Continuum, as
amended by the First Amendment dated as of February 7, 1996, (iii) such
publicly available information concerning Continuum, Hogan and CSC which
Lehman Brothers believed to be relevant to its inquiry, (iv) financial and
operating information with respect to the business, operations and prospects
of Continuum and Hogan furnished to Lehman Brothers by Continuum, (v)
financial and operating information with respect to the business, operations
and prospects of CSC furnished to Lehman Brothers by CSC, (vi) a trading
history of Continuum Common Stock and a comparison of that trading history
with those of other companies which Lehman Brothers deemed relevant, (vii) a
trading history of CSC Common Stock and a comparison of that trading history
with those of other companies which Lehman Brothers deemed relevant, (viii) a
comparison of the historical financial results and present financial condition
of Continuum with those of other companies that Lehman Brothers deemed
relevant, (ix) a comparison of the historical financial results and present
financial condition of CSC with those of other companies that Lehman Brothers
deemed relevant, (x) a comparison of the
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financial terms of the Merger with the financial terms of certain other recent
transactions that Lehman Brothers deemed relevant, and (xi) the potential pro
forma earnings per share impact of the Merger on CSC's earnings. In addition,
Lehman Brothers had discussions with the managements of Continuum and CSC
concerning their respective businesses, operations, assets, financial
conditions and prospects and the strategic benefits expected to result from a
combination of the businesses of Continuum and CSC, and undertook such other
studies, analyses and investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of Continuum
that they were not aware of any facts that would make such information
inaccurate or misleading. With respect to the internal financial forecasts of
Continuum (including Hogan) and CSC, upon advice of Continuum and CSC,
respectively, Lehman Brothers assumed that such forecasts had been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the managements of Continuum and CSC as to the future financial
performance of Continuum (including Hogan) and CSC, as the case may be. Lehman
Brothers also assumed for the purposes of its opinion that Continuum
(including Hogan) and CSC will perform substantially in accordance with such
forecasts. In arriving at its opinion, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of Continuum or CSC and
did not make or obtain any evaluations or appraisals of the assets or
liabilities of Continuum or CSC. In addition, Lehman Brothers was not
authorized to solicit, and did not solicit, any indications of interest from
any third party with respect to the purchase of all or a part of Continuum's
business. Upon advice of Continuum and its legal and accounting advisors,
Lehman Brothers assumed that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code and therefore as a tax-free
transaction to the stockholders of Continuum, and further assumed that the
Merger will qualify under pooling of interests accounting. Lehman Brothers'
opinion necessarily was based upon market, economic and other conditions as
they existed on, and could be evaluated as of, the date of its opinion.
In connection with preparing its presentation to the Continuum Board on
April 28, 1996 and its rendered opinion on that day, Lehman Brothers performed
a variety of financial and comparative analyses as described below. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis
and application of those methods to the particular circumstances, and
therefore such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its fairness opinion, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portions of
such analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Continuum and CSC. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
necessarily reflect the prices at which businesses actually may be sold.
Merger Premium and Exchange Ratio Analysis. Based on the closing price of
CSC Common Stock on the last trading day before the signing of the definitive
Merger Agreement (i.e., $78.125 as of April 26, 1996), the Exchange Ratio
valued Continuum Common Stock at $61.719 per share, which represented a
premium of 36.0% over the April 26, 1996 closing price of Continuum Common
Stock and a 49.6% premium over the closing price one month prior to April 26,
1996. At the 0.79 Exchange Ratio, Continuum stockholders would own
approximately 25.9% of CSC on a pro forma fully-diluted basis.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information and information provided by the managements of Continuum
and CSC, Lehman Brothers compared selected financial data of Continuum and CSC
with similar data of selected publicly traded companies (the "comparable
groups")
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engaged in businesses considered by Lehman Brothers to be comparable to those
of Continuum and CSC. Specifically, Lehman Brothers compared Continuum with
selected financial and insurance software and service companies ("Continuum
tier 1 comparable companies") and selected other software and service
companies targeting vertical markets ("Continuum tier 2 comparable
companies"). Continuum tier 1 comparable companies included The BISYS Group,
Inc., FIserv, Inc., Jack Henry & Associates, Inc., Policy Management Systems
Corp. and SunGard Data Systems, Inc. Continuum tier 2 comparable companies
included Cerner Corporation, HBO & Company and Shared Medical Systems Corp.
Lehman Brothers compared CSC with two groups of selected computer and
professional service companies ("CSC tier 1 comparable companies" and "CSC
tier 2 comparable companies"). CSC tier 1 comparable companies included
Automatic Data Processing, Inc., Ceridian Corporation, Electronic Data Systems
Corp., Equifax Inc. and First Data Corporation. CSC tier 2 comparable
companies included American Management Systems, Analysts International
Corporation, Cambridge Technology Partners, Computer Horizons Corp., Computer
Task Group, Inc., Keane, Inc., TCSI Corporation and Technology Solutions
Company.
Lehman Brothers calculated, among other things, total equity value as a
multiple of book value; price/earnings ("P/E") ratios based on last twelve
months ("LTM") earnings per share ("EPS"), and estimated 1997 and 1998 EPS
adjusted to a March year-end; 1997 P/E ratio divided by estimated 5-year EPS
growth and total equity value plus net debt as a multiple of LTM revenues and
earnings before interest and taxes ("EBIT" or "operating income"), excluding
nonrecurring charges for Continuum and each of such comparable companies. For
the comparable groups, estimated 1997 and 1998 EPS estimates were based on
First Call mean estimates and 5-year growth estimates were based on
Institutional Brokers Estimate Service ("I/B/E/S") median estimates. Continuum
and CSC fiscal 1997 and fiscal 1998 EPS and 5-year growth estimates were based
on a range of earnings scenarios sourced from First Call and I/B/E/S, and on
general management guidance from the respective companies.
Lehman Brothers observed that Continuum historically has traded at a similar
earnings multiple excluding nonrecurring charges to Continuum tier 1
comparable companies but at a discount to Continuum tier 2 comparable
companies. Lehman Brothers believes this is attributable to the different
vertical industries in which the companies operate, lower EBIT and net income
margins experienced by Continuum, and a lower projected earnings growth rate
as compared to Continuum tier 2 comparable companies. Lehman Brothers also
observed that CSC historically has traded at an earnings multiple premium to
CSC tier 1 comparable companies but at a discount to CSC tier 2 comparable
companies. Lehman Brothers believes this is attributable to CSC's leading
position in the outsourcing sector and perceived business momentum as compared
to CSC tier 1 comparable companies, and slower expected earnings and revenue
growth experienced by CSC as compared to CSC tier 2 comparable companies.
Lehman Brothers also noted the LTM, fiscal 1997 and fiscal 1998 P/E multiples
for Continuum implied by the Exchange Ratio, based on a $61.719 value,
represented a premium to the mean multiples for the Continuum tier 1
comparable companies and a discount to the Continuum tier 2 comparable
companies.
Analysis of Selected Comparable Transactions. Using publicly available
information, Lehman Brothers compared selected financial data (including
equity value as a multiple of LTM net income, forward net income and book
value, and total equity value plus net debt as a multiple of LTM revenues and
EBIT) for Continuum, based on a $61.719 value implied by the Exchange Ratio,
with similar data for selected transactions in the information services
industry. These transactions were announced between March 1993 and February
1996 and included the following acquisitions: TRW Inc.'s information systems
and services unit by Thomas H. Lee Co. & Bain Capital; Hogan by Continuum; SHL
Systemhouse Inc. by MCI Communications Corporation; DMR Group Inc. by Amdahl
Corporation; GSI Participations by Automatic Data Processing, Inc.; Comdata
Holdings Corporation by Ceridian Corporation; CliniCom Incorporated by HBO &
Company; First Financial Management Corporation by First Data Corporation;
First Data Corporation's Health Systems Group by HBO & Company; Information
Technology, Inc. by FIserv, Inc.; The Atwork Companies by Medaphis
Corporation; ISM Information Systems Management by IBM Canada Ltd.; The
MEDSTAT Group, Inc. by The Thomson Corporation; Card Establishment Services,
Inc. by First Data Corporation; GDE Systems by Tracor Inc.; Western
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Union Financial Services, Inc. by First Financial Management Corporation;
ENVOY Corporation by First Data Corporation; UAPT-INFOLINK plc by Equifax
Inc.; Vantage by Continuum; BIS Group by ACT Group plc; and Paxus by
Continuum.
Lehman Brothers observed that, based on a $61.719 value, the Exchange Ratio
represented an LTM after-tax income multiple, excluding Continuum nonrecurring
charges, of 35.9x, a forward net income multiple range of 25.5x to 29.0x based
on the fiscal 1997 EPS estimate range and an LTM revenue multiple of 3.10x.
This compared to the means of comparable transactions of 30.3x for LTM net
income, 28.1x for forward net income and 2.47x for LTM revenue. When viewed as
a percentage premium to the market price of Continuum's Common Stock, the
Exchange Ratio resulted in a 49.6% premium to the market price one month prior
to announcement and a 36.0% premium to the market over the April 26, 1996
closing price. This compared with median premiums of comparable transactions
of 40.6% for one month prior to announcement and 28.9% for one trading day
prior to announcement. However, because the reasons for and the circumstances
surrounding each of the transactions analyzed were specific to each
transaction and because of the inherent differences between the business,
operations and prospects of Continuum, CSC and the acquired companies in such
transactions, Lehman Brothers believed that an appropriate use of a comparable
transaction analysis in this instance also would involve qualitative judgments
concerning differences between the characteristics of the Merger and these
transactions which would affect the acquisition value of Continuum and the
acquired companies in such transactions.
Pro Forma Dilution Analysis. Lehman Brothers analyzed the pro forma EPS
dilution effects of the Merger to CSC for fiscal 1996 through fiscal 1998.
This analysis was based on a range of earnings scenarios sourced from First
Call and I/B/E/S, and on general management guidance from the respective
companies. Lehman Brothers calculated the EPS ranges for the combined entity
for fiscal 1997 and fiscal 1998 described above. These calculations indicated
that, on a pro forma operating basis, excluding Continuum nonrecurring
charges, relative to CSC's estimated standalone EPS, the Merger would be 2.3%
dilutive to 0.9% accretive in fiscal 1997 and 1.7% to 3.2% accretive in fiscal
1998. The pro forma merger analysis excluded any potential cost savings and/or
operating synergies that might result from the Merger and a combination of the
businesses of Continuum and CSC.
Contribution Analysis. Lehman Brothers analyzed the contribution of each of
Continuum and CSC to revenues, operating income, excluding Continuum
nonrecurring charges, and after-tax income, excluding Continuum nonrecurring
charges, of the combined entity for fiscal 1994 through fiscal 1999 based on
actual results and a range of earnings scenarios sourced from First Call and
I/B/E/S, and on general management guidance from the respective companies.
This analysis did not incorporate any cost savings or operating synergies that
may result with the Merger.
This analysis indicated that on a pro forma combined revenue basis Continuum
would have contributed 10.8% in fiscal 1994 and 11.0% in fiscal 1995, and was
estimated to contribute 10.6% in fiscal 1996, 11.4% in fiscal 1997 and 11.4%
in fiscal 1998. This analysis also indicated that on a pro forma combined
operating income basis, excluding Continuum nonrecurring charges, Continuum
would have contributed 14.2% in fiscal 1994 and 19.4% in fiscal 1995, and was
estimated to contribute 14.1% in fiscal 1996, a range of 19.7% to 21.9% in
fiscal 1997, and a range of 22.6% to 23.6% in fiscal 1998. This analysis also
indicated that on a pro forma combined after-tax income basis, excluding
Continuum nonrecurring charges, Continuum would have contributed 10.1% in
fiscal 1994 and 22.5% in fiscal 1995, and was estimated to contribute 22.1% in
fiscal 1996, a range of 23.9% to 26.3% in fiscal 1997, and a range of 26.6% to
27.7% in fiscal 1998. Lehman Brothers compared the approximately 25.9% pro
forma ownership of Continuum stockholders of the combined entity on a fully-
diluted basis with the revenues, operating income and net income contributions
set forth above.
"Has/Gets" Valuation Analysis. Lehman Brothers analyzed the implied pro
forma impact of the Merger for Continuum stockholders on an EPS basis. Lehman
Brothers compared estimated fiscal 1996 through fiscal 1999 EPS for Continuum
on a standalone basis to the proportion of estimated pro forma fiscal 1996
through fiscal 1999 EPS for the combined entity attributable to Continuum
stockholders. Lehman Brothers' analysis showed a decrease in EPS attributable
to Continuum's stockholders in future periods; however, Lehman Brothers
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observed that CSC's P/E multiples were substantially above the trading P/E
multiples for Continuum. In addition, Lehman Brothers analyzed the implied pro
forma impact for Continuum stockholders on a discounted cash flow per share
basis. Lehman Brothers calculated the present value per share of the future
streams of after-tax cash flows that Continuum and the pro forma combined
entity could be expected to produce over a five-year period. Lehman Brothers
then compared the implied present value per share for Continuum on a
standalone basis to the proportion of pro forma present value per share for
the combined entity attributable to Continuum stockholders. Lehman Brothers'
analysis showed an increase in the present value of cash flow per share
attributable to Continuum's stockholders. The "Has/Gets" valuation analyses
excluded any potential cost savings and/or operating synergies that might
result from the Merger and a combination of the businesses of Continuum and
CSC.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwriting, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. The Continuum Board selected
Lehman Brothers because of its expertise, reputation and familiarity with
Continuum and the information services industry in general.
Pursuant to an engagement letter between Continuum and Lehman Brothers,
Continuum has agreed to pay Lehman Brothers an advisory fee of $2.5 million,
including $1.4 million on the delivery of its opinion and $1.1 million on
completion of the Merger. Continuum also has agreed to reimburse Lehman
Brothers for reasonable expenses incurred by Lehman Brothers and to indemnify
Lehman Brothers for certain liabilities that may arise out of the rendering of
this opinion. In the ordinary course of its business, Lehman Brothers actively
trades in the securities of Continuum and CSC for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
As noted under the caption "The Merger--Recommendation of the Board of
Directors of Continuum; Reasons for the Merger," the fairness opinion of
Lehman Brothers was only one of many factors considered by the Continuum Board
of Directors in its decision to approve the Merger Agreement.
CERTAIN CONSIDERATIONS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, stockholders should consider, among other factors, the
following: (i) the relative stock prices of the CSC Common Stock and the
Continuum Common Stock at the Effective Time may vary significantly from the
prices as of the date of execution of the Merger Agreement or the date hereof
or the date on which stockholders vote on the Merger due to changes in the
business, operations and prospects of CSC or Continuum, market assessments of
the likelihood that the Merger will be consummated and the timing thereof, the
effect of any conditions or restrictions imposed on or proposed with respect
to the combined companies by regulatory agencies in connection with or
following consummation of the Merger, general market and economic conditions,
and other factors; and (ii) the Exchange Ratio is fixed and will not be
adjusted based on changes in the relative stock prices of the CSC Common Stock
and the Continuum Common Stock.
MANAGEMENT OF CSC AFTER THE MERGER
The directors of CSC after the Merger shall be those directors elected to
the CSC Board of Directors at the CSC Annual Meeting. See "Election of CSC
Directors." The officers of CSC prior to the Merger shall remain officers of
CSC after the Merger, and W. Michael Long, President and Chief Executive
Officer of Continuum, will retain the title of President of Continuum and will
become a Vice President of CSC following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
At the Effective Time, each Continuum Stock Option, whether vested or
unvested, shall be assumed by CSC. Each Continuum Stock Option shall be deemed
to constitute an option to acquire, on the same terms and
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conditions as were applicable under such Continuum Stock Option, the same
number of shares of CSC Common Stock as the holder of such Continuum Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time,
at a price per share equal to the aggregate exercise price for the Continuum
Stock Option divided by the number of full shares of CSC Common Stock deemed
purchasable pursuant to such Continuum Stock Option. With respect to any
Continuum Stock Option that provides for the acceleration of vesting in the
event that the Continuum Common Stock achieves certain public trading
thresholds, such trading price thresholds shall be adjusted by dividing the
threshold by the Exchange Ratio.
At the Continuum Record Date, there were outstanding Continuum Stock Options
to purchase an aggregate of 3,197,348 shares of Continuum Common Stock at an
average exercise price of $26.61 per share (which is equivalent to 2,525,904
shares of CSC Common Stock at an average exercise price of $33.68 per share).
Approval by the CSC stockholders of the Merger Proposal includes approval of
CSC's assumption of the stock option plans and nonqualified stock option
agreements pursuant to which the Continuum Stock Options were issued.
The Merger Agreement provides that, after the Effective Time, the Surviving
Corporation will indemnify and hold harmless each person who has been, is now
or becomes prior to the Effective Time, a director or officer of Continuum or
any of its subsidiaries against all losses, claims, damages, costs, expenses,
settlement payments, or liabilities arising out of (i) the fact that such
person is or was an officer or director of Continuum or its subsidiaries and
(ii) the transactions contemplated by the Merger Agreement. CSC agreed in the
Merger Agreement that all rights to indemnification existing in favor of
directors or officers of Continuum as provided under any agreement with
Continuum or in Continuum's Certificate of Incorporation or Bylaws shall not
be adversely affected by any indemnification provision contained in the Merger
Agreement. CSC also agreed to guarantee the payment and performance of the
Surviving Corporation's indemnification obligations under the Merger
Agreement. See "The Merger Agreement--Indemnification."
In connection with the execution of the Merger Agreement, DST, a major
stockholder of Continuum, entered into the Stockholder Agreement, the
Registration Rights Agreement, and the Data Processing Agreement with CSC. See
"--Certain Other Agreements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to holders of Continuum Common Stock. This
discussion is based on the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations, judicial
decisions, and administrative rulings and practice. Changes in any of the
foregoing could alter the conclusions reached herein, and such changes may
have retroactive effect. The tax treatment of a stockholder may vary depending
upon his or her particular situation, and certain stockholders (including
individuals who hold restricted stock or stock options or who otherwise
received compensation for services in the form of stock, options or other
interests in Continuum, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and foreign persons or entities) may be
subject to special rules not discussed below.
EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
In the opinion of Vinson & Elkins L.L.P., counsel to Continuum:
(i) The Merger will constitute a reorganization within the meaning of
section 368(a) of the Code, and Continuum, CSC and Sub will each be a party
to the reorganization within the meaning of section 368(b) of the Code;
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(ii) No gain or loss will be recognized by the holders of Continuum
Common Stock upon the receipt of shares of CSC Common Stock in exchange for
shares of Continuum Common Stock, except that a stockholder who receives
cash in lieu of a fractional share interest in CSC Common Stock will
recognize gain or loss equal to the difference between such cash and the
basis allocated to the fractional share interest;
(iii) The basis of the shares of CSC Common Stock received by a holder of
Continuum Common Stock (including any fractional share interest treated as
received) will be the same as the basis of the shares of Continuum Common
Stock exchanged therefor; and
(iv) The holding period of the shares of CSC Common Stock received by a
holder of Continuum Common Stock (including any fractional share interest
treated as received) will include the holding period of the shares of
Continuum Common Stock exchanged therefor, provided the Continuum Common
Stock is held as a capital asset at the Effective Time.
The opinion of Vinson & Elkins L.L.P. is based on current law, the
information contained in this Proxy Statement/Prospectus, and certain
representations as to factual matters made by Continuum, CSC, and certain
stockholders (the "Major Stockholders") of Continuum, forms of which are
attached as exhibits to the Merger Agreement. Any inaccuracy or change with
respect to such information or representations, or any past or future actions
by Continuum, CSC or the Major Stockholders contrary to such representations,
could adversely affect the conclusions reached herein.
An opinion of counsel is not binding on the Internal Revenue Service or the
courts, and only represents counsel's best judgment. If the Internal Revenue
Service successfully challenged the status of the Merger as a tax-free
reorganization, holders of Continuum Common Stock would be treated as if they
sold their Continuum Common Stock in a taxable transaction. In such event,
each holder of Continuum Common Stock would recognize gain or loss equal to
the difference between the holder's tax basis in the shares of the Continuum
Common Stock surrendered in the Merger and the fair market value, at the
Effective Time, of the CSC Common Stock received in exchange therefor (plus
any cash received for fractional shares).
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the
recorded assets and liabilities of CSC and Continuum will be carried forward
to the combined corporation at their recorded amounts, subject to any
adjustments required to conform the accounting policies of the companies;
income of the combined corporation will include income of CSC and Continuum
for the entire fiscal year in which the Merger occurs; and the reported income
of the separate corporations for prior periods will be combined and restated
as income of the combined corporation.
The Merger Agreement provides that a condition to the consummation of the
Merger is the receipt of (i) confirmation in writing from Ernst & Young LLP,
Continuum's independent auditors, that in accordance with generally accepted
accounting principles and applicable published rules and regulations of the
Commission, Continuum is eligible to be a party to a merger accounted for as a
pooling of interests and that Ernst & Young LLP is not aware of any matters
prohibiting such treatment, and (ii) receipt of an opinion from Deloitte &
Touche LLP, CSC's independent auditors, stating that the Merger will be
accounted for as a pooling of interests transaction.
DST and the directors and executive officers of Continuum have made certain
representations about their intentions to hold the shares of CSC Common Stock
to be received in the Merger and agreed to certain restrictions on resale of
such shares. The directors and executive officers of CSC have also made
certain representations about their intentions to hold their shares of CSC
Common Stock and agreed to certain restrictions on resale of such shares. The
representations and restrictions on resale are intended to preserve the
characterization of the Merger for federal income tax purposes as a
reorganization, to comply with the requirements for pooling of interests
accounting treatment and to comply with restrictions on resale of securities
imposed by federal securities laws.
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EFFECT ON EMPLOYEE BENEFIT PLANS
Continuum maintains a number of employee benefit plans and compensation
arrangements in which eligible employees of Continuum and certain of its
affiliates participate. For a period ending on the first anniversary of the
Effective Time, CSC will provide the employees and retirees of Continuum and
its subsidiaries with employee benefits (other than stock option or other
plans involving the potential issuance of securities) which, in the aggregate,
are no less favorable than those currently provided by Continuum and its
subsidiaries. CSC shall assume the Continuum Stock Options but shall not
assume or continue the Continuum Employee Stock Purchase Plan. CSC and
Continuum have agreed, and CSC will cause the Surviving Corporation to agree,
that (i) all "change of control" or similar provisions in existing contracts
with employees, and termination and severance agreements with executive
officers, will be honored in accordance with their terms as of the date of the
Merger Agreement, and (ii) the Employee Stock Purchase Plan of Continuum will
be amended to provide that the period for employee participation beginning
July 1, 1996 shall end, and the Plan shall terminate, on the date of the
closing of the Merger.
CERTAIN LEGAL MATTERS
Antitrust. The Merger is subject to the pre-merger notification requirements
of the HSR Act. CSC and Continuum have filed pre-merger notification forms
with the FTC and the Department of Justice under the HSR Act with respect to
CSC's acquisition of Continuum, and CSC and DST have filed pre-merger
notification forms with the FTC and the Department of Justice with respect to
DST's ownership of shares of CSC Common Stock following the Merger. Early
termination of the required waiting periods was granted with respect to both
filings on June 6, 1996.
CSC and Continuum do not believe that any additional governmental filings in
the United States, other than the Certificate of Merger, are required with
respect to the Merger. Even though the HSR Act waiting period has expired, the
FTC or the Antitrust Division could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking
divestiture of substantial assets of Continuum or CSC. Consummation of the
Merger is conditioned upon, among other things, the absence of any preliminary
or permanent injunction or other order issued by any federal or state court in
the United States which prevents the consummation of the Merger.
CSC does not believe that consummation of the Merger will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Merger on antitrust grounds will not be made or, if
such a challenge is made, of the result.
Foreign Approvals. CSC and Continuum conduct operations in a number of
foreign countries where regulatory filings or approvals may be required in
connection with the consummation of the Merger. CSC and Continuum believe that
all such material filings and approvals have been made or obtained, or will be
made or obtained, as the case may be.
FEDERAL SECURITIES LAW CONSEQUENCES
All CSC Common Stock issued in connection with the Merger will be freely
transferable, except that any CSC Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act)
of CSC or Continuum prior to the Merger may be sold by them only in
transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of Continuum, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of CSC, or
as otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of CSC or Continuum generally include individuals or entities
that control, are controlled by, or are under common control with, such
company and may include certain officers and directors of such company as well
as principal stockholders of such company.
Affiliates of CSC or Continuum may not sell their shares of CSC Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 (or Rule 144 under the Securities Act in the case of
persons who become
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affiliates of CSC) or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Effective Time an affiliate (together with certain related
persons) would be entitled to sell shares of CSC Common Stock acquired in
connection with the Merger only through unsolicited "broker transactions" or
in transactions directly with a "market maker," as such terms are defined in
Rule 144. Additionally, the number of shares to be sold by an affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 may not exceed the
greater of 1% of the outstanding shares of CSC Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 would only remain available, however, to affiliates if CSC
remained current with its informational filings with the Commission under the
Exchange Act. Two years after the Effective Time, an affiliate would be able
to sell such CSC Common Stock without regard to such manner of sale or volume
limitations provided that CSC was current with its Exchange Act filings and
such affiliate was not then an affiliate of CSC. Three years after the
Effective Time, an affiliate would be able to sell such shares of CSC Common
Stock without any restrictions, so long as such affiliate had not been an
affiliate of CSC for at least three months prior thereto.
STOCK EXCHANGE LISTING
It is a condition to the Merger that the shares of CSC Common Stock to be
issued in connection with the Merger be authorized for listing on the NYSE,
subject to official notice of issuance.
APPRAISAL RIGHTS
Under the NGCL and the DGCL, the holders of CSC Common Stock and Continuum
Common Stock are not entitled to any appraisal rights with respect to the
Merger.
CERTAIN OTHER AGREEMENTS
Stockholder Agreement. Concurrently with the execution of the Merger
Agreement, DST and CSC entered into an agreement (the "Stockholder Agreement")
relating to 5,549,141 shares of Continuum Common Stock beneficially owned by
DST (the "DST Shares"), representing approximately 22.8% of the shares
outstanding as of June 21, 1996. Under the Stockholder Agreement, DST has
agreed to vote the DST Shares in favor of approval and adoption of the Merger
Agreement and any actions in furtherance thereof. DST has also agreed not to
directly or indirectly (i) sell, pledge, or otherwise dispose of the DST
Shares, (ii) grant any proxy or power of attorney with respect to the DST
Shares, or deposit the DST Shares into a voting agreement, or (iii) take any
action that would make any of its representations or warranties as to its
beneficial ownership of Continuum Common Stock untrue or incorrect.
Registration Rights Agreement. Concurrently with the execution of the Merger
Agreement, DST and CSC entered into an agreement (the "Registration Rights
Agreement") relating to certain existing registration rights of DST with
respect to shares of Continuum Common Stock it currently owns. Under the
Registration Rights Agreement, CSC and DST agreed that, subject to certain
conditions, the registration rights of DST with respect to its Continuum
Common Stock granted pursuant to Section 11 of the Agreement dated September
30, 1993, among Continuum, Continuum Acquisition, Inc. and Vantage Computer
Systems, Inc. will be assumed by CSC and will apply to all of the shares of
CSC Common Stock issued to DST in the Merger. DST's registration rights will
entitle DST, on one occasion, to require CSC to register some or all (but not
less than 50,000) of its shares of CSC Common Stock for resale under the
Securities Act, subject to the right of CSC to defer registration under
certain circumstances.
Data Processing Services Agreement. In connection with the Merger Agreement,
DST and CSC entered into an agreement in principle (the "Data Processing
Agreement") relating to the orderly transfer of the data processing services
provided to Continuum by DST, to data centers operated by CSC, following
completion of the Merger. See Continuum's Annual Report on Form 10-K, as
amended, for the fiscal year ended March 31, 1996 for information regarding
the expenses incurred by Continuum for data processing services obtained from
DST.
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THE MERGER AGREEMENT
GENERAL
The following description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Annex A. Stockholders of
Continuum and CSC are urged to read the Merger Agreement in its entirety.
THE MERGER
The Merger Agreement provides that, subject to the approval and adoption of
the Merger Agreement by the stockholders of Continuum and the approval of the
Merger Proposal and the Charter Amendment Proposal by the stockholders of CSC
and the satisfaction or waiver of the other conditions to the Merger, Sub will
be merged with and into Continuum in accordance with Delaware law, whereupon
the separate existence of Sub will cease and Continuum will be the Surviving
Corporation of the Merger. At the Effective Time, the conversion of Continuum
Common Stock and the conversion of shares of the common stock of Sub pursuant
to the Merger Agreement will be effected as described below. The Certificate
of Incorporation and Bylaws of Continuum will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, except that Article
Fourth of the Certificate of Incorporation shall be amended to provide that
the aggregate number of shares which the Surviving Corporation shall have the
authority to issue is one thousand (1,000), $0.10 par value per share. Van B.
Honeycutt and Leon J. Level will be the initial directors of the Surviving
Corporation and the officers of Continuum immediately prior to the Effective
Time will be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
EFFECTIVE TIME
Following the approval and adoption of the Merger Agreement, and the
approval of the Merger Proposal and the Charter Amendment Proposal, and
subject to satisfaction or waiver of certain terms and conditions, including
conditions to closing, contained in the Merger Agreement, the Merger will
become effective on such date as the Certificate of Merger is duly filed with
the Secretary of State of Delaware, or such later date as CSC and Continuum
may agree upon and set forth in the Certificate of Merger. The filing of the
Certificate of Merger will be made at a time and on a date specified by the
parties which shall be no later than the second business day after all
conditions contemplated by the Merger Agreement have been satisfied or waived.
TERMS OF THE MERGER
At the Effective Time:
(i) each share of Continuum Common Stock held in Continuum's treasury or
by any subsidiary of Continuum (excluding 7,837 shares held in the name of
Paxus Corporation Limited) or held by CSC, Sub or any other subsidiary of
CSC immediately prior to the Effective Time will be canceled, and no
payment will be made with respect thereto;
(ii) each remaining outstanding share of Continuum Common Stock shall be
converted into 0.79 of a fully paid and nonassessable share of CSC Common
Stock; and
(iii) each outstanding share of the common stock, par value $0.01 per
share, of Sub shall be converted into and become one share of common stock,
par value $0.10 per share, of the Surviving Corporation.
Each share of CSC Common Stock issued to Continuum stockholders in the Merger
will include a Right issued pursuant to the CSC Rights Agreement. See
"Comparison of Stockholder Rights--CSC Rights Plan." The treatment under the
Merger Agreement of options to acquire shares of Continuum Common Stock is
described under "The Merger--Interests of Certain Persons in the Merger."
At the Effective Time, present holders of Continuum Common Stock will cease
to have any rights as holders of such shares, but will have the right to
receive shares of CSC Common Stock and any cash in lieu of fractional shares.
After the Effective Time, the stock transfer books of Continuum will be closed
and there shall be no further transfers of Continuum Common Stock. See "The
Merger--Conversion of Shares; Procedures for Exchange of Certificates" and
"Comparison of Stockholder Rights."
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FRACTIONAL SHARES
Fractional shares of CSC Common Stock will not be issued in connection with
the Merger. In lieu of any such fractional share, each holder of Continuum
Common Stock who would otherwise have been entitled to a fraction of a share
of CSC Common Stock upon surrender of certificates for exchange will be paid
cash (without interest) in an amount determined by multiplying the closing
price for CSC Common Stock as reported on the NYSE Composite Tape on the
business day five days prior to the Effective Time by the fractional share
interest to which such holder would otherwise be entitled.
SURRENDER AND PAYMENT
The Merger Agreement provides that, as of the Effective Time, CSC will
deposit with ChaseMellon Shareholder Services, L.L.C., or such other agent as
may be appointed by CSC or Sub ("Exchange Agent"), certificates representing
the appropriate number of shares of CSC Common Stock and cash to be paid in
lieu of fractional shares of CSC Common Stock issuable in connection with the
Merger. As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of Continuum Common Stock a
letter of transmittal and instructions for surrendering the certificates
representing shares of Continuum Common Stock, and each holder of Continuum
Common Stock will be entitled to receive, upon surrender to the Exchange Agent
of one or more certificates representing such stock, certificates representing
the number of shares of CSC Common Stock into which such shares are converted
in the Merger and cash in consideration of fractional shares, as described
above. CSC Common Stock into which Continuum Common Stock will be converted in
the Merger shall be deemed to have been issued at the Effective Time.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
CONTINUUM STOCKHOLDERS AS SOON AS REASONABLY PRACTICABLE FOLLOWING THE
EFFECTIVE TIME SETTING FORTH THE METHOD OF EXCHANGING CERTIFICATES FORMERLY
REPRESENTING SHARES OF CONTINUUM COMMON STOCK FOR CERTIFICATES REPRESENTING
SHARES OF CSC COMMON STOCK. SEE "THE MERGER--CONVERSION OF SHARES; PROCEDURES
FOR EXCHANGE OF CERTIFICATES." STOCKHOLDERS OF CONTINUUM SHOULD NOT SEND
CERTIFICATES REPRESENTING THEIR SHARES TO CONTINUUM OR TO THE EXCHANGE AGENT
PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the Merger Agreement shall have been approved and adopted by the
requisite vote of the stockholders of Continuum, and the Charter Amendment
Proposal and the Merger Proposal shall have been approved by the requisite
vote of the stockholders of CSC; (b) no statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted,
entered, promulgated or enforced by any United States court or United
States governmental authority which prohibits, restrains, enjoins or
restricts the consummation of the Merger; (c) any waiting period applicable
to the Merger under the HSR Act shall have terminated or expired, and any
other governmental or regulatory notices or approvals required with respect
to the transactions contemplated by the Merger Agreement shall have been
either filed or received; (d) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order, and CSC shall have received all
state securities laws or "blue sky" permits and authorizations necessary to
issue shares of CSC Common Stock in exchange for shares of Continuum Common
Stock in the Merger; and (e) (i) Continuum shall have received confirmation
in writing from Ernst & Young LLP that in accordance with generally
accepted accounting principles and applicable published rules and
regulations of the Commission, Continuum is eligible to be a party to a
merger accounted for as a pooling of interests and that Ernst & Young LLP
is not aware of any matters that prohibit the use of pooling of interests
accounting in connection with the Merger, and such confirmation shall not
have been withdrawn or modified in any material respect, and (ii) CSC shall
have received a written opinion from Deloitte & Touche LLP, its independent
auditors, stating that the Merger will be accounted for under generally
accepted accounting principles as a pooling of interests transaction and
such opinion shall not have been withdrawn or modified in any material
respect.
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The obligation of Continuum to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) the representations of CSC and Sub contained in the Merger Agreement
or in any other document delivered pursuant thereto shall be true and
correct (except to the extent that the breach thereof would not have a
material adverse effect on CSC) at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the
extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the closing of the Merger pursuant to the Merger
Agreement (the "Closing"), CSC and Sub shall have delivered to Continuum a
certificate to that effect; (b) each of the covenants and obligations of
CSC and Sub to be performed at or before the Effective Time pursuant to the
terms of the Merger Agreement shall have been duly performed in all
material respects at or before the Effective Time and at the Closing, CSC
and Sub shall have delivered to Continuum a certificate to that effect; (c)
the shares of CSC Common Stock issuable to Continuum stockholders pursuant
to the Merger Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for
listing on the NYSE upon official notice of issuance; (d) Continuum shall
have received the opinion of Vinson & Elkins L.L.P., counsel to Continuum,
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; (ii) each of CSC, Sub and Continuum will be a party to the
reorganization within the meaning of Section 368(b) of the Code; and (iii)
no gain or loss for federal income tax purposes will be recognized by a
stockholder of Continuum as a result of the Merger with respect to shares
of Continuum Common Stock converted solely into shares of CSC Common Stock,
and such opinion shall not have been withdrawn or modified in any material
respect; (e) CSC shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the
transactions contemplated by the Merger Agreement under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or
instrument, except those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of Continuum, individually
or in the aggregate, have a material adverse effect on CSC; and (f) there
shall have been no events, changes or effects with respect to CSC or its
subsidiaries having or which could reasonably be expected to have a
material adverse effect on CSC.
The respective obligations of CSC and Sub to effect the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations of Continuum contained in the Merger Agreement or
in any other document delivered pursuant thereto shall be true and correct
(except to the extent that the breach thereof would not have a material
adverse effect on Continuum) at and as of the Effective Time with the same
effect as if made at and as of the Effective Time (except to the extent
such representations specifically related to an earlier date, in which case
such representations shall be true and correct as of such earlier date),
and at the Closing, Continuum shall have delivered to CSC and Sub a
certificate to that effect; (b) each of the covenants and obligations of
Continuum to be performed at or before the Effective Time pursuant to the
terms of the Merger Agreement shall have been duly performed in all
material respects at or before the Effective Time and at the Closing,
Continuum shall have delivered to CSC and Sub a certificate to that effect;
(c) CSC shall have received from each affiliate of Continuum an executed
copy of a letter containing a covenant that such affiliate shall maintain
continuity of interest in CSC Common Stock received pursuant to the Merger,
and shall have received from each affiliate of CSC an executed copy of a
letter containing a covenant that such affiliate shall maintain continuity
of interest in CSC Common Stock; (d) Continuum shall have obtained the
consent or approval of each person whose consent or approval shall be
required in order to permit the succession by the Surviving Corporation
pursuant to the Merger to any obligation, right or interest of Continuum or
any subsidiary of Continuum under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument, except for
those for which failure to obtain such consents and approvals would not, in
the reasonable opinion of CSC, individually or in the aggregate, have a
material adverse effect on Continuum; and (e) there shall have been no
events, changes or effects with respect to Continuum or its subsidiaries
having or which could reasonably be expected to have a material adverse
effect on Continuum.
41
<PAGE>
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of CSC,
Sub and Continuum relating to, among other things, the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions):
(i) the due organization, power and standing of, and similar corporate
matters with respect to, each of Continuum, CSC and Sub; (ii) each of
Continuum's and CSC's capitalization; (iii) the authorization, execution,
delivery, and enforceability of the Merger Agreement by each such party and
the consummation of the transactions contemplated thereby; (iv) reports and
other documents filed with the Commission since March 31, 1992 and the
accuracy of the information contained therein; (v) the absence of any
material untrue statements in the Registration Statement and this Proxy
Statement/Prospectus; (vi) the absence of any conflict with each of
Continuum's, CSC's and Sub's corporate charter and bylaws and compliance
with applicable laws; (vii) the absence of any governmental or regulatory
authorization, consent or approval required to consummate the Merger;
(viii) the absence of any breach, default or violation of each of
Continuum's and CSC's corporate charter or bylaws, and of any obligation or
regulation to which Continuum or CSC is bound; (ix) the absence of any
material undisclosed liabilities; (x) the absence of certain changes or
events having a material adverse effect on the business, results of
operations, condition (financial or otherwise) or prospects ("Material
Adverse Effect") of Continuum or CSC; (xi) the absence of any litigation
having a Material Adverse Effect on CSC or Continuum; (xii) compliance with
laws and regulations, a violation of which could have a Material Adverse
Effect on CSC or Continuum; (xiii) the disclosure of all Continuum employee
benefit plans and compliance in all material respects with statutes
governing their administration; (xiv) disclosure of information with
respect to options to purchase Continuum Common Stock, including price,
vesting date and expiration; (xv) the disclosure of any acceleration of
benefits under any Continuum employee benefit plans pursuant to the
transactions contemplated by the Merger Agreement; (xvi) the absence of any
labor union contracts; (xvii) material compliance with environmental laws
and the absence of environmental claims which would have a Material Adverse
Effect on CSC or Continuum; (xviii) compliance with tax laws and
regulations, including the absence of any tax delinquencies; (xix) good and
defensible title to all properties and assets; (xx) valid rights to use all
intellectual property material to the business of Continuum or CSC; (xxi)
maintenance by Continuum of general liability and other business insurance
it believes to be reasonably prudent for its business; (xxii) the
stockholder vote required to approve the Merger Agreement for each of CSC
and Continuum; (xxiii) the absence of actions taken by Continuum or CSC
that would prevent the Merger from being effected as a pooling of interests
for accounting and financial reporting purposes; (xxiv) the delivery of
letter agreements from affiliates of CSC and Continuum regarding
maintaining a continuity of interest in CSC Common Stock; (xxv) absence of
unlawful payments; (xxvi) absence of insider interests in property of CSC
or Continuum; (xxvii) the receipt of opinions of Continuum's and CSC's
financial advisors; (xxviii) the absence of any brokerage or finders fees
associated with the Merger (other than those of Goldman Sachs and Lehman
Brothers, CSC's and Continuum's respective financial advisors); (xxix) the
absence of any misleading representation or warranty in any document
received from CSC or Continuum; (xxx) the absence of existing discussion
between Continuum and a third party with respect to an acquisition of
Continuum; (xxxi) restrictions of Section 203 of the DGCL are inapplicable
to the Merger Agreement and the transactions contemplated thereby; and
(xxxii) Sub has not engaged in any business or activity except in
connection with the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Continuum has agreed that, prior to the Effective Time, unless CSC shall
otherwise agree in writing, Continuum will, and will cause its subsidiaries
to, conduct their operations in the ordinary course of business consistent
with past practice, and to use no less diligence and effort than would be
applied absent the Merger Agreement to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers and
others having business
42
<PAGE>
dealings with them to the end that their goodwill and on-going businesses
shall be unimpaired at the Effective Time.
Except for certain exceptions set forth in the Merger Agreement, neither
Continuum nor any of its subsidiaries will, prior to the Effective Time,
without the prior written consent of CSC or Sub: (a) amend its Charter or
bylaws; (b) authorize for issuance, sell or deliver any of its capital stock
(except pursuant to the Continuum Stock Options or the Employee Stock Purchase
Plan); (c) split, combine or reclassify any shares of its capital stock or
declare or pay any dividends; (d) adopt a plan of liquidation or other
reorganization (other than the Merger); (e) alter the corporate structure of
ownership of any subsidiary; (f) incur any debt or assume any obligation other
than in the ordinary course; (g) adopt or amend any employee benefit
agreement; (h) acquire any assets in excess of $5 million other than in
connection with outsourcing agreements; (i) change accounting principles
except as required by law or generally accepted accounting principles; (j)
materially revalue any assets; (k) acquire any business organization, enter
any material agreement other than in the ordinary course, or authorize any
capital expenditure in excess of $1 million or, in the aggregate, $5 million;
(l) make any tax election or settle any material tax liability; (m) settle any
pending or threatened claim relating to the transactions contemplated by the
Merger Agreement or which could have a Material Adverse Effect on Continuum;
(n) commence or terminate any material software development project; or (o)
take any action or agree to take any action which would make any of
Continuum's representations and warranties contained in the Merger Agreement
untrue or incorrect.
CSC has agreed that, prior to the Effective Time, unless Continuum shall
otherwise agree in writing, CSC will, and will cause its subsidiaries to,
conduct their operations in the ordinary course of business consistent with
past practice and to use no less diligence and effort than would be applied in
the absence of the Merger Agreement to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers and
others having business dealings with them to the end that their goodwill and
on-going businesses shall be unimpaired at the Effective Time.
Except for certain exceptions set forth in the Merger Agreement, neither CSC
nor any of its subsidiaries will, prior to the Effective Time, without the
prior written consent of Continuum: (a) knowingly take any action that would
fail to maintain the trading of CSC Common Stock on the NYSE; (b) declare or
pay any dividend or other distribution (except dividends payable in CSC Common
Stock); (c) acquire any business organization which would materially prevent
or delay for more than 30 days the transactions contemplated by the Merger
Agreement; (d) amend its Articles of Incorporation in a manner that adversely
impacts the transactions contemplated by the Merger Agreement; (e) authorize
the issuance of or deliver any securities (except for bank loans and
commercial paper) other than in the ordinary course of business (except that
CSC may issue securities having a market value of up to $150 million); (f)
acquire or dispose of any material assets other than in the ordinary course,
in connection with outsourcing agreements or pursuant to existing agreements;
or (g) take any action or agree to take any action which would make any of
CSC's representations and warranties contained in the Merger Agreement untrue
or incorrect.
NO SOLICITATION OF TRANSACTIONS
Continuum has agreed to immediately cease discussions, if any, with any
parties with respect to any Third Party Acquisition (as defined below).
Subject to the execution of a confidentiality agreement, Continuum may provide
access and information in response to unsolicited requests therefor, and may
participate in discussions and negotiate with such party concerning any Third
Party Acquisition, if (i) such party has submitted a Superior Proposal (as
defined below) and (ii) the Continuum Board of Directors determines in its
good faith judgment, after consultation with and based upon the advice of
independent legal counsel, that it is required to do so in order to comply
with its fiduciary duties; provided, however, that Continuum shall not, in any
event, be entitled to terminate the Merger Agreement as a result of the
occurrence of the events described in clauses (i) and (ii) of this sentence.
Except as described above, neither Continuum nor any affiliated entity shall
take nor shall Continuum authorize or permit any of its or their respective
officers, directors, employees, representatives or agents, to directly or
indirectly encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any person or group (other
than CSC and Sub, or any designee) concerning any Third
43
<PAGE>
Party Acquisition. Continuum shall immediately provide CSC with a copy of any
written Superior Proposal and a summary of any oral Superior Proposal, and
promptly keep CSC advised of any developments thereafter.
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of Continuum by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) other than CSC, Sub or any affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of more than 30% of the total assets of
Continuum and its subsidiaries, taken as a whole; (iii) the acquisition by a
Third Party of 30% or more of the outstanding shares of Continuum Common
Stock; (iv) the adoption by Continuum of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by
Continuum or any of its subsidiaries of more than 20% of the outstanding
shares of Continuum Common Stock; or (vi) the acquisition by Continuum or any
subsidiary, by merger, purchase of stock or assets, joint venture or
otherwise, of a direct or indirect ownership interest or investment in any
business whose annual revenues, net income or assets is equal or greater than
40% of the annual revenues, net income or assets of Continuum and its
subsidiaries, taken as whole.
A "Superior Proposal" means any bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of Continuum Common Stock then outstanding or all or
substantially all the assets of Continuum and otherwise on terms which the
Continuum Board of Directors by a majority vote determines in its good faith
judgment (based on the written advice of a financial advisor of nationally
recognized reputation) to be more favorable to Continuum's stockholders than
the Merger.
The Continuum Board of Directors may not withdraw its recommendation of the
Merger or approve or recommend, or cause Continuum to enter into, any Third
Party Acquisition proposal, unless in its good faith judgment, after
consultation with and based upon the advice of independent legal counsel, the
Board of Directors by a majority vote determines that it is required to do so
in order to comply with its fiduciary duties, but in each case only (i) after
providing reasonable written notice to CSC (a "Notice of Superior Proposal")
advising CSC that the Continuum Board of Directors has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal, and (ii) if
CSC does not, within seven business days of CSC's receipt of the Notice of
Superior Proposal, make an offer which the Continuum Board of Directors by a
majority vote determines in its good faith judgment (based on the written
advice of a financial advisor of nationally recognized reputation) to be as
favorable to Continuum's stockholders as such Superior Proposal; provided,
however, that Continuum shall not be entitled to enter into any agreement with
respect to a Superior Proposal unless and until the Merger Agreement is
terminated by its terms.
EMPLOYEE BENEFIT PLANS
Continuum maintains a number of employee benefit plans and compensation
arrangements in which eligible employees of Continuum and certain of its
affiliates participate. For a period ending on the first anniversary of the
Effective Time, CSC will provide the employees and retirees of Continuum and
its subsidiaries with employee benefits (other than pursuant to plans
involving Continuum Stock Options, which shall be assumed by CSC, the
Continuum Employee Stock Purchase Plan, which shall not be assumed by CSC)
which, in the aggregate, are no less favorable than those currently provided
by Continuum and its subsidiaries. CSC and Continuum have agreed, and CSC will
cause the Surviving Corporation to agree, that (i) all the "change of control"
or similar provisions in existing contracts with employees, and termination
and severance agreements with executive officers will be honored in accordance
with their terms as of the date of the Merger Agreement, and (ii) the Employee
Stock Purchase Plan of Continuum will be amended to provide that the period
for employee participation beginning July 1, 1996 shall end, and the Plan
shall terminate, on the date of the closing of the Merger.
POOLING OF INTERESTS ACCOUNTING TREATMENT
Continuum and CSC have agreed to use all reasonable efforts to obtain from
each of their respective affiliates a letter agreement stating that such
affiliate will not sell or otherwise reduce his risk, with respect to any
Continuum affiliate, in any CSC Common Stock received in the Merger, or with
respect to any CSC affiliate,
44
<PAGE>
in any CSC Common Stock owned by such affiliate, until such time as financial
results covering at least 30 days of post-merger operations have been
published, except as permitted by Staff Accounting Bulletin No. 76 issued by
the Commission. Each of CSC, Sub and Continuum has agreed to use all
reasonable efforts to cause the Merger to be treated for financial accounting
purposes as a pooling of interests transaction, and to prevent any actions
which could preclude such treatment.
INDEMNIFICATION
The Surviving Corporation has agreed to indemnify and hold harmless each
person who is or was an officer or director of Continuum or any of its
subsidiaries against all losses, claims, damages, costs, expenses, settlement
payments or liabilities based on or arising out of the fact that such person
is or was an officer or director of Continuum or any of its subsidiaries, or
the Merger Agreement or the transactions contemplated thereby, in each case to
the fullest extent permitted under applicable law or the Surviving
Corporation's certificate of incorporation or bylaws. CSC has agreed to
guarantee the payment and performance of the Surviving Corporation's indemnity
obligations under the Merger Agreement. The indemnification provision of the
Merger Agreement shall not limit or otherwise adversely affect any rights of
any person indemnified thereunder under any agreement with Continuum or
Continuum's Certificate of Incorporation or Bylaws.
CERTAIN OTHER COVENANTS
CSC, Sub and Continuum have agreed to take certain other actions with
respect to the Merger, including (i) CSC and Continuum have agreed to promptly
prepare and file with the Commission this Proxy Statement/ Prospectus and the
Registration Statement, and to use their best efforts to have the Registration
Statement declared effective as promptly as practicable after such filing;
(ii) CSC has agreed to take any required action under state securities laws
with respect to the issuance of CSC Common Stock pursuant to the Merger; (iii)
CSC and Continuum have each agreed to use all reasonable efforts to cause
Deloitte & Touche LLP and Ernst & Young LLP, respectively, to deliver a letter
customary in scope and substance for agreed upon procedures letters delivered
by independent public accountants in connection with registration statements
and proxy statements similar to the Registration Statement and this Proxy
Statement/Prospectus; (iv) CSC and Continuum have each agreed to take all
actions necessary in accordance with the NGCL and the DGCL, respectively, and
their respective charters and bylaws, and to hold a meeting of stockholders as
promptly as practicable to, in the case of Continuum, approve and adopt the
Merger Agreement and the transactions contemplated thereby, and in the case of
CSC, approve the Merger Proposal and the Charter Amendment Proposal; (v) CSC
has agreed to use its best efforts to list the CSC Common Stock issued
pursuant to the Merger on the NYSE; (vi) subject to confidentiality
agreements, CSC and Continuum have each agreed to give the other reasonable
access to, and permit reasonable inspection of, employees, facilities, records
and other information of itself and its subsidiaries; (vii) CSC and Continuum
have each agreed to use all reasonable efforts under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement (including preparing and filing this Proxy
Statement/Prospectus and Registration Statement, and filings under the HSR
Act, obtaining all necessary consents, contesting any legal proceeding
relating to the Merger and executing any additional documents necessary to
consummate the Merger); (viii) CSC, Sub and Continuum have agreed to consult
with each other before issuing any press release or other public statements
with respect to the Merger Agreement or any transactions contemplated thereby;
(ix) CSC, Sub and Continuum have agreed to give prompt notice to one another
of any event which would be likely to cause any of their representations or
warranties to be untrue or inaccurate in any material respect or any material
failure to comply with or satisfy any covenant, condition or agreement to be
satisfied or complied with under the Merger Agreement; and (x) CSC has agreed
to enter the Registration Rights Agreement with DST.
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval and adoption of the Merger Agreement by
the stockholders of Continuum: (a) by mutual consent of CSC, Sub and
Continuum; (b) by CSC and Sub or Continuum if the Merger has been enjoined or
otherwise
45
<PAGE>
prohibited by a final nonappealable court order or other governmental action;
or (c) the Merger shall not have been consummated by December 31, 1996
(provided the terminating party's failure to fulfill its obligations under the
Merger Agreement is not the reason that the Merger has not been consummated).
The Merger Agreement may be terminated by Continuum at any time prior to the
Effective Time, whether before or after approval and adoption of the Merger
Agreement by the stockholders of Continuum, if (i) any representation or
warranty of CSC or Sub is breached or becomes untrue and cannot be cured by
December 31, 1996; (ii) a breach of the Merger Agreement by CSC or Sub which
would have a Material Adverse Effect on CSC or materially adversely affect or
delay the consummation of the Merger has not been cured within 20 business
days after notice by Continuum; (iii) the Merger Proposal or the Charter
Amendment Proposal is not approved by the requisite vote of CSC stockholders
at the CSC Annual Meeting; or (iv) the Merger Agreement is not approved and
adopted by the requisite vote of Continuum stockholders at the Continuum
Special Meeting.
The Merger Agreement may be terminated by CSC and Sub at any time prior to
the Effective Time, whether before or after approval and adoption of the
Merger Agreement by the stockholders of Continuum, if (i) any representation
or warranty of Continuum is breached or becomes untrue and cannot be cured by
December 31, 1996; (ii) a breach of the Merger Agreement by Continuum which
would have a Material Adverse Effect on Continuum or materially adversely
affect or delay the consummation of the Merger has not been cured within 20
business days after notice by Continuum; (iii) the Board of Directors of
Continuum shall have recommended to the Continuum stockholders a Superior
Proposal; (iv) the Continuum Board of Directors has withdrawn, modified or
changed its approval or recommendation of the Merger Agreement or the Merger,
or failed to call, give notice of, convene or hold a stockholders' meeting to
vote upon the Merger; (v) the Merger Proposal or the Charter Amendment
Proposal is not approved by the requisite vote of CSC stockholders at the CSC
Annual Meeting; or (vi) the Merger Agreement is not approved and adopted by
the requisite vote of Continuum stockholders at the Continuum Special Meeting.
Continuum will be required to pay CSC a fee of $45 million (the "Termination
Fee") in the event that:
(a) the Merger Agreement is terminated by CSC and Sub because (i) the
Board of Directors of Continuum recommended to the Continuum stockholders a
Superior Proposal, or (ii) the Board of Directors of Continuum withdrew,
modified or changed its approval or recommendation of the Merger Agreement
or the Merger, or failed to call, give notice of, convene or hold a
stockholders' meeting to vote upon the Merger;
(b) the Merger Agreement is terminated by CSC and Sub because (i) a
representation or warranty of Continuum is breached or becomes untrue and
cannot be cured by December 31, 1996, or (ii) a breach of the Merger
Agreement by Continuum which would have a Material Adverse Effect on
Continuum or materially adversely affect or delay the consummation of the
Merger has not been cured within 20 business days after notice by
Continuum, and, in the case of (i) or (ii), within 12 months of such
termination, a Third Party Acquisition occurs or an agreement is entered
into with a third party with whom Continuum had negotiations, who had
submitted a proposal or to whom Continuum had furnished information; or
(c) the Merger Agreement is terminated by Continuum or CSC and Sub
because the Merger Agreement is not approved and adopted by the requisite
vote of Continuum stockholders at the Continuum Special Meeting, and at the
time of such meeting a Third Party Acquisition had been offered, publicly
announced or under consideration.
If the Merger Agreement is terminated by Continuum because the Merger
Agreement is not approved and adopted by the requisite vote of Continuum
stockholders at the Continuum Special Meeting, or if the Merger Agreement is
terminated by CSC or Sub because (i) the Continuum Board of Directors
recommended a Superior Proposal, changed its recommendation or failed to hold
a stockholders' meeting, (ii) Continuum breached one of its representations,
warranties or covenants, or (iii) the Merger Agreement is not approved and
adopted by the requisite vote of Continuum stockholders at the Continuum
Special Meeting, as each is more fully described above, Continuum shall be
obligated (unless payment of the Termination Fee is required) to reimburse CSC
and
46
<PAGE>
Sub for all actual documented out-of-pocket fees and expenses, not to exceed
$2 million, actually and reasonably incurred in connection with the Merger and
the transactions contemplated thereby.
If the Merger Agreement is terminated by CSC because the Merger Proposal or
the Charter Amendment Proposal is not approved by the requisite vote of CSC
stockholders at the CSC Annual Meeting, or if the Merger Agreement is
terminated by Continuum because (i) the Merger Proposal or the Charter
Amendment Proposal is not approved by the requisite vote of CSC stockholders
at the CSC Annual Meeting or (ii) CSC or Sub breached one of its
representations, warranties or covenants, as each is more fully described
above, CSC shall be obligated to reimburse Continuum for all actual documented
out-of-pocket fees and expenses, not to exceed $2 million, actually and
reasonably incurred in connection with the Merger and the transactions
contemplated thereby.
In all other cases, CSC and Continuum will each bear their own expenses.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended by action of the
parties thereto at any time before or after approval of the Merger by the
stockholders of Continuum, but that after such approval, no amendment shall be
made which requires the approval of such stockholders under applicable law
without approval of such stockholders. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of CSC, Sub and
Continuum.
At any time prior to the Effective Time, the parties to the Merger Agreement
may (i) extend the time for the performance of any of the obligations or other
acts of any of the other parties thereto; (ii) waive any inaccuracies in the
representations and warranties contained therein or in any documents delivered
pursuant thereto; or (iii) waive any other party's compliance with any of the
agreements or conditions contained therein. Any agreement on the part of a
party to the Merger Agreement to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
47
<PAGE>
PRICE RANGE OF COMMON STOCK
CSC Common Stock is traded on the NYSE and PSE under the symbol "CSC" and
Continuum Common Stock is traded on the NYSE under the symbol "CNU." The table
below sets forth the high and low intra-day prices for CSC Common Stock and
Continuum Common Stock on the NYSE Composite Tape for the periods indicated.
(Quarters are for a calendar year.)
<TABLE>
<CAPTION>
CSC CONTINUUM
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1993
First Quarter................................. $26 7/8 $24 5/8 $25 3/4 $17 1/2
Second Quarter................................ 28 1/4 23 3/8 21 3/8 17 5/8
Third Quarter................................. 31 5/8 27 1/4 18 1/8 14 1/2
Fourth Quarter................................ 33 5/8 29 7/8 21 1/4 16 1/4
1994
First Quarter................................. 41 3/4 31 5/8 25 18 5/8
Second Quarter................................ 44 35 1/4 25 5/8 19 3/4
Third Quarter................................. 45 1/4 39 3/4 23 3/4 18
Fourth Quarter................................ 52 5/8 41 30 1/2 20 3/4
1995
First Quarter................................. 52 1/4 47 1/4 32 1/4 27
Second Quarter................................ 56 7/8 46 1/2 34 29 3/4
Third Quarter................................. 65 3/8 52 39 1/2 32 1/2
Fourth Quarter................................ 75 1/4 62 1/2 41 3/4 33 5/8
1996
First Quarter................................. 80 3/4 65 1/8 42 3/8 33 1/2
Second Quarter (prior to Merger announcement
on 4/29/96).................................. 79 1/2 68 1/8 46 7/8 41 1/4
Second Quarter (subsequent to Merger
announcement through 6/24/96)................ 79 1/8 69 3/4 61 3/4 53 5/8
</TABLE>
The following tables set forth the high, low and last sales prices as
reported on the NYSE Composite Tape for CSC Common Stock and Continuum Common
Stock on April 26, 1996, the last trading day prior to the announcement of the
Merger, and on June 24, 1996, the last trading day prior to the printing of
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CONTINUUM
APRIL 26, 1996 CSC CONTINUUM EQUIVALENT
-------------- ------- --------- ----------
<S> <C> <C> <C>
High.......................................... $78 3/8 $45 1/2 $61.92
Low........................................... 76 5/8 45 60.53
Last.......................................... 78 1/8 45 3/8 61.72
<CAPTION>
CONTINUUM
JUNE 24, 1996 CSC CONTINUUM EQUIVALENT
------------- ------- --------- ----------
<S> <C> <C> <C>
High.......................................... $74 3/8 $58 1/8 $73.58
Low........................................... 73 5/8 57 3/8 72.63
Last.......................................... 74 1/8 58 73.42
</TABLE>
Following the Merger, CSC Common Stock will continue to be traded on the
NYSE and the PSE. Following the Merger, Continuum Common Stock will cease to
be traded on the NYSE, and there will be no further market for such stock.
It has been CSC's policy to invest earnings in the growth of its business
rather than to distribute earnings as cash dividends. This policy, under which
cash dividends have not been paid since fiscal 1969, is expected to continue
but is subject to review by the CSC Board of Directors.
Continuum has not paid cash dividends on Continuum Common Stock since the
first quarter of its fiscal year ended March 31, 1987 and, if the Merger is
not consummated, has no current intention to pay any such cash dividends. The
Merger Agreement does not permit Continuum to pay cash dividends on Continuum
Common Stock.
48
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN STOCKHOLDERS OF CSC
The following table sets forth information regarding beneficial ownership of
CSC Common Stock as of June 21, 1996 by (i) each person or group known by CSC
to own beneficially more than 5% of the outstanding CSC Common Stock, (ii)
each of the five executive officers of CSC named in the Summary Compensation
Table (see "Additional Matters for Consideration at the CSC Annual Meeting--
CSC Executive Compensation--Summary Compensation Table"), and (iii) all
current executive officers and directors of CSC, as a group. For the
beneficial ownership of shares of CSC Common Stock held by individual
directors of CSC, see "Additional Matters for Consideration at the CSC Annual
Meeting--Election of CSC Directors." Unless otherwise indicated, each such
person or group has sole voting and investment power with respect to all
shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CSC COMMON STOCK
OF CSC COMMON BENEFICIALLY OWNED
STOCK BENEFICIALLY ------------------------------
BENEFICIAL OWNER OWNED BEFORE MERGER AFTER MERGER(1)
---------------- ------------------ ------------- ---------------
<S> <C> <C> <C>
FMR Corp. ................ 5,103,318(2) 9.1% 9.8%(2)
82 Devonshire Street
Boston, Massachusetts
02109
Provident Investment Coun-
sel, Inc................. 3,149,159(3) 5.6 4.2
300 North Lake Avenue
Pasadena, California 91101
Van B. Honeycutt.......... 166,360(4) (4)(5) (4)(5)
James A. Champy........... 135(4) (4)(5) (4)(5)
John M. Mickel............ 148(4) (4)(5) (4)(5)
Thomas R. Madison......... 21,110(4) (4)(5) (4)(5)
Ronald W. Mackintosh...... 65,700(4) (4)(5) (4)(5)
All executive officers and
directors of CSC as a
group (22 persons)....... 1,208,540(4)(6) 2.1(4)(6) 1.6(4)(6)
</TABLE>
- --------
(1) Upon consummation of the Merger, assuming that (i) no change occurs in the
number of shares of CSC Common Stock indicated as beneficially owned, (ii)
56,213,135 shares of CSC Common Stock and 24,384,873 shares of Continuum
Common Stock are outstanding at the Effective Time, and (iii), unless
otherwise indicated below, the listed beneficial owner does not
beneficially own any Continuum Common Stock.
(2) This information, which is not within the direct knowledge of CSC, has
been derived from a Schedule 13G dated December 31, 1995 and filed with
the Commission on February 13, 1996. Based upon information contained in
such Schedule 13G, (i) all of such shares are also deemed to be
beneficially owned by Edward C. Johnson 3d, Chairman of FMR Corp., by
Abigail P. Johnson, a director of FMR Corp. and the owner of 24.5% of the
outstanding voting stock of FMR Corp., and by certain members of the
Johnson family, who together may be deemed to form a controlling group
with respect to FMR Corp. (collectively, the "Johnson Group" and, together
with Edward C. Johnson 3d, Abigail P. Johnson and FMR Corp., "FMR"), (ii)
FMR has no voting power with respect to such shares, except that FMR Corp.
and Edward C. Johnson 3d each has sole voting power with respect to
358,599 of such shares, (iii) Fidelity Management and Research Company, an
investment advisor and wholly-owned subsidiary of FMR Corp., is the
beneficial owner of 4,473,319 shares, and FMR Corp. and Edward C. Johnson
3d each has sole dispositive power but no voting power with respect to
these shares, and (iv) Fidelity Management Trust Company, a bank and
wholly-owned subsidiary of FMR Corp., in its capacity as an investment
manager of institutional accounts, beneficially owns 592,799 shares, and
FMR Corp. and Edward C. Johnson 3d each has sole voting power with respect
to 321,399 of these shares, and no voting power with respect to the
remaining 271,400 shares. The Percent of CSC Common Stock Beneficially
Owned by FMR after the Merger includes shares of CSC
49
<PAGE>
Common Stock received in the Merger in exchange for 2,871,200 shares of
Continuum Common Stock beneficially owned by FMR prior to the Merger. See
"--Certain Stockholders of Continuum."
(3) This information, which is not within the direct knowledge of CSC, has
been derived from a Schedule 13G dated December 31, 1995 and filed with
the Commission on February 13, 1996. Based upon information contained in
such Schedule 13G, Provident Investment Counsel, Inc. had sole voting
power with respect to 2,341,909 of such shares and no voting power with
respect to the remaining 807,250 shares.
(4) With respect to Messrs. Honeycutt, Champy, Mickel, Madison, Mackintosh and
all executive officers and directors as a group, includes 132,735, 0, 0,
20,000, 44,700 and 490,535 shares, respectively, subject to options which
were outstanding on June 21, 1996 and which will be exercisable within 60
days thereafter. The shares subject to these options have been deemed to
be outstanding in computing the Percent of Class.
(5) Less than 1%.
(6) Of such 1,208,540 shares, the indicated executive officers and directors,
as a group, have sole voting and investment power with respect to
1,193,424 shares and shared voting and investment power with respect to
15,116 shares.
50
<PAGE>
CERTAIN STOCKHOLDERS OF CONTINUUM
The following table sets forth information regarding beneficial ownership of
Continuum Common Stock as of June 21, 1996 by (i) each person or group known
to Continuum to own beneficially more than 5% of the outstanding Continuum
Common Stock, (ii) each of the directors, the Chief Executive Officer and the
four other most highly compensated executive officers of Continuum, and
(iii) all directors and executive officers of Continuum, as a group. Unless
otherwise noted, each such person or group has sole voting and investment
power with respect to all shares beneficially owned disregarding community
property interests of such person's spouse, if any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF PERCENT OF CSC
CONTINUUM CONTINUUM COMMON STOCK
COMMON STOCK COMMON STOCK BENEFICIALLY
BENEFICIALLY BENEFICIALLY OWNED AFTER
BENEFICIAL OWNER OWNED OWNED MERGER(1)
---------------- ------------ ------------ --------------
<S> <C> <C> <C>
DST Systems, Inc. .......... 5,549,141 22.8% 5.8%
1055 Broadway
Kansas City, Missouri 64105
FMR Corp. and Edward C.
Johnson 3d................. 2,871,200(2) 11.8 9.8(2)
82 Devonshire Street
Boston, Massachusetts 02109
Lowell C. Anderson.......... -- -- --
Thomas G. Brown............. 4,000(3) (4) (4)
Ronald C. Carroll........... 179,724(3) (4) (4)
W. Michael Long............. 167,406(3) (4) (4)
Thomas A. McDonnell......... 4,000(3)(5) (4) (4)
Carl S. Quinn............... 9,000(3) (4) (4)
Edward C. Stanton, III...... 2,600(6) (4) (4)
E. Lee Walker............... 12,000(3) (4) (4)
Michael W. Brinsford........ 49,529(3) (4) (4)
Neil R. Cullimore........... 99,337(3)(7) (4) (4)
Robert S. Maltempo.......... 233,059(3) (4) (4)
All executive officers and
directors of Continuum as a
group (18 persons)......... 1,296,514(3)(5)(6)(7) 5.3 1.4
</TABLE>
- --------
(1) Upon consummation of the Merger, assuming that (i) no change occurs in the
number of shares of Continuum Common Stock indicated as beneficially
owned, (ii) 56,213,135 shares of CSC Common Stock and 24,384,873 shares of
Continuum Common Stock are outstanding at the Effective Time, and (iii)
unless otherwise indicated below, the listed beneficial owner does not
beneficially own any CSC Common Stock not received in the Merger.
(2) This information, which is not within the direct knowledge of Continuum,
has been derived from a Schedule 13G dated December 31, 1995, and filed
with the Commission on February 14, 1996. Based upon information contained
in such Schedule 13G, Fidelity Management & Research Company, an
investment advisory and subsidiary of FMR Corp., is the beneficial owner
of 2,804,100 shares of Continuum Common Stock as a result of acting as
investment advisor to various investment companies (the Fidelity Blue Chip
Growth Fund's interest amounted to 1,079,900 shares of Continuum Common
Stock and the Fidelity Magellan Fund's interest amounted to 1,711,400
shares). Another investment manager and subsidiary of FMR Corp., Fidelity
Management Trust Company, is the beneficial owner of 67,100 shares of
Continuum Common Stock. FMR Corp. and its Chairman, Edward D. Johnson 3d,
share dispositive power but have no voting power of the shares reported
herein. Mr. Johnson and his family form a controlling group with respect
to FMR Corp. The percent of CSC Common Stock beneficially owned after the
Merger includes 5,103,318 shares of CSC Common Stock beneficially owned
prior to the Merger. See "--Certain Stockholders of CSC."
51
<PAGE>
(3) The number reported includes shares subject to options which were
outstanding on June 21, 1996 and which will be exercisable on or prior to
August 20, 1996 in the following amounts:
<TABLE>
<CAPTION>
CONTINUUM
COMMON STOCK
UNDERLYING
BENEFICIAL OWNER OPTIONS
---------------- ------------
<S> <C>
Thomas G. Brown............................................. 4,000
Ronald C. Carroll........................................... 35,428
W. Michael Long............................................. 158,856
Thomas A. McDonnell......................................... 4,000
Carl S. Quinn............................................... 4,000
Edward C. Stanton, III...................................... 2,000
E. Lee Walker............................................... 10,000
Michael W. Brinsford........................................ 43,428
Neil R. Cullimore........................................... 49,216
Robert S. Maltempo.......................................... 52,716
All executive officers and directors as a group............. 601,785
</TABLE>
The shares subject to these options have been deemed to be outstanding in
computing the Percent of Class.
(4) Less than 1%.
(5) The number excludes the shares owned by DST, of which Mr. McDonnell is
President and a Director. Mr. McDonnell disclaims beneficial ownership of
the shares of Continuum Common Stock owned by DST Systems, Inc.
(6) The number stated includes 200 shares owned by Mr. Stanton's spouse.
(7) The number stated includes 112 shares owned by Mr. Cullimore's immediate
family. The number also includes 40,009 shares which are pledged to
Continuum to secure a non-recourse loan made by Paxus (prior to Paxus'
acquisition by Continuum in August 1993) to Mr. Cullimore to fund the
purchase of Paxus ordinary shares under the Paxus Employee Share Plan.
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based on the historical audited consolidated balance sheets and statements
of earnings of CSC and Continuum, adjusted to give effect to the Merger, using
the pooling of interests method of accounting for business combinations.
The unaudited pro forma combined condensed balance sheet as of March 29,
1996 assumes that the Merger occurred as of that date and reflects the
combination of the historical financial position of CSC as of March 29, 1996
with the historical financial position of Continuum as of March 31, 1996.
The unaudited pro forma combined condensed statements of earnings for fiscal
years 1994, 1995 and 1996 combine the historical results of operations of CSC
for those periods with the historical results of operations of Continuum for
the same fiscal years and assumes that the Merger occurred at the beginning of
the periods presented.
The following unaudited pro forma combined condensed financial statements
have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of CSC and
Continuum, incorporated by reference in this Proxy Statement/Prospectus. These
pro forma financial statements are presented for illustrative purposes only
and are not indicative of the operating results or financial position that
would have occurred had the Merger been consummated on the dates indicated in
the preceding paragraphs, nor are they indicative of the future operating
results or financial position of the combined companies.
53
<PAGE>
CSC AND CONTINUUM
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED MARCH 29, 1996*
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CSC CONTINUUM COMBINED ADJUSTMENTS(1) PRO FORMA
---------- --------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $4,242,422 $ 498,338 $4,740,760 $4,740,760
---------- --------- ---------- ----- ----------
Cost of services........ 3,349,706 340,502 3,690,208 3,690,208
Selling, general and ad-
ministrative........... 378,873 90,417 469,290 469,290
Depreciation and amorti-
zation................. 252,084 24,052 276,136 276,136
Interest expense........ 35,021 2,904 37,925 37,925
Interest income......... (4,654) (1,128) (5,782) (5,782)
Restructuring and other
costs.................. 50,053 50,053 50,053
Charge for purchased
R&D.................... 26,000 26,000 26,000
---------- --------- ---------- ----- ----------
Total costs and ex-
penses................. 4,011,030 532,800 4,543,830 4,543,830
---------- --------- ---------- ----- ----------
Income (loss) before
taxes.................. 231,392 (34,462) 196,930 196,930
Income tax provision
(benefit).............. 89,700 (2,201) 87,499 87,499
---------- --------- ---------- ----- ----------
Net income (loss)....... $ 141,692 $ (32,261) $ 109,431 $ 109,431
========== ========= ========== ===== ==========
Earnings (loss) per com-
mon share.............. $ 2.48 $ (1.35) $ 1.44 $ 1.43
========== ========= ========== ===== ==========
Average common shares
outstanding............ 57,214 23,879 76,078 456 76,534
========== ========= ========== ===== ==========
</TABLE>
- --------
* Continuum amounts reflect the year ended March 31, 1996.
(1) The amount reported in the "Adjustments" column represents Continuum common
stock equivalents converted to CSC shares at the Exchange Ratio of 0.79.
(See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.)
54
<PAGE>
CSC AND CONTINUUM
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CSC CONTINUUM COMBINED ADJUSTMENTS(1) PRO FORMA
---------- --------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $3,372,502 $ 415,524 $3,788,026 $3,788,026
---------- --------- ---------- ---- ----------
Cost of services........ 2,685,603 276,351 2,961,954 2,961,954
Selling, general and ad-
ministrative........... 311,177 72,797 383,974 383,974
Depreciation and amorti-
zation................. 172,625 17,615 190,240 190,240
Interest expense........ 28,841 2,578 31,419 31,419
Interest income......... (3,196) (919) (4,115) (4,115)
Other items, net........ 3,740 3,740 3,740
---------- --------- ---------- ---- ----------
Total costs and ex-
penses................. 3,198,790 368,422 3,567,212 3,567,212
---------- --------- ---------- ---- ----------
Income before taxes..... 173,712 47,102 220,814 220,814
Income tax provision
(benefit).............. 62,973 14,604 77,577 77,577
---------- --------- ---------- ---- ----------
Net income.............. $ 110,739 $ 32,498 $ 143,237 $ 143,237
========== ========= ========== ==== ==========
Earnings per common
share.................. $ 2.09 $ 1.37 $ 2.00 $ 1.99
========== ========= ========== ==== ==========
Average common shares
outstanding............ 52,975 23,700 71,698 153 71,851
========== ========= ========== ==== ==========
</TABLE>
- --------
(1) The amount reported in the "Adjustments" column represents Continuum common
stock equivalents converted to CSC shares at the Exchange Ratio of 0.79.
(See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.)
55
<PAGE>
CSC AND CONTINUUM
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED APRIL 1, 1994*
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CSC CONTINUUM COMBINED ADJUSTMENTS(1) PRO FORMA
---------- --------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $2,582,670 $ 313,720 $2,896,390 $2,896,390
---------- --------- ---------- ---- ----------
Cost of services........ 2,065,023 203,632 2,268,655 2,268,655
Selling, general and ad-
ministrative........... 227,003 67,638 294,641 294,641
Depreciation and amorti-
zation................. 130,704 15,898 146,602 146,602
Interest expense........ 17,219 3,836 21,055 21,055
Interest income......... (6,362) (1,714) (8,076) (8,076)
Restructuring and other
costs.................. 32,629 32,629 32,629
Charge for purchased
R&D.................... 15,963 15,963 15,963
---------- --------- ---------- ---- ----------
Total costs and ex-
penses................. 2,433,587 337,882 2,771,469 2,771,469
---------- --------- ---------- ---- ----------
Income before taxes..... 149,083 (24,162) 124,921 124,921
Income tax provision
(benefit).............. 58,153 (654) 57,499 57,499
---------- --------- ---------- ---- ----------
Earnings before
cumulative effect of
accounting change...... $ 90,930 $ (23,508) $ 67,422 $ 67,422
========== ========= ========== ==== ==========
Earnings per common
share before cumulative
effect of accounting
change................. $ 1.77 $ (1.10) $ 0.99 $ 0.99
========== ========= ========== ==== ==========
Average common shares
outstanding............ 51,385 21,390 68,283 83 68,366
========== ========= ========== ==== ==========
</TABLE>
- --------
* Continuum amounts reflect the year ended March 31, 1994.
(1) The amount reported in the "Adjustments" column represents Continuum common
stock equivalents converted to CSC shares at the Exchange Ratio of 0.79.
(See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.)
56
<PAGE>
CSC AND CONTINUUM
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
MARCH 29, 1996*
(IN THOUSANDS)
<TABLE>
<CAPTION>
CSC CONTINUUM COMBINED ADJUSTMENTS PRO FORMA
---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents........... $ 104,867 $ 9,006 $ 113,873 $ 113,873
Receivables............ 943,354 155,212 1,098,566 1,098,566
Prepaid expenses and
other................. 96,033 38,449 134,482 134,482
---------- --------- ---------- -------- ----------
Total current assets.. 1,144,254 202,667 1,346,921 1,346,921
---------- --------- ---------- -------- ----------
Property and equipment,
net of depreciation and
amortization........... 640,801 39,257 680,058 680,058
Excess cost of
businesses acquired
over related net
assets, net of
amortization........... 420,775 37,137 457,912 $ (5,000) 452,912
Other intangibles, net
of amortization........ 95,835 25,307 121,142 (3,200) 117,942
Other assets............ 294,125 35,913 330,038 (4,800) 325,238
---------- --------- ---------- -------- ----------
TOTAL ASSETS.......... $2,595,790 $ 340,281 $2,936,071 $(13,000) $2,923,071
========== ========= ========== ======== ==========
Current liabilities
Short-term debt and
current maturities.... $ 70,308 $ 8,031 $ 78,339 $ 78,339
Accounts payable....... 151,361 35,099 186,460 186,460
Accrued payroll and
related costs......... 196,221 26,399 222,620 222,620
Accrued expenses and
other................. 255,792 43,049 298,841 $ 32,000 330,841
Advance contract
payments.............. 34,580 34,580 34,580
Deferred revenue....... 40,615 40,615 40,615
Income taxes payable... 52,181 15,496 67,677 (10,900) 56,777
---------- --------- ---------- -------- ----------
Total current
liabilities.......... 760,443 168,689 929,132 21,100 950,232
---------- --------- ---------- -------- ----------
Long-term debt, net..... 405,471 21,163 426,634 426,634
Deferred income taxes... 72,011 11,537 83,548 83,548
Other long-term
liabilities............ 52,171 27,449 79,620 79,620
Stockholders' equity
Common stock issued,
par value............. 56,342 2,422 58,764 16,662 75,426
Additional paid-in
capital............... 348,507 170,404 518,911 (16,796) 502,115
Earnings retained for
use in business....... 911,872 (49,102) 862,770 (34,100) 828,670
Foreign currency
translation and
unfunded pension
adjustment............ (539) (6,675) (7,214) (7,214)
Other.................. (5,472) (5,472) (5,472)
Treasury stock......... (10,488) (134) (10,622) 134 (10,488)
---------- --------- ---------- -------- ----------
Total stockholders'
equity............... 1,305,694 111,443 1,417,137 (34,100) 1,383,037
---------- --------- ---------- -------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY............... $2,595,790 $ 340,281 $2,936,071 $(13,000) $2,923,071
========== ========= ========== ======== ==========
</TABLE>
- --------
* Continuum's fiscal year ended on March 31, 1996.
(See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.)
57
<PAGE>
CSC AND CONTINUUM
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On April 28, 1996, CSC, Sub, a wholly-owned subsidiary of CSC, and Continuum
entered into an Agreement and Plan of Merger that provides for the merger of
Sub with and into Continuum. Under the terms of the Merger Agreement, each
outstanding share of Continuum Common Stock will be converted into the right
to receive 0.79 of a share of CSC Common Stock. The business combination is to
be accounted for using the pooling of interests method of accounting for
business combinations.
Certain amounts were reclassified within the Unaudited Pro Forma Combined
Condensed Financial Statements to be consistent with the presentation used by
CSC.
2. PRO FORMA ADJUSTMENTS
Pro Forma adjustments give effect to the issuance of 19.1 million shares of
CSC Common Stock in exchange for all of the shares of Continuum Common Stock
outstanding as of March 31, 1996, and to the retirement of the Continuum
Common Stock, based upon an Exchange Ratio of 0.79. The actual number of
shares of CSC Common Stock will be determined at the Effective Time.
There were no material transactions between CSC and Continuum during the
periods presented.
3. PRO FORMA AVERAGE COMMON SHARES OUTSTANDING
The pro forma average common shares outstanding in each fiscal year is the
sum of the historical average common shares reported by CSC and the average
shares outstanding for Continuum (adjusted to reflect common stock
equivalents) converted to CSC shares at the Exchange Ratio of 0.79.
Continuum's reported average shares outstanding excluded common stock
equivalents in fiscal 1996 and 1994 because inclusion of such common stock
equivalents would have been antidilutive. Continuum excluded common stock
equivalents in fiscal 1995 due to immateriality. Common stock equivalents for
Continuum have been included in the pro forma adjustment to average shares
outstanding as such inclusion is dilutive on a combined basis for all years
presented.
4. OTHER TRANSACTIONS INCLUDED IN PRO FORMA FINANCIAL STATEMENTS
As described below, during the fiscal years ended March 31, 1996 and 1994,
Continuum recorded nonrecurring charges of $76.1 million ($61.7 million net of
tax benefits) and $48.6 million ($38.9 million net of tax benefits) related to
its acquisitions.
During the quarter ended March 31, 1996, Continuum acquired Hogan. The
operating results of Continuum include the operating results of Hogan, which
was acquired in a business combination accounted for as a pooling of
interests, for all periods presented. In connection with the Hogan acquisition
and the restructuring of its expanded business, Continuum charged $50.1
million to operations as restructuring costs ($35.7 million after tax
benefits). These charges included transaction costs of $9.6 million,
restructuring costs of $9.8 million and adjustments to the carrying value of
certain operating assets of $30.7 million. See Continuum's Annual Report on
Form 10-K, as amended, for the fiscal year ended March 31, 1996, which is
incorporated herein by reference, for information regarding Continuum's
acquisition of Hogan.
For the quarter ended December 31, 1995, Continuum acquired all of the
shares of SOCS for $37.6 million. The business combination was accounted for
using the purchase method of accounting and, accordingly, the operating
results of SOCS have been included in the financial statements from the date
of acquisition. The estimated excess of the purchase price over the net assets
acquired totaled $43.7 million, with $2.4 million assigned to purchased
software, $15.3 million assigned to goodwill and $26 million assigned to
purchased research and development, which was expensed in connection with the
acquisition.
58
<PAGE>
During the quarter ended September 30, 1993, Continuum acquired Paxus and
Vantage. The operating results of Continuum include the operating results of
Paxus, which was acquired in a business combination accounted for as a pooling
of interests for all periods presented. The operating results of Vantage,
which was acquired in a business combination accounted for as a purchase, is
included from September 30, 1993. In connection with the Vantage and Paxus
acquisitions, Continuum charged to operations purchased research and
development of $16.0 million and restructuring costs of $32.6 million ($22.9
million after tax benefits), resulting in a loss for fiscal 1994.
5. NONRECURRING ITEMS ATTRIBUTABLE TO THE MERGER
CSC expects to incur certain costs and adjustments as a result of the
Merger, including transaction expenses, costs associated with elimination of
redundant functions, and the write-off of assets impaired due to Merger-
related business realignment. Preliminary estimates of the costs and
adjustments aggregate approximately $45 million ($34.1 million net of tax
benefits) and are reflected in the Pro Forma Combined Condensed Balance
Sheets. Those estimates are comprised of $11.2 million for investment banking
and other merger expenses; $13.0 million related to the write-off of certain
capitalized software, other assets and intangibles; and $20.8 million related
to the elimination of duplicate data processing facilities, employee severance
costs and contract termination costs. The $20.8 million represents the
midpoint within an estimated range of $16.8 million to $24.8 million.
These adjustments have not been included in the accompanying Unaudited Pro
Forma Combined Condensed Statements of Earnings as they are nonrecurring and
not expected to be replicated in future periods. Transaction costs incurred
through March 29, 1996 are not material.
59
<PAGE>
DESCRIPTION OF CSC CAPITAL STOCK
GENERAL
CSC's authorized capital stock as of the date of this Proxy
Statement/Prospectus consists of 75,000,000 shares of CSC Common Stock, $1.00
par value, and 1,000,000 shares of preferred stock, $1.00 par value
("Preferred Stock"). No shares of preferred stock are presently outstanding.
CSC does not presently have outstanding, and CSC's Restated Articles of
Incorporation do not authorize, any other classes of capital stock. The issued
and outstanding shares of CSC Common Stock are, and the shares issuable in
connection with the Merger, when issued will be, duly authorized, validly
issued, fully paid and nonassessable. In connection with the Merger, CSC is
proposing to increase the number of its authorized shares of Common Stock from
75,000,000 shares to 275,000,000 shares. See "Proposed Increase in Authorized
Shares of CSC Common Stock."
COMMON STOCK
Holders of shares of CSC Common Stock have no preemptive, redemption or
conversion rights. The holders of CSC Common Stock are entitled to receive
dividends when and as declared by the CSC Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of
CSC, and after the holders of each series of Preferred Stock shall have been
paid in full, the holders of CSC Common Stock may share ratably in the
remaining assets of CSC. Holders of CSC Common Stock are entitled to one vote
per share of CSC Common Stock held of record by them and may cumulate their
votes in the election of directors. As of June 21, 1996, there were 56,213,135
shares of CSC Common Stock outstanding. Each outstanding share of CSC Common
Stock is accompanied by a preferred stock purchase right. See "Comparison of
Stockholder Rights--CSC Rights Plan."
The registrar and transfer agent for the CSC Common Stock is ChaseMellon
Shareholder Services, L.L.C.
PREFERRED STOCK
The CSC Board of Directors has the power, without further vote of
stockholders, to authorize the issuance of up to 1,000,000 shares of Preferred
Stock and to fix and determine the terms, limitations and relative rights and
preferences of any shares of Preferred Stock that it causes to be issued. This
power includes the authority to establish voting, dividend, redemption,
conversion, liquidation and other rights of any such shares. No shares of
Preferred Stock are now outstanding, and CSC has no current plan to issue any
such shares. In connection with the CSC Rights Plan, 200,000 shares of
Preferred Stock have been designated as Series A Junior Participating
Preferred Stock issuable pursuant to the exercise of Rights. See "Comparison
of Stockholder Rights--CSC Rights Plan."
60
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
As a result of the Merger, holders of Continuum Common Stock will become
holders of CSC Common Stock and the rights of all such former holders of
Continuum Common Stock will thereafter be governed by the Restated Articles of
Incorporation of CSC (the "CSC Articles"), the CSC Bylaws and Nevada law. The
rights of the holders of Continuum Common Stock are presently governed by the
Continuum Certificate of Incorporation (the "Continuum Certificate"), the
Continuum Bylaws and Delaware law. The following summary, which does not
purport to be a complete statement of the general differences among the rights
of the stockholders of CSC and Continuum, sets forth certain differences
between Nevada law and Delaware law, between the CSC Articles and the
Continuum Certificate and between the CSC Bylaws and the Continuum Bylaws.
This summary is qualified in its entirety by reference to the full text of
each of such documents, Nevada law and Delaware law. For information as to how
such documents may be obtained, see "Incorporation by Reference."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
CSC. Nevada law provides that a corporation's board of directors shall
consist of at least one member and the authorized number of directors may be
fixed or variable within a fixed minimum or maximum as provided in either the
articles of incorporation or the bylaws of the corporation. The CSC Articles
and the CSC Bylaws provide that the authorized number of directors
constituting the CSC Board shall not be less than three or more than fifteen,
as established from time to time by action of the directors. The CSC Board has
fixed the number of directors comprising the CSC Board at nine until the
conclusion of the CSC Annual Meeting, at which time the authorized number of
directors will be reduced to eight. Although Nevada law allows directors to be
divided into three separate classes with staggered terms of office, neither
the CSC Articles nor the CSC Bylaws provide for classification of directors.
Continuum. The Continuum Bylaws provide that the number of directors of
Continuum shall be set by resolution of the Continuum Board and may be
increased or decreased from time to time by resolution, but in no event can
there be less than three nor more than ten. Continuum currently has eight
directors. Although Delaware law allows directors to be divided into three
separate classes with staggered terms of office, neither the Continuum
Certificate nor the Continuum Bylaws provide for the classification of
directors.
Pursuant to the Merger Agreement, the Board of Directors of the Surviving
Corporation shall consist of the Directors of Sub. See "The Merger Agreement--
The Merger."
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
CSC. Under Nevada law a director may be removed by the vote of the holders
of not less than two-thirds of the voting power of the voting stock, subject
to certain restrictions concerning cumulative voting. However, a Nevada
corporation may include in its articles of incorporation a provision requiring
the approval of a larger percentage of the voting power to remove a director.
Under Nevada law, any vacancy in the board of directors may be filled by a
majority of the remaining directors, even if the remaining directors do not
constitute a quorum. The CSC Bylaws provide that a director may be removed by
the vote of at least two-thirds of the voting power of its capital stock, and
for cause by the board of directors; provided that no director may be removed
except upon vote of stockholders owning sufficient shares to have prevented
his election in the first instance. The CSC Bylaws further provide that the
CSC Board may fill all vacancies created by reason of death, resignation, an
increase in the number of directors or otherwise, by a majority vote of the
remaining directors, although less than a quorum, with the director so elected
to serve for the remainder of the term of the departed director. All directors
will continue in office until the election and qualification of their
respective successors in office.
Continuum. Pursuant to the Continuum Bylaws, any director may be removed
with or without cause, at any time, by the affirmative vote of the holders of
a majority of the shares of Continuum stock entitled to vote for the election
of directors. The Continuum Bylaws provide that in the case of any vacancy
occurring on the
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Continuum Board for any reason, or any increase in the number of directors,
the additional directorship may be filled by the vote of a majority of the
directors remaining in office at such time although less than a quorum, with
such successor to serve for the unexpired term of the departed director or
until he resigns or is removed or until his successor is elected and
qualified.
STOCKHOLDER ACTION BY WRITTEN CONSENT
CSC. Under Nevada law, unless otherwise provided in the articles of
incorporation or the bylaws, stockholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having at least a majority of the voting power, except that if a
different proportion of voting power is required for such an action at a
meeting, then that proportion is also required to take action by written
consent. The CSC Bylaws provide that any action, except the election of
directors, may be taken without a meeting and without notice upon written
consent of stockholders holding at least three-fourths of the voting power of
CSC.
Continuum. Under Delaware law, unless otherwise provided in the certificate
of incorporation, stockholders may take action without a meeting, without
prior notice and without a vote, upon the written consent of stockholders
having not less than the minimum number of votes that would be necessary to
authorize the proposed action at a meeting at which all shares entitled to
vote were present and voted. The Continuum Bylaws specifically provide for
actions to be taken by written consent.
MEETINGS OF STOCKHOLDERS
CSC. Under the CSC Bylaws, a special meeting of stockholders may be called
by the Chairman of the CSC Board, the CSC Board or the President, and shall be
called by the President or Secretary at the written request of stockholders
owning a majority of the voting power of CSC.
Under Nevada law, unless the articles of incorporation or the bylaws provide
otherwise, stockholders holding at least a majority of the voting power are
necessary to constitute a quorum for the transaction of business. The CSC
Bylaws provide that the presence in person or by proxy of a majority of the
voting stock entitled to vote at a meeting constitutes a quorum for the
transaction of business at that meeting.
Continuum. Pursuant to the Continuum Bylaws, a special meeting of
stockholders, unless otherwise prescribed by statute, may be called at any
time only by the Continuum Board.
The Continuum Bylaws provide that the holders of a majority of the shares of
Continuum Common Stock issued, outstanding and entitled to vote at a meeting,
present in person or by proxy, constitutes a quorum at such meeting. Delaware
law provides that quorum and voting requirements may be increased or decreased
by amendment of the Continuum Certificate and the Continuum Bylaws so long as
the requirement for a quorum does not fall below one-third of the shares
entitled to vote and subject to provisions of Delaware law setting forth
voting requirements for certain specified actions, such as mergers.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
CSC. Under Nevada law, the recommendation of the board of directors and
approval of a majority of the voting power are required to approve a plan of
merger of which a Nevada corporation is a constituent corporation. Subject to
the provisions of Section 78.454 of the NGCL, no vote of the stockholders of a
Nevada corporation is required if (i) the corporation will be the surviving
corporation, (ii) the articles of incorporation of the surviving corporation
will not differ from its articles before the merger, (iii) each stockholder of
the surviving corporation whose shares were outstanding immediately before the
merger will hold the same number of shares, with identical designations,
preferences, limitations, and relative rights immediately after the merger and
(iv) the number of shares of the surviving corporation to be issued in the
merger (or to be issuable upon conversion of any convertible instruments to be
issued in the merger) will not exceed twenty percent of its shares outstanding
immediately before the merger.
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Continuum. Under Delaware law, the recommendation of the board of directors
of a Delaware corporation and the approval of a majority of its outstanding
shares entitled to vote thereon are required to effect a merger or
consolidation or to sell, lease or exchange substantially all of its assets.
Subject to the provisions of Section 203 of the DGCL, no vote of the
stockholders of a Delaware corporation would be required in connection with a
merger if (i) the corporation were the surviving corporation, (ii) the merger
agreement did not amend its certificate of incorporation, (iii) each of its
shares outstanding immediately before the merger was an identical outstanding
or treasury share after such merger and (iv) the number of its shares to be
issued in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) did not exceed twenty percent of its
shares outstanding immediately before the merger. The Continuum Certificate
requires approval by the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Continuum entitled to vote thereon for any
plan of merger or consolidation to which Continuum is a party, or a sale,
lease or other disposition of all or substantially all of the assets of
Continuum other than in the ordinary course of business.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
CSC. Under Nevada law, the articles of incorporation may be amended by the
vote of stockholders holding at least a majority of the voting power, unless a
greater proportion of the voting power is required in the articles of
incorporation. The CSC Articles do not require a greater percentage of the
voting power.
Nevada law further provides that the board of directors may amend the bylaws
if the bylaws so provide. Even if the bylaws confer such power on the board of
directors, the stockholders also have the power to amend the bylaws. The CSC
Articles provide that the CSC Board shall have the power to make, alter or
amend the Bylaws, and the CSC Bylaws provide that the CSC Board may adopt,
amend or repeal such Bylaws. The CSC Bylaws may also be adopted, amended or
repealed by the affirmative vote or written consent of a majority of the
voting power of CSC.
Continuum. Under Delaware law, an amendment to the certificate of
incorporation generally requires the recommendation of the board of directors,
the approval of the holders of a majority of all shares entitled to vote
thereon, voting together as a single class, and the holders of a majority of
the outstanding stock of each class entitled to vote thereon. The Continuum
Certificate requires approval of any amendment thereto by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of Continuum
entitled to vote thereon.
Under Delaware law, the board of directors may adopt, amend or repeal the
bylaws if the certificate of incorporation contains a provision entitling the
directors to do so. Even if the certificate of incorporation contains such a
provision, the stockholders also have the power to adopt, amend or repeal the
bylaws. The Continuum Certificate states that the directors may adopt, amend
or repeal the Bylaws. The Continuum Bylaws state that the Continuum Bylaws may
also be adopted, amended or repealed by a majority of the stockholders holding
shares of stock entitled to vote for the election of directors.
APPRAISAL AND DISSENTERS' RIGHTS
CSC. Under Nevada law, a stockholder is entitled to dissent from, and
receive the fair value of shares owned in the event of, a plan of merger or
exchange, if the stockholder is entitled to vote on the transaction. However,
there is no right to dissent to a plan of merger or exchange in favor of the
holders of shares of any class or series which were either listed on a
national securities exchange, designated as a national market security of an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held by at least 2,000 stockholders of record, unless either
(i) the articles of incorporation provide otherwise or (ii) the holders are
required to receive anything other than cash, shares of the surviving or
acquiring corporation or a combination thereof.
Continuum. Delaware law provides appraisal rights for certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more
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than 2,000 stockholders or (ii) shares of the surviving corporation of the
merger, if the merger did not require the approval of the stockholders of such
corporation, unless in either case, the holders of such stock are required
pursuant to the merger to accept anything other than (A) shares of stock of
the surviving corporation, (B) shares of stock of another corporation which
are also listed on a national securities exchange or held by more than 2,000
holders or (C) cash in lieu of fractional shares of such stock. Appraisal
rights are not available for a sale of assets or an amendment to the
certificate of incorporation.
STATE ANTITAKEOVER STATUTES
CSC. Under Nevada law, once a person has acquired or offers to acquire
twenty percent, one-third or fifty percent of the stock of a corporation,
those shares (deemed "Control Shares") have only such voting rights as are
conferred by resolution by a majority of the shares not owned by the acquiror
or certain other interested persons. After delivery of a specified disclosure
statement, the acquiror may, at the acquiror's expense, require a
stockholders' meeting to determine the voting rights of the Control Shares.
Except as otherwise provided in the articles of incorporation, the approval of
the holders of a majority of the outstanding stock not held by the acquiror is
required for the Control Shares to receive voting rights. If the Control
Shares are accorded full voting rights by a majority of the other shares,
then, unless the charter or bylaws of the corporation in effect on the tenth
day following the acquisition of a controlling interest by an acquiror provide
otherwise, any stockholder who did not vote in favor of full voting rights for
the Control Shares may require the corporation to repurchase any or all of
such stockholder's shares for the fair value thereof. The provisions of the
NGCL regarding the acquisition of Control Shares (the "Control Share
Acquisition Provisions") are applicable to any acquisition of Control Shares
unless the articles of incorporation or bylaws of the corporation in effect on
the tenth day following the acquisition of a controlling interest by an
acquiring person provide that the Control Share Acquisition Provisions do not
apply. Although a corporation may expressly exclude itself from application of
the foregoing Control Share Acquisition Provisions, CSC has not done so.
Nevada law provides that a resident domestic corporation may not engage in
any "combination" (broadly defined to include a wide range of transactions
with an interested stockholder or an affiliate or associate of an interested
stockholder) with an interested stockholder (defined as the beneficial owner
of ten percent or more of the outstanding voting power) for three years after
the date the interested stockholder acquired shares sufficient to cause it to
own at least ten percent of the outstanding voting stock (the "Acquisition
Date"), unless the combination or the purchase of shares made by the
interested stockholder on the Acquisition Date is (a) approved by the board of
directors before that date, (b) approved by the holders of a majority of the
voting stock not owned by the interested stockholder, or (c) if the
consideration to be paid by the interested stockholder is at least equal to
the highest of (i) the highest price per share paid by the interested
stockholder within the three years immediately preceding the date of the
announcement of the combination or in the transaction in which he became an
interested stockholder, whichever is higher, (ii) the market value per common
share on the date of announcement of the combination or the date the
interested stockholder acquired the shares, whichever is higher, or (iii) if
higher for the holders of preferred stock, the highest liquidation value of
the preferred stock.
Under Nevada law, the selection of a period for the achievement of corporate
goals is the responsibility of the directors. In addition, the directors and
officers, in exercising their respective powers with a view to the interests
of the corporation, may consider (i) the interests of the corporation's
employees, suppliers, creditors and customers, (ii) the economy of the state
and nation, (iii) the interests of the community and of society and (iv) the
long-term as well as short-term interests of the corporation and its
stockholders, including the possibility that these interests may be best
served by the continued independence of the corporation. The directors also
may resist a change or potential change in control of the corporation if the
directors by a majority vote of a quorum determine that the change or
potential change is opposed to or not in the best interests of the corporation
"upon consideration of the interests of the corporation's stockholders" or for
one of the other reasons described above. Finally, the directors may take
action to protect the interests of the corporation and its stockholders by
adopting or executing plans that deny rights, privileges, power or authority
to a holder of a specified number of shares or percentage of share ownership
or voting power.
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Continuum. Section 203 of the DGCL prohibits a "business combination" (as
defined in Section 203, generally including mergers, sales and leases of
assets, issuances of securities and similar transactions) by Continuum or a
subsidiary with an "interested stockholder" (as defined in Section 203,
generally the beneficial owner of 15 percent or more of Continuum's voting
stock) within three years after the person or entity becomes an interested
stockholder, unless (i) prior to the person or entity becoming an interested
stockholder, the business combination or the transaction pursuant to which
such person or entity became an interested stockholder shall have been
approved by the Continuum Board, (ii) upon the consummation of the transaction
in which the person or entity became an interested stockholder, the interested
stockholder holds at least 85 percent of the voting stock of Continuum
(excluding for purposes of determining the number of shares outstanding,
shares held by persons who are both officers and directors of Continuum and
shares held by certain employee benefit plans) or (iii) the business
combination is approved by the Continuum Board and by the holders of at least
two-thirds of the outstanding voting stock of Continuum, excluding shares held
by the interested stockholder.
LIMITATION ON DIRECTORS' LIABILITY
CSC. As permitted under Nevada law, the CSC Articles provide that a director
or officer shall not be personally liable to CSC or its stockholders for
damages for breach of fiduciary duty as a director or officer, except for
liability for acts or omissions which involve intentional misconduct, fraud or
a knowing violation of the law, or for the unlawful payment of dividends.
Continuum. Section 102 of the DGCL allows a corporation to limit or
eliminate the personal liability of directors to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director.
However, this provision excludes any limitation on liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for intentional or
negligent payment of unlawful dividends or stock purchases or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit. The Continuum Certificate limits directors' liability as permitted by
this statute.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
CSC. Under Nevada law, a corporation may, and in certain circumstances must,
indemnify its officers, directors, employees or agents for expenses, judgments
or settlements, actually and reasonably incurred by them in connection with
suits and other legal proceedings, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to criminal proceedings, had no reasonable cause
to believe that their conduct was unlawful. A corporation may adopt procedures
for advancing expenses to directors and officers prior to final adjudication,
as long as they undertake to repay the amounts advanced if it is ultimately
determined that they were not entitled to be indemnified. The CSC Articles and
Bylaws allow for indemnification and, pursuant to certain procedures,
advancement of expenses.
Continuum. Section 145 of the DGCL provides that a corporation may indemnify
any of its officers and directors who were or are a party to any action, suit
or proceeding by reason of the fact that he was a director, officer, or
employee of the corporation by, among other things, a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding; provided that such officer or director acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the corporation. The Continuum Bylaws provide for indemnification of
officers and directors to the fullest extent permitted by Delaware law. The
Continuum Bylaws also provide for the payment of expenses incurred by
directors and officers in defending a proceeding, subject to an undertaking by
such director or officer to repay such amount should it be determined that he
is not entitled to be indemnified by Continuum.
CUMULATIVE VOTING
In an election of directors governed by cumulative voting rights, each share
of stock otherwise having one vote is entitled to a number of votes equal to
the number of directors to be elected. A stockholder may then cast
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all such votes for a single nominee or may allocate them among as many
nominees as the stockholder may choose. Without cumulative voting rights, the
holders of a majority of the shares present at an annual meeting or any
special meeting held to elect directors would have the power to elect all the
directors to be elected at that meeting, and it is possible that no person
could be elected without the support of holders of a majority of the shares
voting at such meeting.
CSC. As permitted by Nevada law, the CSC Articles provide for cumulative
voting for directors.
Continuum. Although permitted by Delaware law, the Continuum Certificate
does not provide for cumulative voting for directors.
CONFLICT-OF-INTEREST TRANSACTIONS
CSC. Nevada law generally permits transactions involving a Nevada
corporation and an interested director or officer of that corporation if (i)
the fact of the common directorship, office or financial interest is known or
disclosed to the board of directors and a majority of disinterested directors
consents, (ii) the fact of the common directorship, office or financial
interest is known or disclosed to the stockholders and a majority of shares
entitled to vote thereon consents, (iii) the fact of the common directorship,
office or financial interest is not disclosed or known to the director or
officer at the time the transaction is brought before the board of directors
for action or (iv) the contract or transaction is fair to the corporation at
the time it is authorized or approved.
Continuum. Delaware law generally permits transactions involving a Delaware
corporation and an interested director or officer of that corporation if (i)
the material facts are disclosed and a majority of disinterested directors
consents, (ii) the material facts are disclosed and the holders of a majority
of shares entitled to vote thereon consent or (iii) the transaction is fair to
the corporation at the time it is authorized by the board of directors, a
committee or the stockholders.
DIVIDENDS AND OTHER DISTRIBUTIONS
CSC. Under Nevada law, a corporation may pay dividends or make other
distributions with respect to its stock unless, after giving effect to the
dividend or distribution, either the corporation would not be able to pay its
debts as they become due in the usual course of business or, except as
otherwise specifically allowed by its articles of incorporation, the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved
at that time, to satisfy the preferential rights of stockholders whose rights
are superior to those stockholders receiving the dividend or distribution.
Continuum. Delaware law generally allows dividends to be paid out of surplus
of the corporation or in case there is no surplus, out of the net profits of
the corporation for the current fiscal year and/or the prior fiscal year. No
dividends may be paid if it would result in the capital of the corporation
being less than the capital represented by the preferred stock of the
corporation.
DUTIES OF DIRECTORS
CSC. Nevada law permits a board of directors to consider, in connection with
a change or potential change in control of the corporation, (i) the interests
of the corporation's employees, suppliers, creditors and customers, (ii) the
economy of the state and nation, (iii) the interests of the community and of
society, and (iv) the long-term as well as short-term interests of the
corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
Continuum. Delaware law does not contain a specific provision elaborating on
the duties of a board of directors with respect to the best interests of the
corporation. Delaware courts have permitted directors to consider various
constituencies provided that there be some rationally related benefit to the
stockholders.
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CSC RIGHTS PLAN
General. On December 21, 1988, the Board of Directors of CSC (a) declared a
dividend of one preferred stock purchase right (a "Right") for each share of
CSC Common Stock, payable on January 3, 1989 to stockholders of record on that
day, and (b) authorized the issuance of one Right for each share of CSC Common
Stock issued at any time after January 3, 1989 and prior to the time that the
Rights become nonredeemable or expire. Until the Rights become exercisable,
they are attached to and trade only together with the CSC Common Stock, and
are evidenced by a legend printed on the CSC Common Stock certificates. The
Rights expire on December 21, 1998.
As described below, upon the occurrence of certain events, the Rights become
exercisable, at the option of the holders, to purchase Preferred Stock or
Common Stock of CSC, or common stock of a successor company. Rights may only
be exercised once. On the date of the first public announcement that any
person has become the owner of 20% or more of the Common Stock (the "20%
Acquisition Date"), all Rights owned by that person (the "20% Person") will
become void.
Exercise of Rights to Purchase Preferred Stock of CSC. In connection with
the issuance of the CSC Rights, the Board designated 200,000 shares of CSC
Preferred Stock as Series A Junior Participating Preferred Stock and reserved
all 200,000 shares for issuance pursuant to the Rights. This class of
Preferred Stock is designed so that each one four-hundredth of a share is
equivalent (with respect to voting, dividend and liquidation rights) to one
share of CSC Common Stock. On the tenth business day after the earlier of (a)
the 20% Acquisition Date or (b) the date of the first public announcement of a
tender or exchange offer that, if successful, would result in any person being
the owner of 30% or more of the Common Stock, each Right will become
exercisable to purchase, at an exercise price of $78.33 (as such price may be
adjusted pursuant to certain antidilution provisions, the "Exercise Price"),
one four-hundredth of a share of CSC Preferred Stock.
Exercise of Rights to Purchase Common Stock of CSC. On the tenth business
day after the 20% Acquisition Date, each Right not owned by the 20% Person
will become exercisable to purchase one share of CSC Common Stock for 10% of
its market value. In accordance with customary practice, CSC has not reserved
any shares of CSC Common Stock for issuance upon exercise of the Rights. The
Rights Agreement provides that if CSC does not have sufficient CSC Common
Stock available to permit the exercise in full of all Rights, it will
substitute cash, assets and/or other securities having the same aggregate
value as the CSC Common Stock.
Exercise of Rights to Purchase Common Stock of a Successor Company. If, on
or after the 20% Acquisition Date (a) CSC is acquired in a merger or other
transaction in which CSC does not survive or (b) 50% or more of CSC's
consolidated assets or earning power are sold (other than in the ordinary
course of business), then each Right not owned by the 20% Person will become
exercisable to purchase, at the Exercise Price, shares of common stock of the
surviving or acquiring company having an aggregate market value equal to two
times the Exercise Price. If the surviving or acquiring company does not have
sufficient common stock to permit the exercise in full of all Rights, or is
not publicly held, then each Right may be put to the surviving or acquiring
company for a cash payment equal to the Exercise Price.
Antidilution Adjustments. In order to prevent dilution upon the occurrence
of certain events (including stock splits but not including regular cash
dividends), the CSC Rights Agreement provides for adjustments to the Exercise
Price, the number of outstanding Rights and the number of shares of Preferred
Stock or Common Stock of CSC issuable upon exercise of a Right.
Redemption of Rights. The Board of Directors may redeem all, but not less
than all, of the Rights, at a price of $0.01 per Right, at any time before the
Rights become exercisable to purchase Common Stock of CSC or a successor
company.
Amendment of Rights Agreement. The Board may amend the Rights Agreement in
any manner at any time before the Rights become exercisable to purchase Common
Stock of CSC or a successor company. Thereafter, the Board may amend the
Rights Agreement in any manner that does not materially and adversely affect
the interests of the holders of Rights.
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Each share of CSC Common Stock issued in connection with the Merger will be
accompanied by a Right. The description and terms of the CSC Rights are set
forth in the CSC Rights Agreement, a copy of which is filed as an exhibit to
the Registration Statement.
PROPOSED INCREASE IN AUTHORIZED SHARES OF CSC COMMON STOCK
The CSC Articles currently provide that CSC's authorized capital stock shall
consist of 75,000,000 shares of CSC Common Stock and 1,000,000 shares of
Preferred Stock. The Board of Directors of CSC has recommended that the CSC
Articles be amended to increase the number of authorized shares of Common
Stock to 275,000,000. The form of the proposed amendment to the CSC Restated
Articles of Incorporation is attached as Annex D to this Proxy
Statement/Prospectus.
As of the close of business on June 21, 1996, 56,213,135 shares of CSC
Common Stock were outstanding and 7,504,785 shares were reserved for issuance
upon the exercise of options and the conversion of outstanding convertible
securities. In connection with the Merger, up to 21,868,301 shares of CSC
Common Stock will be issued, including up to 2,525,904 shares of CSC Common
Stock upon the exercise of Continuum Stock Options. CSC DOES NOT HAVE ENOUGH
SHARES OF CSC COMMON STOCK AVAILABLE FOR ISSUANCE TO EFFECT THE MERGER ABSENT
APPROVAL OF THE CHARTER AMENDMENT PROPOSAL. AS A RESULT, APPROVAL OF THE
CHARTER AMENDMENT PROPOSAL IS A CONDITION TO CSC'S ABILITY TO EFFECT THE
MERGER. APPROVAL OF THE CHARTER AMENDMENT PROPOSAL IS ALSO CONDITIONED UPON
THE APPROVAL OF THE MERGER PROPOSAL BY THE REQUISITE VOTE OF CSC STOCKHOLDERS.
CSC's Board of Directors believes that the proposed increase in the
authorized shares of CSC Common Stock, over and above the increase required to
effect the Merger, is important in order to preserve CSC's flexibility to take
advantage of corporate opportunities that may require CSC to issue shares of
CSC Common Stock from time to time. For example, CSC may utilize a portion of
the available shares to effect a stock split in the form of a stock dividend,
such as the 3-for-1 split of the CSC Common Stock effected January 13, 1994,
if, in the discretion of the CSC Board of Directors, a stock split is
desirable in light of the prices at which CSC Common Stock may trade in the
future. The CSC Board of Directors believes that the continued availability of
additional shares of CSC Common Stock (without the delay and cost of calling a
special stockholders' meeting) is advisable to provide CSC with the
flexibility to take advantage of opportunities to issue CSC Common Stock to
obtain capital, as consideration for additional acquisitions or for other
purposes.
There are at present no plans, understandings, agreements or arrangements
concerning the issuance of additional shares of CSC Common Stock, except for
the shares to be issued pursuant to the Merger and shares reserved or to be
reserved for issuance by CSC under a CSC plan, the Continuum Stock Options
assumed by CSC in the Merger or as otherwise described herein. If any plans,
understandings, arrangements or agreements are made concerning the issuance of
any such shares, holders of the then outstanding shares of CSC's capital stock
may or may not be given the opportunity to vote thereon, depending upon the
nature of any such issuance, the law applicable thereto, the policy of the
NYSE and the judgment of CSC's Board of Directors regarding the submission
thereof to the stockholders.
It is not presently contemplated that such additional shares of CSC Common
Stock would be issued for the purpose of making the acquisition by an unwanted
suitor of a controlling interest in CSC more difficult, time-consuming or
costly. However, it should be noted that shares of CSC Common Stock could be
issued for that purpose and to that effect, and the CSC Board of Directors
reserves its right (if consistent with its fiduciary responsibilities) to
issue CSC Common Stock for such purposes.
THE CSC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
FOR THE CHARTER AMENDMENT PROPOSAL.
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ADDITIONAL MATTERS FOR CONSIDERATION AT THE CSC ANNUAL MEETING
ELECTION OF CSC DIRECTORS
General
The CSC Board of Directors currently consists of nine members. One of such
directors, Alvin E. Nashman, will not stand for reelection at the CSC Annual
Meeting. Effective as of such time, the authorized size of the Board will be
reduced to eight directors.
At the CSC Annual Meeting, eight directors are to be elected, each director
to hold office for the ensuing year and until his successor is elected and
qualified. It is intended that the accompanying proxy, if furnished, will be
voted for the election to the Board of Directors of the eight nominees named
below. Management of CSC does not contemplate that any of the eight nominees
will be unable to serve as a director, but if any nominee is unable to serve,
the proxy holders reserve the right to substitute for such nominee and vote
for another of their choice in his or her stead or, upon resolution of the
Board of Directors, provide for a lesser number of directors. In accordance
with the CSC Articles, cumulative voting is permitted at all elections of
directors of CSC.
Under cumulative voting, each stockholder may give one nominee the number of
votes equal to the number of directors to be elected multiplied by the number
of shares held by the voting stockholder, or the individual stockholder can
distribute his votes among as many nominees as such stockholder deems
appropriate. The nominees (up to the number to be elected) receiving the
highest number of votes will be declared elected. If the right to cumulative
voting is exercised, the proxy holders named in the accompanying proxy shall
have the discretion to cumulate votes in any manner, and to vote for less than
all of the nominees indicated on any such duly executed proxy, in order to
elect the maximum number of the nominees set forth below.
Nominees
The following information with respect to each person nominated for election
as a director has been furnished to CSC as of June 21, 1996, by the nominees.
Unless otherwise indicated, each nominee has sole voting and investment power
with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
DIRECTOR BENEFICIALLY
NOMINEE PRINCIPAL OCCUPATION SINCE OWNED
------- ------------------------------------------------ -------- ------------
<S> <C> <C> <C>
Howard P. Allen Chairman of the Executive Committee and Director 1981 300(1)
of Edison International (formerly SCEcorp) and
Southern California Edison Company. Prior
thereto, Chairman, Chief Executive Officer,
President and Director of SCEcorp and Southern
California Edison Company. Director of The
Presley Companies. Age 70.
Irving W. Bailey, II Chairman and Chief Executive Officer of 1992 1,800
Providian Corporation (formerly Capital Holding
Corporation). Prior thereto, President and
Chief Operating Officer and Executive Vice
President and Chief Investment Officer of
Capital Holding Corporation. Director of
Providian Corporation and its affiliated
companies and BellSouth Telecommunications,
Inc. Age 55.
Van B. Honeycutt President, Chief Executive Officer and Director 1993 166,360(2)(3)
of CSC. Prior thereto, President, Chief
Operating Officer and Director of CSC and
President of its Industry Services Group.
Director of FHP International Corporation.
Age 51.
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
DIRECTOR BENEFICIALLY
NOMINEE PRINCIPAL OCCUPATION SINCE OWNED
------- ------------------------------------------------ -------- ------------
<S> <C> <C> <C>
William R. Hoover Chairman of the Board and former Chief Executive 1967 324,905
Officer of CSC. Director of Merrill Lynch &
Co., Inc. and Storage Technology Corp. Age 66.
Richard C. Lawton Retired President and Director of Transmix 1986 1,500(4)
Corporation. Retired director of CalFed Inc.;
California Federal Bank; and Beneficial
Standard Life Insurance Company. Age 70.
Leon J. Level Vice President, Chief Financial Officer and 1989 80,661(2)(3)
Director of CSC. Age 55.
F. Warren McFarlan Ross Graham Walker Professor of Business 1989 2,400
Administration and Senior Associate Dean,
Harvard University Graduate School of Business
Administration. Director of Providian
Corporation and Pioneer Hi-Bred. Age 58.
James R. Mellor Chairman and Chief Executive Officer of General 1992 600
Dynamics Corporation. Director of Bergen
Brunswig Corporation and Kerr Group. Age 66.
</TABLE>
- --------
The principal occupations described above represent the business experience of
each nominee for the past five years.
(1) Mr. Allen and his wife share voting and investment power with respect to
all of such shares.
(2) Includes 132,735 and 69,400 shares which may be acquired on or before
August 20, 1996, through the exercise of options held as of June 21, 1996,
by Messrs. Honeycutt and Level, respectively.
(3) Includes 2,875 shares and 923 shares, respectively, held for the accounts
of Messrs. Honeycutt and Level under CSC's Matched Asset Plan with respect
to which each had the right, as of June 21, 1996, to give voting
instructions to the Committee administering the Plan.
(4) Mr. Lawton and his wife share voting and investment power with respect to
all of such shares.
Each director who is not a corporate officer receives $34,000 per year, plus
$1,000 per day for each day of attendance, in person or telephonically, at a
regularly scheduled Board meeting, and for each day of attendance in person at
a special Board meeting. Each director who is not a corporate officer and is a
member of the Audit or Compensation Committees receives an additional $5,000
per year.
The 1990 Nonemployee Director Retirement Plan provides specified benefits
for directors who retire from the Board of Directors with at least five years
of service, and who are not, and have never been, employees of CSC. Pursuant
to the Plan, each such director will receive an annual benefit equal to the
sum of (1) the annual retainer for nonemployee directors in effect as of the
date of the director's retirement, plus (2) the daily Board meeting fee in
effect as of such date multiplied by the number of regularly scheduled Board
meetings held during the year ending on such date. Such annual benefits
commence on the date that the director shall attain age 65, or such later date
as the director shall retire. With respect to directors who shall have served
on the Board of Directors for less than ten years, the benefits will be
payable for the number of years of service. If such a director dies prior to
the payment in full of the director's benefits, the remaining benefits will be
paid to the beneficiary designated by the director for such purpose. With
respect to directors who shall have served on the Board for at least ten
years, the benefits will be payable for ten years or until the director's
death, if later. If such a director dies prior to the payment of benefits for
ten years, such remaining benefits will be paid to the director's beneficiary.
70
<PAGE>
Mr. Hoover has been retained as a consultant for a period of two years,
commencing April 1, 1995. For his services, Mr. Hoover will receive $500,000
per year and the use of an automobile provided by CSC.
Article III, Section 15 of the Bylaws provides that a director of CSC shall
automatically retire at the close of the meeting of the Board of Directors
held during the first month in which he or she shall be age 72 or older, or if
no meeting is held during such month, the director shall automatically retire
as of the last day of such month.
No nominee for director currently owns beneficially 1% or more of the
outstanding shares of CSC.
At the previous election of directors held at the Annual Meeting of
Stockholders on August 14, 1995, approximately 84.7% of the outstanding shares
eligible to vote were represented either in person or by proxy. More than 98%
of the shares present and voting at the 1995 Annual Meeting of Stockholders
voted for the director nominees.
Meetings of the Board of Directors and its Committees
During the fiscal year ended March 29, 1996, the Board of Directors held
eight meetings. The incumbent directors, while serving during the last fiscal
year, attended, in the aggregate, 96% of the total number of meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board on which they served.
Among the standing committees of the Board of Directors of CSC are the
Executive Committee, Audit Committee and Compensation Committee. The Board of
Directors does not have a Nominating Committee.
Messrs. Honeycutt, Hoover and Level have served as members of the Executive
Committee which, within the limits of authority delegated by the full Board of
Directors of CSC pursuant to standing and specific resolutions of the Board,
acts on behalf of the Board. During the past fiscal year, the Executive
Committee held 29 meetings.
Messrs. Lawton, McFarlan and Mellor have served as the members of the Audit
Committee, which during the last fiscal year held three meetings. The
principal duties and responsibilities of the Audit Committee are to recommend
to the Board the accounting firm to be engaged as CSC's independent auditors
and the terms of its engagement, and to meet with CSC's independent and
internal auditors to review the scope of their audits and audit findings.
Messrs. Allen, Bailey and McFarlan have served as the members of the
Compensation Committee, whose principal function is to determine the salary
and bonus for all corporate officers at the level of vice president or higher,
and to administer CSC's stock incentive plans. None of the members of the
Compensation Committee is, or has ever been, an employee of CSC or any of its
subsidiaries. During the last fiscal year, the Compensation Committee held two
meetings.
REPORT OF COMPENSATION COMMITTEE ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
CSC's executive compensation program is designed to provide competitive
levels of cash compensation and long-term incentives based on CSC's
performance, and includes a base salary, annual cash incentive awards and
stock option grants. In addition, CSC has adopted various employee benefit
plans, including retirement plans, health plans, insurance plans and others,
in which executive officers are eligible to participate.
Base compensation is established based on competitive evaluations for each
position, individual responsibility and contribution. The annual cash
incentive award is determined based on CSC's performance compared to prior
years and established annual goals. Performance factors include margin
performance, revenue
71
<PAGE>
growth, net income growth and cash flow, as well as specific individual
achievements. Stock options are awarded based on the individual's position and
long-term contribution.
Executive compensation levels and the mix of pay components (base salary and
short-term and long-term incentives) are determined by the Compensation
Committee, which received competitive data from Hewitt Associates, a
recognized international compensation consulting firm. The comparator group
used in determining fiscal year 1996 compensation was comprised of 18
publicly-held companies in the information technology and services industries.
CSC's executive compensation program takes into account any potential
limitations on the deductibility of compensation in excess of $1,000,000 per
year imposed by Internal Revenue Code Section 162(m), but does not require
that all compensation qualify for exemption from such limitation. CSC will
deduct all compensation paid to executive officers for fiscal year 1996.
The Compensation Committee believes that CSC's executive compensation
program allows CSC to attract and retain outstanding executives in the
information technology field and is well structured to align management's and
stockholders' interest in the enhancement of stockholder value through stock
ownership programs and incentive programs based on performance and stock
value.
Relationship of Company Performance to Executive Compensation
Fiscal year 1996 compensation was determined on an individual basis in
accordance with the above policies and programs. CSC's performance
substantially met or exceeded its financial goals. Revenue growth of 25.8%,
net income growth of 28.0% and free cash flow of approximately $27,000,000
were considered strong results, and compared quite favorably to CSC's
comparator group.
Fiscal Year 1996 Stock Option Grants
CSC granted stock options to various executive officers during fiscal year
1996, including each of the five Named Executive Officers, as shown in the
Options Granted in Last Fiscal Year table on page 74.
Chief Executive Officer Compensation
Mr. Honeycutt's base salary for fiscal year 1996 reflected a $134,615, or
27.5%, increase from his base salary for fiscal year 1995. In determining Mr.
Honeycutt's base salary for fiscal year 1996, the Committee considered CSC's
financial performance for the prior year, Mr. Honeycutt's individual
performance, his promotion to Chief Executive Officer effective April 1, 1995,
and his long-term contributions to the success of CSC. The Committee also
compared Mr. Honeycutt's base salary to the base salaries of chief executive
officers at the comparator companies.
For fiscal year 1996, Mr. Honeycutt elected to receive a stock option in
lieu of a cash bonus, as indicated in the Summary Compensation Table on page
73. The aggregate spread between the exercise price of this option and the
market value of the underlying shares on the date of grant was approximately
$625,000, reflecting the fact that CSC's fiscal year 1996 performance
substantially met or exceeded its financial goals.
As of June 21, 1996, Mr. Honeycutt had options to purchase an aggregate of
313,563 shares of CSC Common Stock and beneficially owned 166,360 shares of
CSC Common Stock, including 132,735 shares underlying options which will be
exercisable on or prior to August 20, 1996.
72
<PAGE>
Conclusion
The Committee believes that this executive compensation program serves the
interests of stockholders and CSC effectively. The various pay vehicles
offered are appropriately balanced to motivate executives to contribute to
CSC's overall future successes, thereby enhancing the value of CSC for the
stockholders.
We will continue to address the effectiveness of CSC's total compensation
program to meet the needs of CSC and serve the interests of its stockholders.
Howard P. Allen
Irving W. Bailey, II
F. Warren McFarlan
73
<PAGE>
CSC EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the four other most highly compensated
executive officers of CSC (collectively, the "Named Executive Officers") for
services rendered to CSC in all capacities during the fiscal years ended March
29, 1996, March 31, 1995, and April 1, 1994.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------ ALL OTHER
NAME AND PRINCIPAL SALARY(2) BONUS(3) OPTIONS(4) COMPENSATION(5)
POSITION(1) YEAR ($) ($) (#) ($)
------------------ ---- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Van B. Honeycutt........ 1996 625,000 (6) 11,758(6) 1,548
President & 1995 490,385 (6) 113,605(6) 2,637
Chief Executive Officer 1994 383,654 300,000 90,000 3,444
James A. Champy......... 1996 446,735 267,600 10,000 2,422
Corporate Vice Presi- 1995 401,965 203,000 2,785
dent & Chairman--CSC 1994 332,801 241,041 84,000
Index
John M. Mickel.......... 1996 381,635 269,500 10,000 2,391
Corporate Vice Presi- 1995 n/a n/a n/a n/a
dent & President-- 1994 n/a n/a n/a n/a
Consulting Group
Thomas R. Madison....... 1996 379,231 269,500 10,000 2,492
Corporate Vice Presi- 1995 n/a n/a n/a n/a
dent & President-- 1994 n/a n/a n/a n/a
Integrated Business
Services
Ronald W. Mackintosh.... 1996 335,607 236,633 10,000 31,473
Corporate Vice Presi- 1995 311,266 124,506 23,967
dent & President-- 1994 248,305 186,229 30,000 23,900
European Group
</TABLE>
- --------
(1) Mr. Mackintosh, Mr. Champy and Messrs. Mickel and Madison were appointed
executive officers of CSC effective August 9, 1993, August 18, 1993 and
August 14, 1995, respectively. Although Messrs. Mackintosh and Champy
served as executive officers for only a portion of fiscal year 1994 and
Messrs. Mickel and Madison served as executive officers for only a portion
of fiscal year 1996, the amounts shown reflect their compensation for the
entire respective fiscal years.
(2) The amounts shown reflect all salary earned during the covered fiscal
year, whether or not payment was deferred until a subsequent fiscal year.
(3) The amounts shown reflect all cash bonuses earned during the covered
fiscal year, which bonuses are determined and paid in the following fiscal
year pursuant to CSC's annual incentive plan.
(4) The amounts shown reflect the aggregate number of shares underlying stock
options granted for the covered fiscal year.
(5) The amounts shown for Messrs. Honeycutt, Champy, Mickel and Madison for
fiscal year 1996 reflect contributions by CSC to the Matched Asset Plan, a
defined contribution plan. The amount shown for Mr. Mackintosh for fiscal
year 1996 reflects contributions by CSC to a defined contribution plan in
the United Kingdom.
The amount shown for Mr. Madison in fiscal year 1996 does not include the
aggregate incremental cost of $110,600 incurred by CSC in connection with
Mr. Madison's relocation from Georgia to Virginia during that fiscal year.
Pursuant to its relocation program, CSC purchased Mr. Madison's Georgia
residence for $375,000, the average of two independent appraisals. The
residence was subsequently sold at a loss.
(6) The amount shown in the Options column for Mr. Honeycutt in fiscal years
1996 and 1995 include 11,758 and 13,605 shares, respectively, underlying
stock options granted in lieu of the cash bonuses he earned during fiscal
years 1996 and 1995. These stock options, which were granted approximately
one month after fiscal year-end, have exercise prices of $17.72 and $12.25
per share, respectively (25% of the market value per share on the date of
grant), and will become exercisable to purchase one-third of the
underlying shares on each of the first three anniversaries of the option
grant date.
74
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning stock options granted
to the Named Executive Officers during the fiscal year ended March 29, 1996.
No stock appreciation rights were granted in such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#) YEAR ($)/SH. DATE 5%($) 10%($)
---- ------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Van B. Honeycutt........ 13,605(1) 3.04% 12.25 5/1/05 919,233 1,562,444
James A. Champy......... 10,000(2) 2.23% 49.00 5/1/05 308,158 780,934
John M. Mickel.......... 10,000(2) 2.23% 49.00 5/1/05 308,158 780,934
Thomas R. Madison....... 10,000(2) 2.23% 49.38 5/3/05 310,517 786,910
Ronald W. Mackintosh.... 10,000(2) 2.23% 49.00 5/1/05 308,158 780,934
</TABLE>
- --------
(1) This nonqualified stock option was granted to Mr. Honeycutt in lieu of a
cash bonus for fiscal 1995. It has an exercise price equal to 25% of the
market value of the underlying shares on the date of grant, will become
exercisable to purchase one-third of the underlying shares on each of the
first three anniversaries of the date of grant of the option.
(2) The nonqualified stock options granted to Messrs. Champy, Mickel, Madison
and Mackintosh, which have an exercise price equal to the market value of
the underlying shares on the date of grant, will become exercisable to
purchase 20% of the underlying shares on each of the first five
anniversaries of the date of grant of the option.
(3) Amounts shown reflect the potential realizable value of each grant of
stock options, assuming that the market price of the underlying shares
appreciates in value from the date of grant to the expiration date at an
annualized rate of 5% or 10%. These potential values are reported in order
to comply with Securities and Exchange Commission requirements, and CSC
cannot predict whether these values will be achieved.
Fiscal Year End Option Values
The following table sets forth information concerning the value of
unexercised in-the-money stock options held by the Named Executive Officers on
March 29, 1996.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END(1)
ON VALUE ------------------------- -------------------------
EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Van B. Honeycutt........ none n/a 98,200 178,605 4,461,400 6,466,291
James A. Champy......... none n/a 51,600 60,400 2,531,675 2,374,050
John M. Mickel.......... 12,000 201,750 12,000 46,000 446,250 1,552,500
Thomas R. Madison....... none n/a 9,000 46,000 309,375 1,447,500
Ronald W. Mackintosh.... 3,500 122,354 34,900 31,600 1,840,471 1,233,300
</TABLE>
- --------
(1) The amounts shown reflect the spread between the exercise price and the
market value of the underlying shares of CSC Common Stock on March 29,
1996 (based on the $70.375 closing price of the CSC Common Stock on that
date reported on the Composite Tape for NYSE listed companies).
75
<PAGE>
Pension Plan
The Pension Plan is a contributory, career average defined benefit plan.
Benefits are determined based on the participant's average base salary during
all years of participation. There is no deduction for Social Security or other
offset amounts and base salary does not include any bonus, overtime or shift
differential compensation. Messrs. Honeycutt, Mickel and Madison are covered
by the Pension Plan.
For the fiscal year ended March 29, 1996, the remuneration covered by the
Pension Plan for Messrs. Honeycutt, Mickel, and Madison was $625,000,
$381,635, and $379,231, respectively, but was limited to $150,000 as required
by the Code. Messrs. Honeycutt, Mickel and Madison will have credited years of
service in the Pension Plan at age 65 of 24 years, 10 years and 16 years,
respectively. The table below shows the estimated accrued annual amount at age
65 that would be received on a single life annuity basis from the Pension
Plan:
<TABLE>
<CAPTION>
AVERAGE ANNUAL YEARS OF SERVICE
BASE ----------------------------------
COMPENSATION* 5 10 15 20 25
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$ 50,000................................ 5,625 11,250 16,875 22,500 28,125
100,000................................ 11,250 22,500 33,750 45,000 56,250
150,000................................ 16,875 33,750 50,625 67,500 84,375
</TABLE>
- --------
* The Pension Plan benefit is based on career average base compensation, but
annual compensation is currently limited to $150,000 in accordance with the
Code.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan ("SERP") provides retirement
benefits to certain designated officers and key executives of the Company who
satisfy its minimum service requirements. It provides two types of benefits:
(1) a Pension Plan benefit restoration, which restores the shortfall of
Pension Plan benefits resulting from legal limits on the salary used to
compute those benefits ($150,000 in 1996), is provided for SERP participants
who also participate in the Pension Plan, and (2) an additional benefit is
provided for all SERP participants. Messrs. Honeycutt and Champy participate
in the SERP. As indicated above, Mr. Honeycutt participates in the Pension
Plan, but Mr. Champy does not.
The additional benefit provision of the SERP provides a separate benefit
which is based on 50% of the average of the participant's highest three (of
the last five) annual base salaries, with a deduction of 100% of the amount of
primary Social Security benefits payable at the time of determination. Upon
the death of the participant, a spousal benefit of 50% of the participant's
benefit is generally payable for the spouse's lifetime.
In the event of a change-in-control of CSC followed by the separation of any
SERP participant from service to CSC more than 12 but within 36 months
thereafter, such participant would become entitled to accelerated benefit
entitlement under the SERP.
For the fiscal year ended March 29, 1996, the remuneration covered by the
SERP for Messrs. Honeycutt and Champy was $625,000 and $446,735, respectively.
Based on their covered remuneration, Mr. Honeycutt's and Mr. Champy's
estimated annual accrued SERP benefit from age 65 on a single life annuity
basis, assuming no increase in base salary, is $465,595 and $207,792,
respectively.
76
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph demonstrates the performance of the cumulative total
return to the holders of CSC Common Stock during the previous five fiscal
years in comparison to the cumulative total return on the Standard & Poor's
500 Stock Index and the Standard & Poor's Computer Software & Services Index.
[PERFORMANCE GRAPH APPEARS HERE]
Indexed Return (1991=$100)*
<TABLE>
<CAPTION>
RETURN RETURN RETURN RETURN RETURN
1992 1993 1994 1995 1996 CAGR
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
CSC Common Stock............... 3.19% 15.66% 37.95% 35.27% 42.53% 25.99%
S&P 500 Index.................. 11.04% 15.23% 1.47% 15.57% 32.10% 14.66%
S&P Computer Software & Serv-
ices Index.................... 29.46% 32.12% 12.20% 34.89% 41.37% 29.62%
</TABLE>
- --------
* Assumes $100 invested on April 1, 1991 in CSC Common Stock, the S&P 500
Index and the S&P Computer Software & Services Index. Indexed amounts and
return percentages assume a March 31 fiscal year end.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires CSC's
directors and executive officers, and persons who own more than ten percent of
a registered class of CSC's equity securities, to file with the Commission and
the NYSE initial reports of ownership and reports of changes in ownership of
CSC Common Stock and other equity securities of CSC. Executive officers,
directors and greater than ten percent stockholders are required by Commission
regulation to furnish CSC with copies of all Section 16(a) forms they file.
To CSC's knowledge, based solely on review of information furnished to CSC,
reports filed through CSC and representations that no other reports were
required, during the fiscal year ended March 29, 1996, all Section 16(a)
filing requirements applicable to its executive officers, directors and
greater than ten percent beneficial owners were complied with.
77
<PAGE>
STOCKHOLDER PROPOSALS
Any CSC stockholder who wishes to submit a proposal for presentation to
CSC's 1997 Annual Meeting of Stockholders must submit the proposal to Computer
Sciences Corporation, 2100 East Grand Avenue, El Segundo, California 90245,
Attention: Secretary, not later than March 6, 1997 for inclusion, if
appropriate, in CSC's proxy statement and form of proxy relating to its 1997
Annual Meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
It has been the practice of CSC to engage Deloitte & Touche LLP for annual
audit services upon approval by either the Audit Committee or the Board of
Directors. Deloitte & Touche LLP has acted as CSC's independent public
accountant for more than 33 years and will act in that capacity during the
current fiscal year. It is anticipated that a representative of Deloitte &
Touche LLP will be present at the CSC Annual Meeting and will be afforded the
opportunity to make a statement if desired and will be available to respond to
appropriate questions. The engagement of Deloitte & Touche LLP for non-audit
services is approved by the Vice President and Chief Financial Officer of CSC.
It is expected that representatives of Ernst & Young LLP will be present at
the Continuum Special Meeting and will be afforded the opportunity to make a
statement if desired and will be available to respond to appropriate
questions.
OTHER MATTERS
It is not expected that any matters other than those described in this Proxy
Statement/Prospectus will be brought before the CSC Annual Meeting or the
Continuum Special Meeting. If any other matters are presented, however, it is
the intention of the persons named in the CSC proxy and Continuum proxy to
vote the proxy in accordance with the discretion of the persons named in such
proxy.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby will be passed upon for CSC by Gibson, Dunn & Crutcher LLP, 333 South
Grand Avenue, Los Angeles, California 90071-3197. Certain tax consequences of
the Merger have been passed upon for Continuum by Vinson & Elkins L.L.P., 2300
First City Tower, 1001 Fannin Street, Houston, Texas 77002-6760.
EXPERTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of
Computer Sciences Corporation for the year ended March 29, 1996, have been so
incorporated in reliance on the report of Deloitte & Touche LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of The Continuum Company, Inc.
included in The Continuum Company, Inc. Annual Report on Form 10-K, as
amended, for the year ended March 31, 1996, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference which, as to the fiscal years
ended March 31, 1995 and 1994, is based in part on the report of Price
Waterhouse LLP, independent accountants. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firms as experts in accounting and auditing.
The financial statements of Hogan Systems, Inc. as of March 31, 1995 and
1994 and for each of the three years in the period ended March 31, 1995
incorporated in this Proxy Statement/Prospectus by reference to the Annual
Report on Form 10-K of The Continuum Company, Inc., as amended, for the year
ended March 31, 1996 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
78
<PAGE>
THE CONTINUUM COMPANY, INC.
AND
COMPUTER SCIENCES CORPORATION
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
Annex A--Merger Agreement
Annex B--Opinion of Goldman, Sachs & Co.
Annex C--Opinion of Lehman Brothers Inc.
Annex D--Form of Amendment to CSC's Restated Articles of Incorporation
<PAGE>
ANNEX A
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AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 28, 1996
AMONG
COMPUTER SCIENCES CORPORATION,
THE CONTINUUM COMPANY, INC.
AND
CONTINENTAL ACQUISITION, INC.
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TABLE OF CONTENTS
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ARTICLE 1 THE MERGER.................................................... A-7
SECTION 1.1. The Merger............................................. A-7
SECTION 1.2. Effective Time......................................... A-7
SECTION 1.3. Closing of the Merger.................................. A-7
SECTION 1.4. Effects of the Merger.................................. A-7
SECTION 1.5. Certificate of Incorporation and Bylaws................ A-8
SECTION 1.6. Directors.............................................. A-8
SECTION 1.7. Officers............................................... A-8
SECTION 1.8. Conversion of Shares................................... A-8
SECTION 1.9. No Appraisal Rights.................................... A-8
SECTION 1.10. Exchange of Certificates............................... A-8
SECTION 1.11. Stock Options.......................................... A-10
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-11
SECTION 2.1. Organization and Qualification; Subsidiaries........... A-11
SECTION 2.2. Capitalization of the Company and its Subsidiaries..... A-12
SECTION 2.3. Authority Relative to this Agreement; Recommendation... A-12
SECTION 2.4. SEC Reports; Financial Statements...................... A-13
SECTION 2.5. Information Supplied................................... A-13
SECTION 2.6. Consents and Approvals; No Violations.................. A-13
SECTION 2.7. No Default............................................. A-14
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes......... A-14
SECTION 2.9. Litigation............................................. A-14
SECTION 2.10. Compliance with Applicable Law......................... A-15
SECTION 2.11. Employee Benefit Plans; Labor Matters.................. A-15
SECTION 2.12. Environmental Laws and Regulations..................... A-17
SECTION 2.13. Taxes.................................................. A-17
SECTION 2.14. Title to Property...................................... A-19
SECTION 2.15. Intellectual Property; Software........................ A-19
SECTION 2.16. Insurance.............................................. A-20
SECTION 2.17. Vote Required.......................................... A-20
SECTION 2.18. Tax Treatment; Pooling................................. A-20
SECTION 2.19. Affiliates............................................. A-20
SECTION 2.20. Certain Business Practices............................. A-20
SECTION 2.21. Insider Interests...................................... A-20
SECTION 2.22. Opinion of Financial Adviser........................... A-20
SECTION 2.23. Brokers................................................ A-21
SECTION 2.24. Disclosure............................................. A-21
SECTION 2.25. No Existing Discussions................................ A-21
SECTION 2.26. Section 203 of the DGCL................................ A-21
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION...... A-21
SECTION 3.1. Organization........................................... A-21
SECTION 3.2. Capitalization of Parent and its Subsidiaries.......... A-21
SECTION 3.3. Authority Relative to this Agreement; Recommendation... A-22
SECTION 3.4. SEC Reports; Financial Statements...................... A-22
SECTION 3.5. Information Supplied................................... A-23
SECTION 3.6. Consents and Approvals; No Violations.................. A-23
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SECTION 3.7. No Default............................................ A-23
SECTION 3.8. No Undisclosed Liabilities; Absence of Changes........ A-24
SECTION 3.9. Litigation............................................ A-24
SECTION 3.10. Compliance with Applicable Law........................ A-24
SECTION 3.11. Employee Benefit Plans; Labor Matters................. A-24
SECTION 3.12. Environmental Laws and Regulations.................... A-25
SECTION 3.13. Tax Matters........................................... A-25
SECTION 3.14. Title to Property..................................... A-25
SECTION 3.15. Intellectual Property; Software....................... A-25
SECTION 3.16. Insurance............................................. A-26
SECTION 3.17. Vote Required......................................... A-26
SECTION 3.18. Tax Treatment; Pooling................................ A-26
SECTION 3.19. Affiliates............................................ A-26
SECTION 3.20. Certain Business Practices............................ A-26
SECTION 3.21. Insider Interests..................................... A-26
SECTION 3.22. Opinion of Financial Adviser.......................... A-26
SECTION 3.23. Brokers............................................... A-26
SECTION 3.24. Disclosure............................................ A-26
SECTION 3.25. No Prior Activities................................... A-27
ARTICLE 4 COVENANTS.................................................... A-27
SECTION 4.1. Conduct of Business of the Company.................... A-27
SECTION 4.2. Conduct of Business of Parent......................... A-28
SECTION 4.3. Preparation of S-4 and the Proxy Statement............ A-29
SECTION 4.4. Other Potential Acquirers............................. A-29
SECTION 4.5. Comfort Letters....................................... A-31
SECTION 4.6. Meetings of Stockholders.............................. A-31
SECTION 4.7. Stock Exchange Listing................................ A-31
SECTION 4.8. Access to Information................................. A-31
SECTION 4.9. Additional Agreements; Reasonable Efforts............. A-32
SECTION 4.10. Employee Benefits..................................... A-32
SECTION 4.11. Public Announcements.................................. A-32
SECTION 4.12. Indemnification....................................... A-33
SECTION 4.13. Notification of Certain Matters....................... A-33
SECTION 4.14. Affiliates; Pooling; Tax Free Reorganization.......... A-33
SECTION 4.15. Stockholders Agreement................................ A-34
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER..................... A-34
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger................................................ A-34
SECTION 5.2. Conditions to the Obligations of the Company.......... A-34
SECTION 5.3. Conditions to the Obligations of Parent and
Acquisition........................................... A-35
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER............................... A-36
SECTION 6.1. Termination........................................... A-36
SECTION 6.2. Effect of Termination................................. A-36
SECTION 6.3. Fees and Expenses..................................... A-37
SECTION 6.4. Amendment............................................. A-37
SECTION 6.5. Extension; Waiver..................................... A-37
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ARTICLE 7 MISCELLANEOUS.................................................. A-38
SECTION 7.1. Nonsurvival of Representations and Warranties........... A-38
SECTION 7.2. Entire Agreement; Assignment............................ A-38
SECTION 7.3. Validity................................................ A-38
SECTION 7.4. Notices................................................. A-38
SECTION 7.5. Governing Law........................................... A-38
SECTION 7.6. Descriptive Headings.................................... A-39
SECTION 7.7. Parties in Interest..................................... A-39
SECTION 7.8. Certain Definitions..................................... A-39
SECTION 7.9. Personal Liability...................................... A-39
SECTION 7.10. Specific Performance.................................... A-39
SECTION 7.11. Counterparts............................................ A-39
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TABLE OF DEFINED TERMS
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Acquisition.................. Preamble................................... A-7
affiliate.................... Section 7.8(a)............................. A-39
Articles Amendment........... Section 3.2(a)............................. A-21
business day................. Section 7.8(b)............................. A-39
Certificates................. Section 1.10(b)............................ A-9
Closing Date................. Section 1.3................................ A-7
Closing...................... Section 1.3................................ A-7
Code......................... Preamble................................... A-7
Company Affiliates........... Section 2.19............................... A-20
Company Board................ Section 2.3(a)............................. A-12
Company Financial Adviser.... Section 2.22............................... A-20
Company Permits.............. Section 2.10............................... A-15
Company...................... Preamble................................... A-7
Company SEC Reports.......... Section 2.4(a)............................. A-13
Company Securities........... Section 2.2(a)............................. A-12
Company Stock Option......... Section 1.11(a)............................ A-10
Company Stock Options........ Section 1.11(a)............................ A-10
DGCL......................... Section 1.1................................ A-7
DST.......................... Section 2.19............................... A-20
Effective Time............... Section 1.2................................ A-7
Employee Plans............... Section 2.11(a)............................ A-15
Environmental Claim.......... Section 2.12(a)............................ A-17
Environmental Laws........... Section 2.12(a)............................ A-17
ERISA Affiliate.............. Section 2.11(a)............................ A-15
ERISA........................ Section 2.11(a)............................ A-15
Exchange Act................. Section 2.2(c)............................. A-12
Exchange Agent............... Section 1.10(a)............................ A-8
Exchange Fund................ Section 1.10(a)............................ A-8
FCPA......................... Section 2.20............................... A-20
Governmental Entity.......... Section 2.6................................ A-13
HOGN Merger Agreement........ Section 1.11(a)............................ A-10
HOGN......................... Section 1.11(a)............................ A-10
HSR Act...................... Section 2.6................................ A-13
Indemnified Liabilities...... Section 4.12............................... A-33
Indemnified Persons.......... Section 4.12............................... A-33
IRS.......................... Section 2.11(a)............................ A-15
knowledge.................... Section 7.8(c)............................. A-39
known........................ Section 7.8(c)............................. A-39
Lien......................... Section 2.2(b)............................. A-12
Material Adverse Effect...... Section 2.1(a)............................. A-11
Material Adverse Effect...... Section 3.1(a)............................. A-21
Merger Certificate........... Section 1.2................................ A-7
Merger Consideration......... Section 1.8(a)............................. A-8
Merger....................... Section 1.1................................ A-7
NGCL......................... Section 3.3(a)............................. A-22
Notice of Superior Proposal.. Section 4.4(b)............................. A-29
NYSE......................... Section 1.10(f)............................ A-10
Parent Affiliates............ Section 3.19............................... A-26
Parent Benefit Plans......... Section 3.2(a)............................. A-21
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Parent Common Stock......... Section 1.8(a).............................. A-8
Parent Financial Adviser.... Section 3.22................................ A-26
Parent Intellectual Rights.. Section 3.15(a)............................. A-25
Parent Permits.............. Section 3.10................................ A-24
Parent...................... Preamble.................................... A-7
Parent SEC Reports.......... Section 3.4(a).............................. A-22
Parent Securities........... Section 3.2(a).............................. A-21
person...................... Section 7.8(e).............................. A-39
Proxy Statement............. Section 2.5................................. A-13
S-4......................... Section 2.5................................. A-13
SEC......................... Section 2.4(a).............................. A-13
Securities Act.............. Section 2.4(a).............................. A-13
Shares...................... Section 1.8(a).............................. A-8
Stockholders Agreement...... Section 4.15................................ A-34
subsidiaries................ Section 7.8(f).............................. A-39
subsidiary.................. Section 7.8(f).............................. A-39
Superior Proposal........... Section 4.4(b).............................. A-29
Surviving Corporation....... Section 1.1................................. A-7
Third Party Acquisition..... Section 4.4(b).............................. A-29
Third Party................. Section 4.4(b).............................. A-29
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of April 28,
1996, is among The Continuum Company, Inc., a Delaware corporation
("Company"), Computer Sciences Corporation, a Nevada corporation ("Parent"),
and Continental Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Acquisition").
Whereas, the Boards of Directors of the Company, Parent and Acquisition each
have, in light of and subject to the terms and conditions set forth herein,
(i) determined that the Merger (as defined below) is fair to their respective
shareholders and in the best interests of such shareholders and (ii) approved
the Merger in accordance with this Agreement;
Whereas, for Federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
Whereas, the Merger is intended to be treated as a "pooling of interests"
for financial accounting purposes.
Now, Therefore, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Acquisition hereby agree as
follows:
ARTICLE 1
The Merger
Section 1.1. The Merger. At the Effective Time (as defined below) and upon
the terms and subject to the conditions of this Agreement and in accordance
with the Delaware General Corporation Law (the "DGCL"), Acquisition shall be
merged with and into the Company (the "Merger"). Following the Merger, the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition shall cease.
The Merger is intended to qualify as a tax-free reorganization under Section
368 of the Code.
Section 1.2. Effective Time. Subject to the terms and conditions set forth
in this Agreement, a Certificate of Merger (the "Merger Certificate") shall be
duly executed and acknowledged by the Company and thereafter delivered to the
Secretary of State of the State of Delaware for filing pursuant to the DGCL on
the Closing Date (as defined in Section 1.3). The Merger shall become
effective at such time as a properly executed and certified copy of the Merger
Certificate is duly filed by the Secretary of State of the State of Delaware
in accordance with the DGCL or such later time as Parent and the Company may
agree upon and set forth in the Merger Certificate (the time the Merger
becomes effective being referred to herein as the "Effective Time").
Section 1.3. Closing of the Merger. The closing of the Merger (the
"Closing") will take place at a time and on a date to be specified by the
parties, which shall be no later than the second business day after
satisfaction of the latest to occur of the conditions set forth in Article 5
(the "Closing Date"), at the offices of Gibson, Dunn & Crutcher, 333 South
Grand Avenue, Los Angeles, California 90071, unless another time, date or
place is agreed to in writing by the parties hereto.
Section 1.4. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the
Company and Acquisition shall become the debts, liabilities and duties of the
Surviving Corporation.
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Section 1.5. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Company in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable law; provided, however, that Article Fourth of the
Certificate of Incorporation of the Company shall be amended in its entirety
to read as follows: "The aggregate number of shares which the Corporation
shall have the authority to issue is one thousand (1,000), $.10 par value per
share, to be designated "Common Stock' ". The Bylaws of the Company in effect
at the Effective Time shall be the Bylaws of the Surviving Corporation until
amended in accordance with applicable law.
Section 1.6. Directors. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
Section 1.7. Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
Section 1.8. Conversion of Shares.
(a) At the Effective Time, each share of common stock, par value $.10 per
share, of the Company (individually a "Share" and collectively, the "Shares")
issued and outstanding immediately prior to the Effective Time (other than (i)
Shares held in the Company's treasury or by any of the Company's subsidiaries
(excluding 7,837 Shares held of record by Paxus Corporation Limited) and (ii)
Shares held by Parent, Acquisition or any other subsidiary of Parent) shall,
by virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be converted into and shall become .79 of a
fully paid and nonassessable share of common stock, $1.00 par value per share,
of Parent ("Parent Common Stock") (the "Merger Consideration"). Unless the
context otherwise requires, each reference in this Agreement to shares of
Parent Common Stock shall include the associated Rights (as such term is
defined in Section 3.2(a) hereof). Notwithstanding the foregoing, if between
the date of this Agreement and the Effective Time the outstanding shares of
Parent Common Stock or the Shares shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, then the exchange ratio contemplated by the Merger shall
be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) At the Effective Time, each outstanding share of the common stock, par
value $0.01 per share, of Acquisition shall be converted into one share of
common stock, par value $.10 per share, of the Surviving Corporation.
(c) At the Effective Time, each Share held in the treasury of the Company
and each Share held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or the Company (excluding 7,837 Shares held of record by Paxus
Corporation Limited) immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Acquisition, the Company
or the holder thereof, be canceled, retired and cease to exist and no payment
shall be made with respect thereto.
Section 1.9. No Appraisal Rights. The holders of Shares and the holders of
shares of Parent Common Stock shall not be entitled to appraisal rights.
Section 1.10. Exchange of Certificates.
(a) As of the Effective Time, Parent shall deposit with Chemical Mellon
Shareholder Services, L.L.C., or such other agent or agents as may be
appointed by Parent and Acquisition (the "Exchange Agent"), for the benefit of
the holders of Shares, for exchange in accordance with this Article I, through
the Exchange Agent: (i) certificates representing the appropriate number of
shares of Parent Common Stock and (ii) cash to be paid in lieu of fractional
shares of Parent Common Stock (such shares of Parent Common Stock and such
cash are
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hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
1.8 in exchange for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding Shares
(the "Certificates") whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.8: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of
whole shares of Parent Common Stock and, if applicable, a check representing
the cash consideration to which such holder may be entitled on account of a
fractional share of Parent Common Stock, which such holder has the right to
receive pursuant to the provisions of this Article I, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent
Common Stock may be issued to a transferee if the Certificate representing
such Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.10, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Parent Common Stock and cash
in lieu of any fractional shares of Parent Common Stock as contemplated by
this Section 1.10.
(c) No dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 1.10(f) until the holder of record of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section
1.10(f) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Parent Common Stock.
(d) In the event that any Certificate for Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange therefor, upon
the making of an affidavit of that fact by the holder thereof such shares of
Parent Common Stock and cash in lieu of fractional shares, if any, as may be
required pursuant to this Agreement provided, however, that Parent or its
Exchange Agent, may, in its discretion, require the delivery of a suitable
bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender for exchange
of Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.10(c) or 1.10(f)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such Shares, subject, however,
to the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by the Company on such Shares in accordance with
the terms of this Agreement or prior to the date hereof and which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are
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presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article I.
(f) No fractions of a share of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of Shares otherwise entitled to a
fraction of a share of Parent Common Stock shall, upon surrender of his or her
Certificate or Certificates, be entitled to receive an amount of cash (without
interest) determined by multiplying the closing price for Parent Common Stock
as reported on the New York Stock Exchange (the "NYSE") Composite Transactions
on the business day five days prior to the Effective Date by the fractional
share interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting complexities which would otherwise be caused by the issuance of
fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed to the
shareholders of the Company for six months after the Effective Time shall be
delivered to Parent, upon demand, and any shareholders of the Company who have
not theretofore complied with this Article I shall thereafter look only to
Parent for payment of their claim for Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock and any applicable dividends or
distributions with respect to Parent Common Stock, as the case may be.
(h) Neither Parent nor the Company shall be liable to any holder of Shares,
or Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.11. Stock Options.
(a) At the Effective Time, each outstanding option to purchase Shares (a
"Company Stock Option" or collectively, "Company Stock Options") (i) issued
pursuant to the 1983 Incentive Stock Option Plan, the 1992 Stock Option Plan,
the 1994 Directors Stock Option Plan, the 1995 Directors' Stock Option Plan or
the 1994 Incentive Stock Plan of the Company or pursuant to any of the
individual nonqualified stock option agreements of the Company with W. Michael
Long, E. Lee Walker, Jean-Michel Renck, Jean-Louis Rossignol, Jean-Charles
Miginiac, Michael H. Anderson, James J. Delamore, Paul Zoukis, Kevan Howley
and Federal Home Life Insurance Company and (ii) issued by Hogan Systems, Inc.
("HOGN") pursuant to the 1982 Incentive Stock Option Plan, the 1984 Incentive
Stock Option Plan, the 1985 Incentive Stock Option Plan, the 1982 Nonstatutory
Stock Option Plan, the 1984 Nonstatutory Stock Option Plan or the 1985
Nonstatutory Stock Option Plan of HOGN (which options have been assumed by the
Company pursuant to Section 4.13 of the Agreement and Plan of Merger dated as
of December 10, 1995, as amended by the First Amendment thereto dated as of
February 7, 1996 (as so amended, the "HOGN Merger Agreement") among the
Company, HOGN and Continuum Acquisition Corporation ("CAC"), pursuant to which
CAC merged with and into HOGN, and HOGN became a wholly-owned subsidiary of
the Company on March 15, 1996 (the "HOGN Merger")), whether vested or
unvested, shall be assumed by Parent. All plans or agreements described above
pursuant to which any Company Stock Option has been issued or may be issued
are referred to collectively as the Company Plans. Each Company Stock Option
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Company Stock Option, the same number
of shares of Parent Common Stock as the holder of such Company Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time, at a
price per share equal to (y) the aggregate exercise price for the shares of
Company Common Stock otherwise purchasable pursuant to such Company Stock
Option divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such Company Stock Option; provided, however, that in
the case of any option to which section 421 of the Code applies by reason of
its qualification under section 422 of the Code ("incentive stock options" or
"ISOs"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with section 424(a) of the Code. With respect to
any Company Stock Option that provides for the acceleration of vesting in the
event that the
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Shares achieve certain public trading price thresholds, such trading price
thresholds shall be adjusted by dividing the threshold set forth in the
Company Stock Option by the exchange ratio contemplated by the Merger.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Plans and the agreements
evidencing the grants of such Options shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section 1.11
after giving effect to the Merger). Parent shall comply with the terms of the
Company Plans and ensure, to the extent required by, and subject to the
provisions of, such Plans, that Company Stock Options which qualified as
incentive stock options immediately prior to the Effective Time continue to
qualify as incentive stock options of Parent after the Effective Time.
(c) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Company Stock Options assumed in accordance with this Section
1.11. As soon as practicable after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate
forms) with respect to the shares of Parent Common Stock subject to any
Company Stock Options held by persons who are or were directors, officers or
employees of the Company or its subsidiaries and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, Parent shall administer Company Plans assumed pursuant to this
Section 1.11 in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act, as it may be amended, to the extent the applicable Company Plan
complied with such rule immediately prior to the Merger.
ARTICLE 2
Representations and Warranties of the Company
Except as set forth on the Disclosure Schedule previously delivered by the
Company to Parent (the "Company Disclosure Schedule"), the Company hereby
represents and warrants to each of Parent and Acquisition as follows:
Section 2.1. Organization and Qualification; Subsidiaries.
(a) Each of the Company and its subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to
own, lease and operate its properties and to carry on its businesses as now
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power and authority would not have a Material
Adverse Effect (as defined below) on the Company. When used in connection with
the Company or its subsidiaries, the term "Material Adverse Effect" means any
change or effect (i) that is or is reasonably likely to be materially adverse
to the business, results of operations, condition (financial or otherwise) or
prospects of the Company and its subsidiaries, taken as whole, other than any
change or effect arising out of general economic conditions unrelated to any
business in which the Company and its subsidiaries are engaged, or (ii) that
may impair the ability of the Company to consummate the transactions
contemplated hereby.
(b) The Company has heretofore delivered to Acquisition or Parent accurate
and complete copies of the Certificate of Incorporation and Bylaws (or similar
governing documents), as currently in effect, of the Company and its
subsidiaries. Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on the Company.
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Section 2.2. Capitalization of the Company and its Subsidiaries.
(a) The authorized capital stock of the Company consists of: 40,000,000
Shares, of which, as of April 25, 1996, 24,240,897 Shares were issued and
outstanding (including 67,918 Shares held in treasury and 7,837 Shares held of
record by Paxus Corporation Limited), and 5,000,000 shares of preferred stock,
par value $.01 per share, no shares of which are outstanding. All of the
outstanding Shares have been validly issued, and are fully paid, nonassessable
and free of preemptive rights. As of April 25, 1996, approximately 3,393,884
Shares were reserved for issuance and issuable upon or otherwise deliverable
in connection with the exercise of outstanding Company Stock Options issued
pursuant to the Company Plans, and 51,526 Shares were reserved for issuance
pursuant to the Employee Stock Purchase Plan (the "ESPP"). Between April 25,
1996 and the date hereof, no shares of the Company's capital stock have been
issued other than pursuant to Company Stock Options already in existence on
such date, and, between April 25, 1996 and the date hereof, no stock options
have been granted. Except as set forth above, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company or its subsidiaries convertible
into or exchangeable for shares of capital stock or voting securities of the
Company, (iii) no options or other rights to acquire from the Company or its
subsidiaries, and, except as described in the Company SEC Reports (as defined
below), no obligations of the Company or its subsidiaries to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company, and (iv)
no equity equivalents, interests in the ownership or earnings of the Company
or its subsidiaries or other similar rights (collectively, "Company
Securities"). As of the date hereof, there are no outstanding obligations of
the Company or its subsidiaries to repurchase, redeem or otherwise acquire any
Company Securities. Except for the agreement referred to in Section 4.14(c)
hereof, there are no stockholder agreements, voting trusts or other agreements
or understandings to which the Company is a party or by which it is bound
relating to the voting or registration of any shares of capital stock of the
Company.
(b) Section 2.2(b) of the Company Disclosure Schedule identifies each
subsidiary of the Company as of the date hereof and shows the jurisdiction of
incorporation or organization of each such subsidiary. All of the outstanding
capital stock of the Company's subsidiaries (other than director's qualifying
shares in the case of foreign subsidiaries) is owned by the Company, directly
or indirectly, free and clear of any Lien (as defined below) or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of law). There are no
securities of the Company or its subsidiaries convertible into or exchangeable
for, no options or other rights to acquire from the Company or its
subsidiaries, and no other contract, understanding, arrangement or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly, of any capital stock or other ownership interests in, or any other
securities of, any subsidiary of the Company. There are no outstanding
contractual obligations of the Company or its subsidiaries to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or other
ownership interests in any subsidiary of the Company. For purposes of this
Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind in respect of such asset.
(c) The Shares constitute the only class of equity securities of the Company
or its subsidiaries registered or required to be registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 2.3. Authority Relative to this Agreement; Recommendation.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of the Company (the "Company Board") and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby, except,
as referred to in Section 2.17, the approval and adoption of this Agreement by
the holders of at least two-thirds of the then outstanding Shares. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its terms.
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(b) The Company Board has resolved to recommend that the shareholders of the
Company approve and adopt this Agreement.
Section 2.4. SEC Reports; Financial Statements.
(a) The Company has filed all required forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since March 31, 1992, each of
which has complied in all material respects with all applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act, each as in effect on the dates such forms, reports and documents
were filed. The Company has heretofore delivered or promptly will deliver to
Acquisition or Parent, in the form filed with the SEC (including any
amendments thereto but excluding any exhibits), (i) its Annual Reports on Form
10-K for each of the fiscal years ended March 31, 1993, 1994 and 1995, (ii)
all definitive proxy statements relating to the Company's meetings of
shareholders (whether annual or special) held since March 31, 1992 and (iii)
all other reports or registration statements filed by the Company with the SEC
since March 31, 1992 (all of the foregoing, collectively, the "Company SEC
Reports"). None of such Company SEC Reports, including, without limitation,
any financial statements or schedules included or incorporated by reference
therein, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements of the Company included in the
Company SEC Reports fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the
periods then ended.
(b) The Company has heretofore made available or promptly will make
available to Acquisition or Parent a complete and correct copy of any
amendments or modifications, which are required to be filed with the SEC but
have not yet been filed with the SEC, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC
pursuant to the Exchange Act.
Section 2.5. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the proxy
statement relating to the meeting of the Company's shareholders and the
meeting of Parent's shareholders to be held in connection with the Merger (the
"Proxy Statement") will, at the date mailed to shareholders of the Company and
at the times of the meeting or meetings of shareholders of the Company to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement,
insofar as it relates to the meeting of the Company's shareholders to vote on
the Merger, will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Section 2.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the filing and recordation of the
Merger Certificate as required by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the
transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on the Company.
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Except as set forth in Section 2.6 of the Company Disclosure Schedule, neither
the execution, delivery and performance of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of the
Company or any of its subsidiaries, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration or Lien) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound, or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, except in the
case of (ii) or (iii) for violations, breaches or defaults which would not
have a Material Adverse Effect on the Company.
Section 2.7. No Default. Except as set forth in Section 2.7 of the Company
Disclosure Schedule, none of the Company or its subsidiaries is in breach,
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its Certificate of Incorporation or Bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its subsidiaries is now a party or by which any of them or
any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company, its subsidiaries or any of their respective properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults that
would not have a Material Adverse Effect on the Company. Except as set forth
in Section 2.7 of the Company Disclosure Schedule, each note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its subsidiaries is now a party or
by which any of them or any of their respective properties or assets may be
bound that is material to the Company and its subsidiaries taken as a whole
and that has not expired is in full force and effect and is not subject to any
material default thereunder of which the Company is aware by any party
obligated to the Company or any subsidiary thereunder.
Section 2.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by the Company in the Company SEC Reports, as
of December 31, 1995, none of the Company or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, that would be required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of the Company
(including the notes thereto) or which would have a Material Adverse Effect on
the Company. Except as publicly disclosed by the Company, since December 31,
1995, none of the Company or its subsidiaries has incurred any liabilities of
any nature, whether or not accrued, contingent or otherwise, which could
reasonably be expected to have, and there have been no events, changes or
effects with respect to the Company or its subsidiaries having or which
reasonably could be expected to have, a Material Adverse Effect on the
Company. Except as and to the extent publicly disclosed by the Company in the
Company's SEC Reports and except as set forth in Section 2.8 of the Company
Disclosure Schedule, since December 31, 1995, there has not been (i) any
material change by the Company in its accounting methods, principles or
practices (other than as required after the date hereof by concurrent changes
in generally accepted accounting principles), (ii) any revaluation by the
Company of any of its assets having a Material Adverse Effect on the Company,
including, without limitation, any write-down of the value of capitalized
software or inventory or write-off of notes or accounts receivable other than
in the ordinary course of business or (iii) except for the HOGN Merger, any
other action or event that would have required the consent of Parent pursuant
to Section 4.1 of this Agreement had such action or event occurred after the
date of this Agreement.
Section 2.9. Litigation. Except as publicly disclosed by the Company in the
Company SEC Reports, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries or any of their respective properties
or assets before any Governmental Entity which, individually or in the
aggregate, could reasonably be expected to have a
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Material Adverse Effect on the Company or could reasonably be expected to
prevent or delay the consummation of the transactions contemplated by this
Agreement. Except as publicly disclosed by the Company in the Company SEC
Reports, none of the Company or its subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen
in the future, could reasonably be expected to have a Material Adverse Effect
on the Company or could reasonably be expected to prevent or delay the
consummation of the transactions contemplated hereby.
Section 2.10. Compliance with Applicable Law. Except as publicly disclosed
by the Company in the Company SEC Reports, the Company and its subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which would not have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, the Company and its subsidiaries are in
compliance with the terms of the Company Permits, except where the failure so
to comply would not have a Material Adverse Effect on the Company. Except as
publicly disclosed by the Company in the Company SEC Reports, the businesses
of the Company and its subsidiaries are not being conducted in violation of
any law, ordinance or regulation of any Governmental Entity except that no
representation or warranty is made in this Section 2.10 with respect to
Environmental Laws (as defined in Section 2.12 below) and except for
violations or possible violations which do not, and, insofar as reasonably can
be foreseen, in the future will not, have a Material Adverse Effect on the
Company. Except as publicly disclosed by the Company in the Company SEC
Reports, no investigation or review by any Governmental Entity with respect to
the Company or its subsidiaries is pending or, to the knowledge of the
Company, threatened, nor, to the knowledge of the Company, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which the Company reasonably believes will not have a
Material Adverse Effect on the Company.
Section 2.11. Employee Benefit Plans; Labor Matters.
(a) Section 2.11(a) of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements, and any severance agreements, written or otherwise, for the
benefit of, or relating to, any employee of the Company, any trade or business
(whether or not incorporated) which is a member of a controlled group
including the Company or which is under common control with the Company (an
"ERISA Affiliate") within the meaning of Section 414 of the Code, as well as
each plan with respect to which the Company or an ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212(c) of ERISA (together, the "Employee Plans"), excluding former
agreements under which the Company has no remaining obligations and any of the
foregoing that are required to be maintained by the Company under the laws of
any foreign jurisdiction. The Company has made available to Parent a copy of
(i) the most recent annual report on Form 5500 filed with the Internal Revenue
Service (the "IRS") for each disclosed Employee Plan where such report is
required and (ii) the documents and instruments governing each such Employee
Plan (other than those referred to in Section 4(b)(4) of ERISA).
(b)(i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person and none of the Employee Plans is
a "multi-employer plan" as such term is defined in Section 3(37) of ERISA;
(ii) neither the Company nor any ERISA Affiliate has incurred any excise taxes
under Chapter 43 of Subtitle A of the Code or Section 5000 of the Code or any
penalties under Section 502(i) or 502(l) of ERISA with respect to any Employee
Plan, which could result in any Material Adverse Effect on the Company; (iii)
all Employee Plans are in compliance in all material respects with the
requirements prescribed by any and all statutes (including ERISA and the
Code), orders, or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants or the Department of Labor, IRS or Secretary of the Treasury),
and the Company and each of its subsidiaries have performed all material
obligations required to be performed by them under, are not in any material
respect in default under or violation
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of, and have no knowledge of any default or violation by any other party to,
any of the Employee Plans; (iv) each Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination letter from the
IRS, and nothing has occurred which may reasonably be expected to impair such
determination; (v) all contributions required to be made to any Employee Plan
pursuant to Section 412 of the Code, or the terms of the Employee Plan or any
collective bargaining agreement, have been made on or before their due dates
and a reasonable amount has been accrued for contributions to each Employee
Plan for the current plan years; (vi) with respect to each Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the
Company nor any ERISA Affiliate has incurred, nor reasonably expects to incur,
any liability under Title IV of ERISA (other than liability for premium
payments to the Pension Benefit Guaranty Corporation arising in the ordinary
course).
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of each person who holds any
Company Stock Options, together with the number of Shares which are subject to
such option, the date of grant of such option, the extent to which such option
is vested (or will become vested within six months from the date hereof, or as
a result of, the Merger), the option price of such option (to the extent
determined as of the date hereof), whether such option is intended to qualify
as an incentive stock option within the meaning of Section 422(b) of the Code,
and the expiration date of such option. Section 2.11(c) of the Company
Disclosure Schedule also sets forth the total number of such ISOs and such
nonqualified options. The Company has furnished Parent with complete copies of
the Company Plans pursuant to which the Company Stock Options were issued.
Other than the automatic vesting of Company Stock Options that may occur
without any action on the part of the Company or its officers or directors,
the Company has not taken any action that would result in any Company Stock
Options that are unvested becoming vested in connection with or as a result of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) The Company has made available to Parent (i) a description of the terms
of employment and compensation arrangements of all officers of the Company and
a standard form of employment agreement used for officers of the Company, (ii)
copies of all employment agreements with officers of the Company which contain
provisions that differ from the standard terms and conditions contained in the
form of employment agreement provided to Parent; (iii) copies of all
agreements with consultants who are individuals obligating the Company to make
annual cash payments in an amount exceeding $300,000; (iv) a schedule listing
all officers of the Company who have executed a non-competition agreement with
the Company; (v) copies (or descriptions) of all severance agreements,
programs and policies of the Company with or relating to its employees, except
programs and policies required to be maintained by law; and (vi) copies of all
plans, programs, agreements and other arrangements of the Company with or
relating to its employees which contain change in control provisions.
(e) Except as disclosed in Section 2.11(e) of the Company Disclosure
Schedule, there shall be no payment, accrual of additional benefits,
acceleration of payments, or vesting in any benefit under any Employee Plan or
any agreement or arrangement disclosed under this Section 2.11 solely by
reason of entering into or in connection with the transactions contemplated by
this Agreement.
(f) There are no controversies pending or, to the knowledge of the Company,
threatened, between the Company or any of its subsidiaries and any of their
respective employees, which controversies have or may reasonably be expected
to have a Material Adverse Effect of the Company. Neither the Company nor any
of its subsidiaries is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by the Company or its
subsidiaries, except as disclosed in Section 2.11(f) of the Company Disclosure
Schedule, nor does the Company know of any activities or proceedings of any
labor union to organize any such employees. The Company has no knowledge of
any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or
with respect to any employees of the Company or any of its subsidiaries.
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Section 2.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by the Company in the Company SEC Reports,
(i) each of the Company and its subsidiaries is in material compliance with
all applicable federal, state, local and foreign laws and regulations relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "Environmental Laws"), except for non-
compliance that would not have a Material Adverse Effect on the Company, which
compliance includes, but is not limited to, the possession by the Company and
its subsidiaries of all material permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms
and conditions thereof; (ii) none of the Company or its subsidiaries has
received written notice of, or, to the knowledge of the Company, is the
subject of, any action, cause of action, claim, investigation, demand or
notice by any person or entity alleging liability under or non-compliance with
any Environmental Law (an "Environmental Claim") that could reasonably be
expected to have a Material Adverse Effect on the Company; and (iii) to the
knowledge of the Company, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by the Company, there are no Environmental
Claims which could reasonably be expected to have a Material Adverse Effect on
the Company that are pending or, to the knowledge of the Company, threatened
against the Company or its subsidiaries or, to the knowledge of the Company,
against any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has or may have retained or assumed either
contractually or by operation of law.
Section 2.13. Taxes.
(a) Definitions. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts with
respect thereto, (B) any liability for payment of amounts described in
clause (A) whether as a result of transferee liability, of being a member
of an affiliated, consolidated, combined or unitary group for any period,
or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, the Company and its subsidiaries have accurately prepared and timely
filed all Tax Returns they are required to have filed. Such Tax Returns are
accurate and correct in all material respects and do not contain a disclosure
statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
(c) The Company and its subsidiaries have paid or adequately provided for
all Taxes they are required to have paid or to pay.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule:
(i) no claim has been made by any taxing authority in any jurisdiction
where the Company and its subsidiaries do not file Tax Returns that any of
them is or may be subject to Tax by that jurisdiction; and
(ii) no current extensions or waivers of statutes of limitations with
respect to the Tax Returns have been given by or requested from the Company
or any of its subsidiaries.
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(e) Section 2.13(e) of the Company Disclosure Schedule sets forth:
(i) the taxable years of the Company and its subsidiaries as to which the
applicable statutes of limitations on the assessment and collection of
Taxes have not expired;
(ii) those years for which examinations by the taxing authorities have
been completed;
(iii) those taxable years for which examinations by taxing authorities
are presently being conducted;
(iv) those years for which notice of pending or threatened examination or
adjustment has been received; and
(v) those years for which required income Tax Returns have not yet been
filed.
(f) Except as set forth in Section 2.13(f) of the Company Disclosure
Schedule, all deficiencies asserted or assessments made against the Company or
any subsidiary as a result of any examinations by any taxing authority have
been fully paid.
(g) Except as set forth in Section 2.13(g) of the Company Disclosure
Schedule, there are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of the Company or any subsidiary.
(h) Except as set forth in Section 2.13(h) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to or
bound by any tax indemnity, tax sharing or tax allocation agreement.
(i) Neither the Company nor any of its subsidiaries is a party to or bound
by any closing agreement or offer in compromise with any taxing authority.
(j) Except to the extent indicated in Section 2.13(j) of the Company
Disclosure Schedule:
(i) neither the Company nor any of its subsidiaries has been a member of
an affiliated group of corporations, within the meaning of Section 1504 of
the Code, or a member of combined, consolidated or unitary group for state,
local or foreign Tax purposes (other than the group the common parent of
which is the Company);
(ii) neither the Company nor any of its subsidiaries has any liability
for Taxes of any person (other than the Company and its subsidiaries) under
Treasury Regulations Section 1.1502-6 (or any corresponding provision of
state, local or foreign income Tax law), as transferee or successor, by
contract, or otherwise;
(iii) neither the Company nor any of its subsidiaries has filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the
Code (or any corresponding provision of state, local or foreign income Tax
law) or agreed to have Section 341(f)(2) of the Code (or any corresponding
provision of state, local or foreign income Tax law) apply to any
disposition of any asset owned by any of them;
(iv) neither the Company nor any or its subsidiaries has made a consent
dividend election under Section 565 of the Code;
(v) neither the Company nor any of its subsidiaries has been a personal
holding company under Section 542 of the Code; and
(vi) neither the Company nor any of its subsidiaries has participated in
an international boycott within the meaning of Section 999 of the Code.
(k) Except as set forth in Section 2.13(k) of the Company Disclosure
Schedule, none of the assets of the Company or its subsidiaries is property
that the Company or any of its subsidiaries is required to treat as being
owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended; none of the assets of the Company or its subsidiaries directly or
indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code; none of the assets of the Company or its subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
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(l) Except as set forth in Section 2.13(l) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has agreed to make,
or is it required to make, any adjustment under Sections 481(a) or 263A of the
Code or any comparable provision of state, local or foreign tax laws by reason
of a change in accounting method or otherwise. Neither the Company nor any of
its subsidiaries has taken action that is not in accordance with past practice
that could defer a liability for Taxes of the Company or any of its
subsidiaries from any taxable period ending on or before the Closing Date to
any taxable period ending after such date.
(m) Except as set forth in Section 2.13(m) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in connection with this Agreement or any
change of control of the Company or any of its subsidiaries, in the payment of
any "excess parachute payments" within the meaning of Section 28OG of the
Code.
(n) Section 2.13(n) of the Company Disclosure Schedule sets forth all
foreign jurisdictions in which the Company or any subsidiary is subject to
Tax, is engaged in business or has a permanent establishment.
(o) Except as set forth in Section 2.13(o) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
joint venture, partnership, or other arrangement or contract that could be
treated as a partnership for federal income tax purposes.
(p) No material election with respect to Taxes of the Company or its
subsidiaries will be made after the date of this Agreement without the prior
written consent of Parent.
(q) None of the income recognized, for federal, state, local or foreign
income tax purposes, by the Company or its subsidiaries during the period
commencing on the date hereof and ending on the Closing Date will be derived
other than in the ordinary course of business.
Section 2.14. Title to Property. The Company and each of its subsidiaries
have good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company; and, to the Company's
knowledge, all leases pursuant to which the Company or any of its subsidiaries
lease from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of the Company, under any of such leases, any existing material
default or event of default (or event which with notice of lapse of time, or
both, would constitute a material default and in respect of which the Company
or such subsidiary has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness, or the existence of such default or event, would not have a
Material Adverse Effect on the Company.
Section 2.15. Intellectual Property; Software.
(a) Each of the Company and its subsidiaries owns, or possesses adequate
licenses or other valid rights to use, all existing United States and foreign
patents, trademarks, trade names, service marks, copyrights, trade secrets and
applications therefor that are material to its business as currently conducted
(the "Company Intellectual Property Rights").
(b) The validity of the Company Intellectual Property Rights and the title
thereto of the Company or any subsidiary, as the case may be, is not being
questioned in any litigation to which the Company or any subsidiary is a
party.
(c) Except as set forth in Section 2.15(c) of the Company Disclosure
Schedule, the conduct of the business of the Company and its subsidiaries as
now conducted does not, to the Company's knowledge, infringe any valid
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patents, trademarks, trade names, service marks or copyrights of others. The
consummation of the transactions completed hereby will not result in the loss
or impairment of any Company Intellectual Property Rights.
(d) Prior to the execution and delivery of this Agreement, the Company has
provided Parent with a list of all material applications software (other than
personal computer software licensed from third parties) which the Company or
any subsidiary owns or has the right to market or use to provide services to
third parties.
(e) Except as set forth in Section 2.15(e) of the Company Disclosure
Schedule, neither the Company nor any subsidiary has licensed (or otherwise
entered into any agreement permitting) any person to use or market any of its
computer software (whether or not copyrighted) other than licenses to end-
users to use (but not market, distribute, sell or transfer) the computer
software.
(f) Each of the Company and its subsidiaries considers its computer software
as trade secrets, and each has taken steps it believes appropriate to protect
and maintain the same as such, except in cases where the Company has elected
to rely on patent or copyright protection in lieu of trade secret protection.
Section 2.16. Insurance. The Company and its subsidiaries maintain general
liability and other business insurance that the Company believes to be
reasonably prudent for its business.
Section 2.17. Vote Required. The affirmative vote of the holders of at least
two-thirds of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve and adopt
this Agreement.
Section 2.18. Tax Treatment; Pooling. Neither the Company nor, to the
knowledge of the Company, any of its affiliates has taken or agreed to take
action that would prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code or (b) being
treated for financial accounting purposes as a pooling of interests in
accordance with generally accepted accounting principles and the published
rules, regulations and interpretations of the SEC (a "Pooling Transaction").
Section 2.19. Affiliates. Except for DST Systems, Inc. ("DST") and the
directors and executive officers of the Company, each of whom is listed in
Section 2.19 of the Company Disclosure Schedule, there are no persons who, to
the knowledge of the Company, may be deemed to be affiliates of the Company
under Rule 145 of the Securities Act ("Company Affiliates"). Concurrently with
the execution and delivery of this Agreement, the Company has delivered to
Parent an executed letter agreement, substantially in the form of Exhibit A
hereto, from certain of the Company Affiliates, and will deliver to Parent,
within ten days after the date of this Agreement, an executed letter
agreement, substantially in the form of Exhibit A hereto, from all other
Company Affiliates.
Section 2.20. Certain Business Practices. None of the Company, any of its
subsidiaries or any directors, officers, agents or employees of the Company or
any of its subsidiaries has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity, (ii) made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended (the "FCPA"), or (iii) made any other unlawful payment.
Section 2.21. Insider Interests. No officer or director of the Company has
any interest in any material property, real or personal, tangible or
intangible, including without limitation, any computer software or Company
Intellectual Property Rights, used in or pertaining to the business of the
Company or any subsidiary, expect for the ordinary rights of a stockholder or
employee stock optionholder.
Section 2.22. Opinion of Financial Adviser. Lehman Brothers Inc. (the
"Company Financial Adviser") has delivered to the Company Board its written
opinion, dated the date of this Agreement, to the effect that, as of such
date, the exchange ratio contemplated by the Merger is fair to the holders of
Shares.
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Section 2.23. Brokers. No broker, finder or investment banker (other than
the Company Financial Adviser, a true and correct copy of whose engagement
agreement has been provided to Acquisition or Parent) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 2.24. Disclosure. No representation or warranty of the Company in
this Agreement or any certificate, schedule, document or other instrument
furnished or to be furnished to Parent pursuant hereto or in connection
herewith contains, as of the date of such representation, warranty or
instrument, or will contain any untrue statement of a material fact or, at the
date thereof, omits or will omit to state a material fact necessary to make
any statement herein or therein, in light of the circumstances under which
such statement is or will be made, not misleading.
Section 2.25. No Existing Discussions. As of the date hereof, the Company is
not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to any Third Party Acquisition (as defined in
Section 4.4).
Section 2.26. Section 203 of the DGCL. The Company Board has taken all
actions so that the restrictions contained in Section 203 of the DGCL
applicable to an "interested stockholder" or a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or
performance of this Agreement or the Stockholder Agreement or the consummation
of the Merger or the other transactions contemplated by this Agreement or the
Stockholder's Agreement (as defined in Section 4.15 hereof).
ARTICLE 3
Representations and Warranties of Parent and Acquisition
Parent and Acquisition hereby represent and warrant to the Company as
follows:
Section 3.1. Organization.
(a) Each of Parent and its subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
or organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted,
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse Effect (as
defined below) on Parent. When used in connection with Parent or Acquisition,
the term "Material Adverse Effect" means any change or effect that is (i)
materially adverse to the business, results of operations, condition
(financial or otherwise) or prospects of Parent and its subsidiaries, taken as
a whole, other than any change or effect arising out of general economic
conditions unrelated to any businesses in which Parent and its subsidiaries
are engaged, or (ii) that may impair the ability of Parent and/or Acquisition
to consummate the transactions contemplated hereby.
(b) Parent has heretofore delivered to the Company accurate and complete
copies of the Articles of Incorporation and Bylaws, as currently in effect, of
Parent and Acquisition. Each of Parent and its subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on Parent.
Section 3.2. Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of 75,000,000 shares of
Parent Common Stock (increasing to 275,000,000 shares contingent upon the
approval of Parent's shareholders of an amendment to Parent's Articles of
Incorporation increasing Parent's authorized capital (the "Articles
Amendment") at the meeting of shareholders of Parent convened for the purpose
of voting on the issuance of shares of Parent
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Common Stock in the Merger), of which, as of April 15, 1996, 56,354,755 shares
of Parent Common Stock (including 314,240 shares held in Parent's treasury)
were issued and outstanding (each, together with a preferred stock purchase
right (the "Rights") issued pursuant to the Rights Agreement, amended and
restated as of October 30, 1995, between Parent and Chemical Mellon
Shareholder Services, L.L.C. (the "Rights Agreement")), and 1,000,000 shares
of preferred stock, $1.00 par value per share, none of which are outstanding.
All of the outstanding shares of Parent Common Stock have been validly issued,
and are fully paid, nonassessable and free of preemptive rights. As of April
15, 1996, 4,692,315 shares of Parent Common Stock were reserved for issuance
and issuable upon or otherwise deliverable in connection with the exercise of
outstanding options. Between April 15, 1996 and the date hereof, no shares of
Parent's capital stock have been issued other than pursuant to stock options
already in existence on such date, and, except for grants of stock options to
employees, officers and directors in the ordinary course of business
consistent with past practice. Except as set forth above and except for the
Rights, as of the date hereof, there are outstanding (i) no shares of capital
stock or other voting securities of Parent, (ii) no securities of Parent or
its subsidiaries convertible into or exchangeable for shares of capital stock
or voting securities of Parent, (iii) no options or other rights to acquire
from Parent or its subsidiaries, and no obligations of Parent or its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Parent, and (iv) no equity equivalents, interests in the ownership or earnings
of Parent or its subsidiaries or other similar rights (collectively, "Parent
Securities"). As of the date hereof, there are no outstanding obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire
any Parent Securities. There are no stockholder agreements, voting trusts or
other agreements or understandings to which Parent is a party or by which it
is bound relating to the voting of any shares of capital stock of Parent.
(b) The Parent Common Stock (including the associated Rights) constitutes
the only class of equity securities of Parent or its subsidiaries registered
or required to be registered under the Exchange Act.
Section 3.3. Authority Relative to this Agreement; Recommendation.
(a) Each of Parent and Acquisition has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
and validly authorized by the boards of directors of Parent and Acquisition
and by Parent as the sole shareholder of Acquisition, and no other corporate
proceedings on the part of Parent or Acquisition are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby, except
that, as referred to in Section 3.17, (i) the approval of Parent's
shareholders of the issuance of Parent Common Stock in the Merger is required
pursuant to Rule 312 of the NYSE, (ii) the approval of Parent's shareholders
of the Merger is required pursuant to the Nevada General Corporation Law (the
"NGCL") and (iii) the approval of Parent's shareholders of the Articles
Amendment is required pursuant to the NGCL and Parent's Articles of
Incorporation and Bylaws. This Agreement has been duly and validly executed
and delivered by each of Parent and Acquisition and constitutes a valid, legal
and binding agreement of each of Parent and Acquisition, enforceable against
each of Parent and Acquisition in accordance with its terms.
(b) The Board of Directors of Parent has resolved to recommend that the
shareholders of Parent approve the issuance of Parent Common Stock in the
Merger and the Articles Amendment.
Section 3.4. SEC Reports; Financial Statements.
(a) Parent has filed all required forms, reports and documents with the SEC
since March 31, 1992, each of which has complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act, each
as in effect on the dates such forms, reports and documents were filed. Parent
has heretofore delivered to the Company, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits), (i) its Annual
Reports on Form 10-K for the fiscal years ended April 2, 1993, April 1, 1994
and March 31, 1995, (ii) all definitive proxy statements relating to Parent's
meetings of shareholders (whether annual or special) held since March 31, 1992
and (iii) all other reports or registration statements filed by Parent with
the SEC since March 31, 1992 (all of the foregoing, collectively, the "Parent
SEC Reports"). None of such Parent
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SEC Reports, including, without limitation, any financial statements or
schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements of Parent included in the Parent SEC Reports fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended.
(b) Parent has heretofore made available or promptly will make available to
the Company a complete and correct copy of any amendments or modifications,
which are required to be filed with the SEC but have not yet been filed with
the SEC, to agreements, documents or other instruments which previously had
been filed by Parent with the SEC pursuant to the Exchange Act.
Section 3.5. Information Supplied. None of the information supplied or to be
supplied by Parent or Acquisition for inclusion or incorporation by reference
to (i) the S-4 will, at the time the S-4 is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii)
the Proxy Statement will, at the date mailed to shareholders and at the times
of the meeting or meetings of shareholders of Parent to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement, insofar as it relates to the
meeting of Parent's shareholders to vote in the Merger, will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder, and the S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and
regulations thereunder.
Section 3.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act and the rules of the NYSE, and the
filing and recordation of the Articles Amendment and the Merger Certificate as
required by the NGCL and the DGCL, respectively, no filing with or notice to,
and no permit, authorization, consent or approval of, any Governmental Entity
is necessary for the execution and delivery by Parent or Acquisition of this
Agreement or the consummation by Parent or Acquisition of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on Parent. Neither the
execution, delivery and performance of this Agreement by Parent or Acquisition
nor the consummation by Parent or Acquisition of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
respective Certificate of Incorporation or Bylaws (or similar governing
documents) of Parent or Acquisition or any of Parent's subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration or Lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or Acquisition or any of Parent's other subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to Parent or Acquisition or any of Parent's subsidiaries
or any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which would not have a Material
Adverse Effect on Parent.
Section 3.7. No Default. None of Parent or any of its subsidiaries is in
breach, default or violation (and no event has occurred which with notice or
the lapse of time or both would constitute a breach, default or violation) of
any term, condition or provision of (i) its Articles of Incorporation or
Bylaws (or similar governing documents), (ii) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
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obligation to which Parent or any of its subsidiaries is now a party or by
which any of them or any of their respective properties or assets may be bound
or (iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Parent, its subsidiaries or any of their respective properties
or assets, except in the case of (ii) or (iii) for violations, breaches or
defaults that would not have a Material Adverse Effect on Parent. Each note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or any of its subsidiaries is now a
party or by which any of them or any of their respective properties or assets
may be bound that is material to Parent and its subsidiaries taken as a whole
and that has not expired is in full force and effect and is not subject to any
material default thereunder of which Parent is aware by any party obligated to
Parent or any subsidiary thereunder.
Section 3.8. No Undisclosed Liabilities; Absence of Changes. Except as and
to the extent publicly disclosed by Parent in the Parent SEC Reports, as of
December 31, 1995, none of Parent or its subsidiaries had any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
that would be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of Parent and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on Parent. Except as publicly disclosed by Parent, since
December 31, 1995, none of Parent or its subsidiaries has incurred any
liabilities of any nature, whether or not accrued, contingent or otherwise,
which could reasonably be expected to have, and there have been no events,
changes or effects with respect to Parent or its subsidiaries having or which
could reasonably be expected to have, a Material Adverse Effect on Parent.
Section 3.9. Litigation. Except as publicly disclosed by Parent in the
Parent SEC Reports, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent, threatened against
Parent or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect or could
reasonably be expected to prevent or delay the consummation of the
transactions contemplated by this Agreement. Except as publicly disclosed by
Parent in the Parent SEC Reports, none of Parent or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, could reasonably be expected to have
a Material Adverse Effect on Parent or could reasonably be expected to prevent
or delay the consummation of the transactions contemplated hereby.
Section 3.10. Compliance with Applicable Law. Except as publicly disclosed
by Parent in the Parent SEC Reports, Parent and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which would not have a
Material Adverse Effect on Parent. Except as publicly disclosed by Parent in
the Parent SEC Reports, Parent and its subsidiaries are in compliance with the
terms of the Parent Permits, except where the failure so to comply would not
have a Material Adverse Effect on Parent. Except as publicly disclosed by
Parent in the Parent SEC Reports, the businesses of Parent and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or
warranty is made in this Section 3.10 with respect to Environmental Laws and
except for violations or possible violations which do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, no investigation or review by any Governmental Entity with respect to
Parent or its subsidiaries is pending or, to the knowledge of Parent,
threatened, nor, to the knowledge of Parent, has any Governmental Entity
indicated an intention to conduct the same, other than, in each case, those
which Parent reasonably believes will not have a Material Adverse Effect on
Parent.
Section 3.11. Employee Benefit Plans; Labor Matters. With respect to each
employee benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of ERISA),
maintained or contributed to by Parent or any of its subsidiaries, or with
respect to which Parent or any of its subsidiaries could incur liability under
Section 4069, 4212(c) or 4204 of ERISA (the "Parent Benefit Plans"), no event
has occurred and, to the knowledge of Parent, there currently exists no
condition or set
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of circumstances, in connection with which Parent or any of its subsidiaries
could be subject to any liability under the terms of the Parent Benefit Plans,
ERISA, the Code or any other applicable law which would have a Material
Adverse Effect on Parent. There is no pending or threatened labor dispute,
strike or work stoppage against Parent or any of its subsidiaries which may
reasonably be expected to have a Material Adverse Effect on Parent.
Section 3.12. Environmental Laws and Regulations.
(a) Except as publicly disclosed by Parent in the Parent SEC Reports, (i)
each of Parent and its subsidiaries is in material compliance with all
Environmental Laws, except for non-compliance that would not have a Material
Adverse Effect on Parent, which compliance includes, but is not limited to,
the possession by Parent and its subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof; (ii) none of
Parent or its subsidiaries has received written notice of, or, to the
knowledge of Parent, is the subject of, any Environmental Claim that could
reasonably be expected to have a Material Adverse Effect on Parent; and (iii)
to the knowledge of Parent, there are no circumstances that are reasonably
likely to prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Parent, there are no Environmental
Claims which could reasonably be expected to have a Material Adverse Effect on
Parent that are pending or, to the knowledge of Parent, threatened against
Parent or any of its subsidiaries or, to the knowledge of Parent, against any
person or entity whose liability for any Environmental Claim Parent or its
subsidiaries has or may have retained or assumed either contractually or by
operation of law.
Section 3.13. Tax Matters. Parent and its subsidiaries have accurately
prepared and duly filed with the appropriate federal, state, local and foreign
taxing authorities all tax returns, information returns and reports required
to be filed with respect to Parent and its subsidiaries and have paid in full
or made adequate provision for the payment of all Taxes.
Section 3.14. Title to Property. Parent and each of its subsidiaries have
good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which, individually or in the aggregate,
would not have a Material Adverse Effect on Parent; and, to Parent's
knowledge, all leases pursuant to which Parent or any of its subsidiaries
lease from others real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of Parent, under any of such leases, any existing material default
or event of default (or event which with notice or lapse of time, or both,
would constitute a material default and in respect of which the Parent or such
subsidiary has not taken adequate steps to prevent such a default from
occurring) except where the lack of such good standing, validity and
effectiveness, or the existence of such default or event of default would not
have a Material Adverse Effect on Parent.
Section 3.15. Intellectual Property; Software.
(a) Each of Parent and its subsidiaries owns, or possesses adequate licenses
or other valid rights to use, all existing United States and foreign patents,
trademarks, trade names, services marks, copyrights, trade secrets, and
applications therefor that are material to its business as currently conducted
(the "Parent Intellectual Property Rights").
(b) The validity of the Parent Intellectual Property Rights and the title
thereto of Parent or any subsidiary, as the case may be, is not being
questioned in any litigation to which Parent or any subsidiary is a party.
(c) The conduct of the business of Parent and its subsidiaries as now
conducted does not, to Parent's knowledge, infringe any valid patents,
trademarks, tradenames, service marks or copyrights of others. The
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consummation of the transactions contemplated hereby will not result in the
loss or impairment of any Parent Intellectual Property Rights.
(d) Each of Parent and its subsidiaries considers its computer software as
trade secrets, and each has taken steps it believes appropriate to protect and
maintain the same as such.
Section 3.16. Insurance. Parent and its subsidiaries maintain general
liability and other business insurance that Parent believes to be reasonably
prudent for its business.
Section 3.17. Vote Required. The vote of the holders of Parent's capital
stock necessary to approve the issuance of the Parent Common Stock in the
Merger is, pursuant to the Rule 312 of the NYSE, the affirmative vote of the
holders of a majority of the outstanding shares of Parent Common Stock voted
on the proposal to so issue the Parent Common Stock, provided that the total
vote cast on such proposal represents over 50% in interest of the outstanding
Parent Common Stock. The vote of the holders of Parent's capital stock
necessary to approve the Merger is, pursuant to the NGCL, the affirmative vote
of the holders of a majority of the outstanding shares of Parent Common Stock.
The vote of the holders of Parent's capital stock necessary to approve the
Articles Amendment is, pursuant to the NGCL and Parent's Articles of
Incorporation and Bylaws, the affirmative vote of the holders of a majority of
the outstanding shares of Parent Common Stock. Parent, as the sole stockholder
of Acquisition, has approved and adopted this Agreement.
Section 3.18. Tax Treatment; Pooling. Neither Parent nor, to the knowledge
of Parent, any of its affiliates has taken or agreed to take any action that
would prevent the Merger (a) from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code or (b) from being treated
as a Pooling Transaction for financial accounting purposes.
Section 3.19. Affiliates. Except for the directors and executive officers of
Parent, there are no persons who, to the knowledge of Parent, may be deemed to
be affiliates of Parent under Rule 1-02 of Regulation S-X of the SEC ("Parent
Affiliates"). Concurrently with the execution and delivery of this Agreement,
Parent has delivered to the Company an executed letter agreement,
substantially in the form of Exhibit B hereto, from certain of the Parent
Affiliates, and will deliver to Parent, within ten days after the date of this
Agreement, an executed letter agreement, substantially in the form of Exhibit
B hereto, from all other Parent Affiliates.
Section 3.20. Certain Business Practices. None of Parent, any of its
subsidiaries or any directors, officers, agents or employees of Parent or any
of its subsidiaries has (i) used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the FCPA, or (iii) made any other unlawful payment.
Section 3.21. Insider Interests. No officer or director of the Parent has
any interest in any material property, real or personal, tangible or
intangible, including without limitation, any computer software or Parent
Intellectual Property Rights, used in or pertaining to the business of the
Parent or any subsidiary, except for the ordinary rights of a stockholder or
employee stock optionholder.
Section 3.22. Opinion of Financial Adviser. Goldman, Sachs & Co. (the
"Parent Financial Adviser") has delivered to the Board of Directors of Parent
its written opinion, dated as of the date of this Agreement, to the effect
that, as of such date, the exchange ratio contemplated by the Merger is fair
to the holders of shares of Parent Common Stock.
Section 3.23. Brokers. No broker, finder or investment banker (other than
the Parent Financial Adviser) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or
Acquisition.
Section 3.24 Disclosure. No representation or warranty of Parent in this
Agreement or any certificate, schedule, document or other instrument furnished
or to be furnished to the Company pursuant hereto or in
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connection herewith contains, as of the date of such representation, warranty
or instrument, or will contain any untrue statement of a material fact or, at
the date thereof, omits or will omit to state a material fact necessary to
make any statement herein or therein, in light of the circumstances under
which such statement is or will be made, not misleading.
Section 3.25. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in
any business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
ARTICLE 4
Covenants
Section 4.1. Conduct of Business of the Company. Except as contemplated by
this Agreement or as described in Section 4.1 of the Company Disclosure
Schedule, during the period from the date hereof to the Effective Time, the
Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort
than would be applied in the absence of this Agreement, seek to preserve
intact its current business organizations, keep available the service of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, except as otherwise expressly
provided in this Agreement or as described in Section 4.1 of the Company
Disclosure Schedule, prior to the Effective Time, neither the Company nor any
of its subsidiaries will, without the prior written consent of Parent or
Acquisition:
(a) amend its certificate of incorporation or Bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (except bank
loans) or equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for the issuance and sale of
Shares pursuant to options previously granted under the Company Plans;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities or any securities of any of subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or
any other fashion the corporate structure of ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person, except in the ordinary course of
business consistent with past practice and except for obligations of
subsidiaries of the Company incurred in the ordinary course of business;
(iii) make any loans, advances or capital contributions to, or investments
in, any other person (other than to subsidiaries of the Company or
customary loans or advances to employees, in each case in the ordinary
course of business consistent with past practice), (iv) pledge or otherwise
encumber shares of capital stock of the Company or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon (other than tax Liens
for taxes not yet due);
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(g) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee in any manner, or increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units); provided, however, that this
paragraph (g) shall not prevent the Company or its subsidiaries from (i)
entering into employment agreements or severance agreements with new
employees in the ordinary course of business and consistent with past
practice or (ii) increasing annual compensation and/or providing for or
amending bonus arrangements for employees for fiscal 1997 in the ordinary
course of year-end compensation reviews consistent with past practice and
paying bonuses to employees for fiscal 1996 in amounts previously disclosed
to Parent (to the extent that such compensation increases and new or
amended bonus arrangements do not result in a material increase in benefits
or compensation expense to the Company);
(h) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions having a fair market value in
excess of $5 million in the aggregate (other than in connection with
outsourcing agreements entered into with customers of the Company or its
subsidiaries);
(i) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(k)(i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein (other than in connection
with outsourcing agreements entered into with customers of the Company or
its subsidiaries); (ii) enter into any contract or agreement other than in
the ordinary course of business consistent with past practice which would
be material to the Company and its subsidiaries taken as a whole; (iii)
authorize any new capital expenditure or expenditures which, individually,
is in excess of $1,000,000 or, in the aggregate, are in excess of
$5,000,000; provided, that none of the foregoing shall limit any capital
expenditure required pursuant to existing customer contracts;
(l) make any tax election or settle or compromise any income tax
liability material to the Company and its subsidiary taken as a whole;
(m) settle or compromise any pending or threatened suit, action or claim
which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
the Company;
(n) commence any material software development project or terminate any
material software development project that is currently ongoing, in either
case, except pursuant to the terms of existing contracts with customers or
except as contemplated by the Company's project development budget
previously provided to Parent; or
(o) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(n) or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect.
Section 4.2. Conduct of Business of Parent. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time,
Parent will, and will cause each of its subsidiaries to, conduct their
operations in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort
than would be applied in the absence of this Agreement, seek to preserve
intact its current business organizations, keep available the service of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end
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that goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement, prior to the Effective Time, neither
Parent nor any of its subsidiaries will, without the prior written consent of
the Company:
(a) knowingly take any action that would result in a failure to maintain
the trading of the Parent Common Stock on the NYSE;
(b) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, except for dividends payable in Parent Common
Stock or dividends by a subsidiary of Parent to Parent or another
subsidiary of Parent;
(c) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or the assets of, or by any other manner,
any business or any corporation, partnership or other business organization
or division thereof, or otherwise acquire or agree to acquire any assets of
any other entity (other than the purchase of assets from suppliers, clients
or vendors in the ordinary course of business and consistent with past
practice), which, in each case, would materially prevent or delay for more
time than 30 days the consummation of the transactions contemplated by this
Agreement;
(d) adopt or propose to adopt any amendments to its charter documents,
which would have an adverse impact on the consummation of the transactions
contemplated by this Agreement;
(e) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other securities (except for bank loans and commercial
paper) or amend any of the terms of any such securities or agreements
outstanding on the date hereof or make any public announcement thereof;
provided, however, that (i) any subsidiary may issue securities to Parent
or any other subsidiary and (ii) Parent may (A) issue securities or make a
public announcement thereof having an aggregate market value of up to $150
million or (B) grant stock options to employees, officers or directors in
the ordinary course of business consistent with past practice and issue
securities upon the exercise of employee, officer or director stock
options;
(f) acquire, sell, lease or dispose of any assets that are material to
Parent and its subsidiaries taken as a whole, other than (i) in the
ordinary course of business, (ii) in connection with outsourcing agreements
entered into with customers of Parent or its subsidiaries, (iii) pursuant
to the terms of existing agreements with affiliates or partners of the
Company or (iv) in transactions that are only among Parent and any of its
subsidiaries; or
(g) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(f) or any action which would make
any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect.
Section 4.3. Preparation of S-4 and the Proxy Statement. Parent and the
Company shall promptly prepare and file with the SEC the Proxy Statement, and
Parent shall prepare and file with the SEC the S-4, in which the Proxy
Statement will be included as a prospectus. Each of Parent and the Company
shall use its best efforts to have the S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Parent shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock
in the Merger and upon the exercise of Company Stock Options, and the Company
shall furnish all information concerning the Company and the holders of Shares
as may be reasonably requested in connection with any such action.
Section 4.4. Other Potential Acquirers.
(a) The Company, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore
with respect to any Third Party Acquisition (as defined below). The Company
may, directly or indirectly, furnish
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information and access, in each case only in response to unsolicited requests
therefor, to any person or group pursuant to confidentiality agreements with
terms no less favorable to the Company than the Confidentiality Agreement
dated January 10, 1996 between the Company and Parent is with respect to
Parent, and may participate in discussions and negotiate with such entity or
group concerning any Third Party Acquisition, if (i) such entity or group has
submitted a Superior Proposal (as defined in paragraph (b) below) to the
Company Board relating to any such transaction and (ii) the Company Board by a
majority vote determines in its good faith judgment, after consultation with
and based upon the advice of Vinson & Elkins L.L.P. or other independent legal
counsel, that it is required to do so in order to comply with its fiduciary
duties; provided, however, that the Company shall not, in any event, be
entitled to terminate this Agreement as a result of the occurrence of the
events described in clauses (i) and (ii) of this sentence. The Company Board
shall provide a copy of any such written Superior Proposal and a summary of
any such oral Superior Proposal to Parent or Acquisition immediately after
receipt thereof and thereafter keep Parent and Acquisition promptly advised of
any development with respect thereto. Except as set forth above, neither the
Company nor any of its affiliates shall, nor shall the Company authorize or
permit any of its or their respective officers, directors, employees,
representatives or agents to, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any person or group (other than Parent and Acquisition, any
affiliate or associate of Parent and Acquisition or any designees of Parent
and Acquisition) concerning any Third Party Acquisition; provided, however,
that nothing herein shall prevent the Company Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender
offer.
(b) Except as set forth in this Section 4.4(b), the Company Board shall not
withdraw its recommendation of the transactions contemplated hereby or approve
or recommend, or cause the Company to enter into any agreement with respect
to, any Third Party Acquisition. Notwithstanding the foregoing, if the Company
Board by a majority vote determines in its good faith judgment, after
consultation with and based upon the advice of Vinson & Elkins L.L.P. or other
independent legal counsel, that it is required to do so in order to comply
with its fiduciary duties, the Company Board may withdraw its recommendation
of the transactions contemplated hereby or approve or recommend a Superior
Proposal, but in each case only (i) after providing reasonable written notice
to Parent (a "Notice of Superior Proposal") advising Parent that the Company
Board has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal and, (ii) if Parent does not, within seven business days of
Parent's receipt of the Notice of Superior Proposal, make an offer which the
Company Board by a majority vote determines in its good faith judgment (based
on the written advice of a financial adviser of nationally recognized
reputation) to be as favorable to the Company's shareholders as such Superior
Proposal; provided, however, that the Company shall not be entitled to enter
into any agreement with respect to a Superior Proposal unless and until this
Agreement is terminated by its terms pursuant to Section 6.1. For the purposes
of this Agreement, "Third Party Acquisition" means the occurrence of any of
the following events: (i) the acquisition of the Company by merger or
otherwise by any person (which includes a "person" as such term is defined in
Section 13(d)(3) of the Exchange Act) other than Parent, Acquisition or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
more than 30% of the total assets of the Company and its subsidiaries, taken
as a whole; (iii) the acquisition by a Third Party of 30% or more of the
outstanding Shares; (iv) the adoption by the Company of a plan of liquidation
or the declaration or payment of an extraordinary dividend; (v) the repurchase
by the Company or any of its subsidiaries of more than 20% of the outstanding
Shares; or (vi) the acquisition by the Company or any subsidiary, by merger,
purchase of stock or assets, joint venture or otherwise, of a direct or
indirect ownership interest or investment in any business whose annual
revenues, net income or assets is equal or greater than 40% of the annual
revenues, net income or assets of the Company and its subsidiaries taken as
whole. For purposes of this Agreement, a "Superior Proposal" means any bona
fide proposal to acquire, directly or indirectly, for consideration consisting
of cash and/or securities, more than 50% of the Shares then outstanding or all
or substantially all the assets of the Company and otherwise on terms which
the Company Board by a majority vote determines in its good faith judgment
(based on the written advice of a financial adviser of nationally recognized
reputation) to be more favorable to the Company's shareholders than the
Merger.
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Section 4.5. Comfort Letters.
(a) The Company shall use all reasonable efforts to cause Ernst & Young LLP
to deliver a letter dated as of the date of the Proxy Statement and the S-4,
and addressed to itself and Parent and their respective Boards of Directors,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for agreed upon procedures letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Proxy Statement and the S-4.
(b) Parent shall use all reasonable efforts to cause Deloitte & Touche LLP
to deliver a letter dated as of the date of the Proxy Statement and the S-4
and addressed to itself and the Company and their respective Boards of
Directors, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for agreed upon procedures letters delivered
by independent accountants in connection with registration statements and
proxy statements similar to the Proxy Statement and the S-4.
Section 4.6. Meetings of Stockholders. Each of Parent and the Company shall
take all action necessary, in accordance with the NGCL and the DGCL,
respectively, and its respective certificate of incorporation and bylaws, to
duly call, give notice of, convene and hold a meeting of its stockholders as
promptly as practicable, in the case of the Company, to consider and vote upon
the adoption and approval of this Agreement and the transactions contemplated
hereby, and, in the case of Parent, to vote upon the issuance of Parent Common
Stock pursuant to the Merger and the Articles Amendment. The stockholder votes
required for the adoption and approval of the transactions contemplated by
this Agreement shall be the vote required by the DGCL and its charter and
bylaws, in the case of the Company, and the NGCL and Rule 312 of the NYSE, in
the case of Parent, and the stockholder vote required for the approval of the
Articles Amendment shall be the vote required by the NGCL and Parent's
Articles of Incorporation and Bylaws. The Company and Acquisition and Parent
will, through their respective Boards of Directors, recommend to their
respective shareholders approval of such matters; provided, however, that,
subject to the provisions of Section 6.3, the Company Board may withdraw its
recommendation if (i) the Company receives a Superior Proposal and, (ii) after
complying with the provisions of Section 4.4(b), the Company Board by a
majority vote determines in its good faith judgment, after consultation with
and based upon the advice of Vinson & Elkins L.L.P. or other independent legal
counsel, that it is required, in order to comply with its fiduciary duties, to
recommend the Superior Proposal; and provided further, however, that the
Company shall not, in any event, be permitted to terminate this Agreement as a
result of the occurrence of the events described in clauses (i) and (ii) of
this sentence. The Company and Parent shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to
hold such meetings on the same day and as soon as practicable after the date
hereof.
Section 4.7. Stock Exchange Listing. Parent shall use all reasonable efforts
to cause the shares of Parent Common Stock to be issued in the Merger and the
shares of Parent Common Stock to be reserved for issuance upon exercise of
Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
Section 4.8. Access to Information.
(a) Between the date hereof and the Effective Time, the Company will give
Parent and its authorized representatives, and Parent will give the Company
and its authorized representatives, reasonable access to all employees,
plants, offices, warehouses and other facilities and to all books and records
of itself and its subsidiaries, will permit the other party to make such
inspections as such party may reasonably require and will cause its officers
and those of its subsidiaries to furnish the other party with such financial
and operating data and other information with respect to the business and
properties of itself and its subsidiaries as the other party may from time to
time reasonably request.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent, and Parent will furnish to the Company, within 25 business
days after the end of each calendar month (commencing with March 1996, and, in
the case of March 1996, within 90 days), an unaudited balance sheet of the
party furnishing such information as of the end of the such month and the
related statements of earnings, stockholders' equity (deficit)
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and, within 25 business days after the end of each calendar quarter (or, in
the case of the quarter ended March 31, within 90 days), cash flows for the
quarter then ended, each prepared in accordance with generally accepted
accounting principles in conformity with the practices consistently applied by
such party with respect to its monthly financial statements. All the foregoing
shall be in accordance with the books and records of the party furnishing such
information and shall fairly present its financial position (taking into
account the differences between the monthly and quarterly statements prepared
by such party in conformity with its past practices) as of the last day of the
period then ended.
(c) Each of the parties hereto will hold and will cause its consultants and
advisers to hold in confidence all documents and information furnished to it
in connection with the transactions contemplated by this Agreement pursuant to
the terms of (i) that certain Confidentiality Agreement entered into between
the Company and Parent dated January 10, 1996, (ii) that certain
Confidentiality Agreement entered into among the Company, Parent and HOGN
dated January 24, 1996, and (iii) that certain Confidentiality Agreement
entered into among the Company, Parent and HOGN dated February 20, 1996.
Section 4.9. Additional Agreements; Reasonable Efforts. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperating in the preparation and filing of the Proxy Statement and the
S-4, any filings that may be required under the HSR Act, and any amendments to
any thereof; (ii) obtaining consents of all third parties and Governmental
Entities necessary, proper or advisable for the consummation of the
transactions contemplated by this Agreement; (iii) contesting any legal
proceeding relating to the Merger and (iv) the execution of any additional
instruments necessary to consummate the transactions contemplated hereby.
Subject to the terms and conditions of this Agreement, Parent and Acquisition
agree to use all reasonable efforts to cause the Effective Time to occur as
soon as practicable after the shareholder votes with respect to the Merger. In
case at any time after the Effective Time any further action is necessary to
carry out the purposes of this Agreement, the proper officers and directors of
each party hereto shall take all such necessary action.
Section 4.10. Employee Benefits. Parent will provide the employees and
retirees of the Company and its subsidiaries for a period ending on the first
anniversary of the Effective Time with employee benefit plans (other than
stock option or other plans involving the potential issuance of securities of
the Company or Parent securities) which, in the aggregate, are not less
favorable than those currently provided by the Company and its subsidiaries,
as the case may be. Parent and the Company agree, and Parent will cause the
Surviving Corporation to agree, (i) that all obligations of the Company or any
subsidiary under any "change of control" or similar provisions relating to
employees contained in any existing contracts and all termination or severance
agreements with executive officers (subject to Section 1.11 hereof) will be
honored in accordance with their terms as of the date hereof and (ii) that the
ESPP of the Company will be amended to provide that the calendar semester for
employee participation under the ESPP ordinarily commencing on July 1, 1996
and ending on December 31, 1996 (the "July 1996 Semester") will, if the Merger
occurs, end on the Closing Date, and appropriate adjustments will be made to
the ESPP such that, immediately following the Effective Time, each of the
persons theretofore entitled to acquire Shares under the ESPP as of the end of
the July 1996 Semester will be entitled to acquire, on the same terms and
conditions as were applicable under the ESPP, the number of shares of Parent
Common Stock that such person would have been entitled to receive pursuant to
the Merger had such person acquired the Shares purchasable under the ESPP for
the July 1996 Semester immediately prior to the Effective Time.
Notwithstanding the foregoing, nothing contained herein shall be construed as
requiring Parent or the Surviving Corporation to continue any specific
employee benefit plans or to continue the employment of any specific person.
Section 4.11. Public Announcements. Parent, Acquisition and the Company, as
the case may be, will consult with one another before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation,
the Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required
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by applicable law or by obligations pursuant to any listing agreement with the
NYSE as determined by Parent, Acquisition or the Company, as the case may be.
Section 4.12. Indemnification. After the Effective Time, the Surviving
Corporation shall indemnify and hold harmless (and shall also advance expenses
as incurred to the fullest extent permitted under applicable law to) each
person who is now, or has been prior to the date hereof or who becomes prior
to the Effective Time, an officer or director of the Company or any of the
Company's subsidiaries (the "Indemnified Persons") against (i) all losses,
claims, damages, costs, expenses (including without limitation counsel fees
and expenses), settlement payments or liabilities arising out of or in
connection with any claim, demand, action, suit, proceeding or investigation
based in whole or in part on, or arising in whole or in part out of, the fact
that such person is or was an officer or director of the Company or any of the
Company subsidiaries, whether or not pertaining to any matter existing or
occurring at or prior to the Effective Time and whether or not asserted or
claimed prior to or at or after the Effective Time ("Indemnified Liabilities")
and (ii) all Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement, or the
transactions contemplated hereby, in each case to the fullest extent required
or permitted under applicable law or under the Surviving Corporation's
certificate of incorporation or bylaws. The parties hereto intend, to the
extent not prohibited by applicable law, that the indemnification provided for
in this Section 4.12 shall apply without limitation to negligent acts or
omissions by an Indemnified Person. Parent hereby guarantees the payment and
performance of the Surviving Corporation's obligations in this Section 4.12.
Each Indemnified Person is intended to be a third party beneficiary of this
Section 4.12 and may specifically enforce its terms. This Section 4.12 shall
not limit or otherwise adversely affect any rights any Indemnified Person may
have under any agreement with the Company or under the Company's Certificate
of Incorporation or Bylaws.
Section 4.13. Notification of Certain Matters. The Company shall give prompt
notice to Parent and Acquisition, and Parent and Acquisition shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any material failure of the Company, Parent or Acquisition, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 4.13 shall not cure such
breach or non-compliance or limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 4.14. Affiliates; Pooling; Tax Free Reorganization.
(a) The Company shall use all reasonable efforts to obtain from any Company
Affiliate who has not previously executed such letter agreement and from any
person who may be deemed to have become a Company Affiliate after the date of
this Agreement and on or prior to the Effective Time, a letter agreement
substantially in the form of Exhibit A hereto as soon as practicable.
(b) Parent shall use all reasonable efforts to obtain from any Parent
Affiliate who has not previously executed such letter agreement and from any
person who may be deemed to have become a Parent Affiliate after the date of
this Agreement and on or prior to the Effective Time, a letter agreement
substantially in the form of Exhibit B hereto as soon as practicable.
(c) Parent shall not be required to maintain the effectiveness of the S-4
for the purpose of resale of shares of Parent Common Stock by stockholders of
the Company who may be affiliates of the Company or Parent pursuant to Rule
145 under the Securities Act. However, Parent shall assume, by written
instrument delivered to DST on or before the Effective Time (and subject to
the conditions set forth in such written instrument), the Company's
registration obligations under Section 11 of the Agreement dated September 30,
1993, among the Company, Continuum Acquisition, Inc., and Vantage Computer
Systems, Inc. with respect to all shares of Parent Common Stock issued to DST
in the Merger.
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(d) Each party hereto shall use all reasonable efforts to cause the Merger
to be treated for financial accounting purposes as a Pooling Transaction, and
shall not take, and shall use all reasonable efforts to prevent any affiliate
of such party from taking, any actions which could prevent the Merger from
being treated for financial accounting purposes as a Pooling Transaction.
(e) The Company and Parent and Acquisition shall execute and deliver to
Vinson & Elkins L.L.P., counsel to the Company, certificates substantially in
the form attached hereto as Exhibits C-1 and C-2, respectively, at such time
or times as reasonably requested by such law firm in connection with its
delivery of an opinion with respect to the transactions contemplated hereby,
and the Company and Parent shall each provide a copy thereof to the other
parties hereto. Prior to the Effective Time, none of the Company, Parent or
Acquisition shall take or cause to be taken any action which would cause to be
untrue (or fail to take or cause not to be taken any action which would cause
to be untrue) any of the representations in Exhibits C-1 or C-2.
Section 4.15. Stockholder's Agreement. Parent has received an agreement from
DST (the "Stockholder's Agreement") whereby DST has agreed to vote all its
Shares in favor of the Merger.
ARTICLE 5
Conditions to Consummation of the Merger
Section 5.1. Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the shareholders of the Company, and the Articles Amendment and the
issuance of Parent Common Stock pursuant to the Merger shall have been
approved by the requisite vote of the shareholders of Parent;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received;
(d) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and Parent shall have received all state securities laws or "blue
sky" permits and authorizations necessary to issue shares of Parent Common
Stock in exchange for Shares in the Merger; and
(e)(i) the Company shall have received confirmation in writing from Ernst
& Young LLP that in accordance with generally accepted accounting
principles and applicable published rules and regulations of the SEC, the
Company is eligible to be a party to a merger accounted for as a Pooling
Transaction and that Ernst & Young LLP is not aware of any matters that
prohibit the use of pooling of interests accounting in connection with the
Merger, and such confirmation shall not have been withdrawn or modified in
any material respect, and (ii) Parent shall have received a written opinion
from its certified public accountants stating that the Merger will be
accounted for under generally accepted accounting principles as a Pooling
Transaction and such opinion shall not have been withdrawn or modified in
any material respect.
Section 5.2. Conditions to the Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) the representations of Parent and Acquisition contained in this
Agreement or in any other document delivered pursuant hereto shall be true
and correct (except to the extent that the breach thereof would not have a
Material Adverse Effect on Parent) at and as of the Effective Time with the
same effect as if made at
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and as of the Effective Time (except to the extent such representations
specifically related to an earlier date, in which case such representations
shall be true and correct as of such earlier date), and at the Closing
Parent and Acquisition shall have delivered to the Company a certificate to
that effect;
(b) each of the covenants and obligations of Parent and Acquisition to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing Parent and Acquisition shall
have delivered to the Company a certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Company
shareholders pursuant to this Agreement and such other shares required to
be reserved for issuance in connection with the Merger shall have been
authorized for listing on the NYSE upon official notice of issuance;
(d) the Company shall have received the opinion of Vinson & Elkins
L.L.P., counsel to the Company, to the effect that (i) the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code; (ii) each of Parent, Acquisition and
the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code; and (iii) no gain or loss for Federal income
tax purposes will be recognized by a shareholder of the Company as a result
of the Merger with respect to Shares converted solely into shares of Parent
Common Stock, and such opinion shall not have been withdrawn or modified in
any material respect;
(e) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument, except those
for which failure to obtain such consents and approvals would not, in the
reasonable opinion of the Company, individually or in the aggregate, have a
Material Adverse Effect on Parent; and
(f) there shall have been no events, changes or effects with respect to
Parent or its subsidiaries having or which could reasonably be expected to
have a Material Adverse Effect on Parent.
Section 5.3. Conditions to the Obligations of Parent and Acquisition. The
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations of the Company contained in this Agreement or in
any other document delivered pursuant hereto shall be true and correct
(except to the extent that the breach thereof would not have a Material
Adverse Effect on the Company) at and as of the Effective Time with the
same effect as if made at and as of the Effective Time (except to the
extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the Closing the Company shall have delivered to
Parent and Acquisition a certificate to that effect;
(b) each of the covenants and obligations of the Company to be performed
at or before the Effective Time pursuant to the terms of this Agreement
shall have been duly performed in all material respects at or before the
Effective Time and at the Closing the Company shall have delivered to
Parent and Acquisition a certificate to that effect;
(c) Parent shall have received from each affiliate of the Company
referred to in Sections 2.19 and 4.14 an executed copy of the letter
attached hereto as Exhibit A and shall have received from each affiliate of
Parent referred to in Sections 3.19 and 4.14 an executed copy of the letter
attached hereto as Exhibit B;
(d) the Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation pursuant to the Merger to any
obligation, right or interest of the Company or any subsidiary of the
Company under any loan or credit agreement, note, mortgage, indenture,
lease or other agreement or instrument, except for those for which failure
to obtain such consents and approvals would not, in the reasonable opinion
of Parent, individually or in the aggregate, have a Material Adverse Effect
on the Company; and
(e) there shall have been no events, changes or effects with respect to
the Company or its subsidiaries having or which could reasonably be
expected to have a Material Adverse Effect on the Company.
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ARTICLE 6
Termination; Amendment; Waiver
Section 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval and adoption of this Agreement by the Company's shareholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction in the United States or other United States
Governmental Entity shall have issued a final order, decree or ruling or
taken any other final action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action is or
shall have become nonappealable or (ii) the Merger has not been consummated
by December 31, 1996; provided that no party may terminate this Agreement
pursuant to this clause (ii) if such party's failure to fulfill any of its
obligations under this Agreement shall have been the reason that the
Effective Time shall not have occurred on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth
in this Agreement, or if any representation or warranty of Parent or
Acquisition shall have become untrue, in either case such that the
conditions set forth in Section 5.2(a) would be incapable of being
satisfied by December 31, 1996 (or as otherwise extended), (ii) there shall
have been a breach by Parent or Acquisition of any of their respective
covenants or agreements hereunder having a Material Adverse Effect on
Parent or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Acquisition, as the case may be,
has not cured such breach within twenty business days after notice by the
Company thereof, provided that the Company has not breached any of its
obligations hereunder, (iii) Parent shall have convened a meeting of its
shareholders to vote upon the Articles Amendment and the issuance of Parent
Common Stock in the Merger and shall have failed to obtain the requisite
vote of its shareholders for either such proposal or (iv) the Company shall
have convened a meeting of its shareholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its shareholders; or
(d) by Parent and Acquisition if (i) there shall have been a breach of
any representation or warranty on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue, in either case such that the conditions set forth in Section
5.3(a) would be incapable of being satisfied by December 31, 1996 (or as
otherwise extended), (ii) there shall have been a breach by the Company of
its covenants or agreements hereunder having a Material Adverse Effect on
the Company or materially adversely affecting (or materially delaying) the
consummation of the Merger, and the Company has not cured such breach
within twenty business days after notice by Parent or Acquisition thereof,
provided that neither Parent nor Acquisition has breached any of their
respective obligations hereunder, (iii) the Company Board shall have
recommended to the Company's shareholders a Superior Proposal, (iv) the
Company Board shall have withdrawn, modified or changed its approval or
recommendation of this Agreement or the Merger or shall have failed to
call, give notice of, convene or hold a shareholders' meeting to vote upon
the Merger, or shall have adopted any resolution to effect any of the
foregoing, (v) Parent shall have convened a meeting of its shareholders to
vote upon the Articles Amendment and the issuance of Parent Common Stock in
the Merger and shall have failed to obtain the requisite vote of its
shareholders for either such proposal or (vi) the Company shall have
convened a meeting of its shareholders to vote upon the Merger and shall
have failed to obtain the requisite vote of its shareholders.
Section 6.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 6.2 and Sections 4.8(c) and 6.3 hereof.
Nothing contained in this Section 6.2 shall relieve any party from liability
for any breach of this Agreement.
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<PAGE>
Section 6.3. Fees and Expenses.
(a) In the event that this Agreement shall be terminated pursuant to:
(i) Sections 6.1(d)(iii) or (iv);
(ii) Sections 6.1(d)(i) or (ii) and, within twelve months thereafter,
the Company enters into an agreement with respect to a Third Party
Acquisition, or a Third Party Acquisition occurs, involving any party
(or any affiliate thereof) (x) with whom the Company (or its agents)
had negotiations with a view to a Third Party Acquisition, (y) to whom
the Company (or its agents) furnished information with a view to a
Third Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, in the case of each
of clauses (x), (y) and (z) after the date hereof and prior to such
termination; or
(iii) Sections 6.1(c)(iv) or 6.1(d)(vi) and, at the time of the
Company shareholders' meeting at which the Company failed to obtain the
requisite vote, as applicable, there shall be outstanding an offer by a
Third Party to consummate, or there shall have been under consideration
by the Company or there shall have been publicly announced a plan or
proposal with respect to, a Third Party Acquisition;
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent
and Acquisition for such damages, the Company shall pay to Parent the amount
of $45 million as liquidated damages immediately upon such a termination. It
is specifically agreed that the amount to be paid pursuant to this Section
6.3(a) represents liquidated damages and not a penalty.
(b) Upon the termination of this Agreement pursuant to Sections 6.1(c)(iv)
or 6.1(d)(i), (ii), (iii), (iv) or (vi) (other than a termination requiring
the Company to pay liquidated damages as contemplated by Section 6.3(a)
hereof), the Company shall reimburse Parent, Acquisition and their affiliates
(not later than ten business days after submission of statements therefor) for
all actual documented out-of-pocket fees and expenses, not to exceed
$2,000,000, actually and reasonably incurred by any of them or on their behalf
in connection with the Merger and the consummation of all transactions
contemplated by this Agreement (including, without limitation, fees payable to
investment bankers, counsel to any of the foregoing, and accountants).
(c) Upon the termination of this Agreement pursuant to Sections 6.1(c)(i),
(ii) or (iii) or Section 6.1(d)(v), Parent shall reimburse the Company and its
affiliates (not later than ten business days after submission of statements
therefor) for all actual documented out-of-pocket fees and expenses, not to
exceed $2,000,000, actually and reasonably incurred by any of them or on their
behalf in connection with the Merger and the consummation of all transactions
contemplated by this Agreement (including, without limitation, fees payable to
investment bankers, counsel to any of the foregoing, and accountants).
(d) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
Section 6.4. Amendment. This Agreement may be amended by action taken by the
Company, Parent and Acquisition at any time before or after approval of the
Merger by the shareholders of the Company (if required by applicable law) but,
after any such approval, no amendment shall be made which requires the
approval of such shareholders under applicable law without such approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of the parties hereto.
Section 6.5. Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party contained herein or in
any document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions
contained herein. Any agreement on the part of any party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such
rights.
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<PAGE>
ARTICLE 7
Miscellaneous
Section 7.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 7.2. Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all other prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or otherwise;
provided, however, that Acquisition may assign any or all of its rights and
obligations under this Agreement to any subsidiary of Parent, but no such
assignment shall relieve Acquisition of its obligations hereunder if such
assignee does not perform such obligations.
Section 7.3. Validity. If any provision of this Agreement, or the
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be severable.
Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested), to each other party as follows:
if to Parent or Acquisition: Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
Attention: Hayward D. Fisk, Esq.
and W. Brinson Weeks
with a copy to: Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071
Attention: Ronald S. Beard, Esq.
if to the Company to: The Continuum Company, Inc.
9500 Arboretum Boulevard
Austin, Texas 78759-6399
Telecopy: (512) 338-7730
Attention: Jack Dennison, Esq.
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Telecopy: (713) 758-2346
Attention: C. Michael Harrington, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 7.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof.
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<PAGE>
Section 7.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 7.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 1.11, 4.10, 4.12 and
7.2, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 7.8. Certain Definitions. For the purposes of this Agreement, the
term:
(a) "affiliate" means (except as otherwise provided in Sections 2.19,
3.19 and 4.14) a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "business day" means any day other than a day on which the NYSE is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "knowledge" or "known" means, with respect to any matter in question,
if an executive officer of the Company or Parent, as the case may be, has
actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of the Company, Parent, the Surviving
Corporation or any other person, means any corporation, partnership,
limited liability company, association, trust, unincorporated association
or other legal entity of which the Company, Parent, the Surviving
Corporation or any such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the capital stock, the holders of which are
generally entitled to vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
Section 7.9. Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of the Company or Parent or any officer,
director, employee, agent, representative or investor of any party hereto.
Section 7.10. Specific Performance. The parties hereby acknowledge and agree
that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder; provided, however, that, if a party
hereto is entitled to receive any payment or reimbursement of expenses
pursuant to Sections 6.3(a), (b) or (c), it shall not be entitled to specific
performance to compel the consummation of the Merger.
Section 7.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
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In Witness Whereof, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
Computer Sciences Corporation
/s/ Van B. Honeycutt
By: _________________________________
Name: Van B. Honeycutt
Title: President and Chief Executive
Officer
The Continuum Company, Inc.
/s/ W. Michael Long
By: _________________________________
Name: W. Michael Long
Title: President and Chief Executive
Officer
Continental Acquisition, Inc.
/s/ Van B. Honeycutt
By: _________________________________
Name: Van B. Honeycutt
Title: President
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<PAGE>
EXHIBIT A
April , 1996
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
Dear Sirs:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of April 28, 1996 (together with any amendments thereto, the "Merger
Agreement"), among The Continuum Company, a Delaware corporation (the
"Company"), Computer Sciences Corporation, a Nevada corporation ("Parent"),
and Continental Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be
merged with and into the Company, with the Company continuing as the surviving
corporation (the "Merger"). This letter constitutes the undertakings of the
undersigned contemplated by the Merger Agreement.
I understand that I may be deemed to be an "affiliate" of the Company, as
such term is defined for purposes of Rule 145 ("Rule 145") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), and that the
transferability of the shares of common stock, par value $1.00 per share, of
Parent (the "Parent Shares") which I will receive upon the consummation of the
Merger in exchange for my shares of common stock of the Company (the "Company
Shares"), or upon exercise of certain options I hold to purchase shares of
common stock of the Company is restricted. Nothing herein shall be construed
as an admission that I am an affiliate.
I hereby represent, warrant and covenant to Parent that:
(a) I will not transfer, sell or otherwise dispose of any of the Parent
Shares except (i) pursuant to an effective registration statement under the
Securities Act, or (ii) as permitted by, and in accordance with, Rule 145,
if applicable, or another applicable exemption under the Securities Act;
and
(b) I will not (i) transfer, sell or otherwise dispose of any Company
Shares prior to the Effective Time (as defined in the Merger Agreement) or
(ii) sell or otherwise reduce my risk (within the meaning of the Securities
and Exchange Commission's Financial Reporting Release No. 1., "Codification
of Financial Reporting Policies," Section 201.01 [47 F.R. 21028] (May 17,
1982) with respect to any Parent Shares until after such time (the
"Delivery Time") as financial results reflecting at least 30 days of post-
merger combined operations of Parent and the Company have been published by
Parent, except as permitted by Staff Accounting Bulletin No. 76 issued by
the Securities and Exchange Commission; and
(c) I shall execute and deliver to Vinson & Elkins, L.L.P., counsel to
the Company, and to the Company a certificate in such form as and at such
time or times as may be reasonably requested by such law firm or the
Company, as the case may be, in connection with such law firm's delivery of
a tax opinion with respect to the transactions contemplated by the Merger
Agreement and shall provide a copy thereof to Parent.
I have not taken and will not take or agree to take any action that would
prevent the Merger from qualifying, or being accounted for, as a pooling-of-
interests.
I further understand that, in order to make more effective the provisions of
the foregoing paragraph, Parent may delay delivery to me of certificates in
respect of the Parent Shares until the Delivery Time.
I hereby acknowledge that, except as otherwise provided in the Merger
Agreement, Parent is under no obligation to register the sale, transfer,
pledge or other disposition of the Parent Shares or to take any other action
necessary for the purpose of making an exemption from registration available.
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I understand that Parent will issue stop transfer instructions to its
transfer agents with respect to the Parent Shares and that a restrictive
legend will be placed on the certificates delivered to me evidencing the
Parent Shares in substantially the following form:
"This certificate and the shares represented hereby have been issued
pursuant to a transaction governed by Rule 145 ("Rule 145") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and
may not be sold or otherwise disposed of unless registered under the
Securities Act pursuant to a Registration Statement in effect at the time
or unless the proposed sale or disposition can be made in compliance with
Rule 145 or without registration in reliance on another exemption
therefrom. Reference is made to that certain letter agreement, dated April
28, 1996, between the Holder and the Issuer, a copy of which is on file in
the principle office of the Issuer which contains further restrictions on
the transferability of this certificate and the shares represented hereby."
The term Parent Shares as used in this letter shall mean and include not
only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all
or any part of such Parent Shares.
I hereby acknowledge that the receipt of this letter by Parent is an
inducement and a condition to Parent's obligation to consummate the Merger
under the Merger Agreement and that I understand the requirements of this
letter and the limitations imposed upon the transfer, sale or other
disposition of the Company Shares and the Parent Shares.
Very truly yours,
[AFFILIATE]
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<PAGE>
EXHIBIT B
April , 1996
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
Dear Sirs:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of April 28, 1996 (together with any amendments thereto, the "Merger
Agreement"), among The Continuum Company, Inc., a Delaware corporation (the
"Company"), Computer Sciences Corporation, Inc., a Nevada corporation
("Parent"), and Continental Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub
will be merged with and into the Company, with the Company continuing as the
surviving corporation (the "Merger"). This letter constitutes the undertakings
of the undersigned contemplated by the Merger Agreement.
I hereby represent, warrant and covenant to the Parent that I will not sell
or otherwise reduce my risk (within the meaning of the Securities and Exchange
Commission's Financial Reporting Release No. 1., "Codification of Financial
Reporting Policies," Section 201.01 [47 F.R. 21028] (May 17, 1982) with
respect to any shares of common stock, par value $1.00 per share, of Parent
owned by me (the "Parent Shares") until after such time as financial results
reflecting at least 30 days of post-Merger combined operations of Parent and
the Company have been published by Parent, except as permitted by Staff
Accounting Bulletin No. 76 issued by the Securities and Exchange Commission.
I have not taken and will not take or agree to take any action that would
prevent the Merger from qualifying, or being accounted for, as a pooling-of-
interests.
I understand that Parent shall not be bound by any attempted sale of any
Parent Shares, and will issue stop transfer instructions to its transfer agent
with respect to the Parent Shares.
The term Parent Shares as used in this letter shall mean and include not
only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all
or any part of such Parent Shares.
I hereby acknowledge that the receipt of this letter by Parent is an
inducement and a condition to Parent's obligation to consummate the Merger
under the Merger Agreement and that I understand the requirements of this
letter and the limitations imposed upon the transfer, sale or other
disposition of Parent Shares.
Very truly yours,
Affiliate
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<PAGE>
EXHIBIT C-1
[FORM OF OFFICER'S CERTIFICATE REGARDING CERTAIN TAX MATTERS
TO BE EXECUTED BY THE COMPANY]
, 1996
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Gentlemen:
This letter is being delivered to you pursuant to Section 4.14 of the
Agreement and Plan of Merger (the "Agreement"), dated as of April 28, 1996,
among The Continuum Company, Inc., a Delaware corporation (the "Company"),
Computer Sciences Corporation, a Nevada corporation ("Parent"), and
Continental Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Acquisition Sub"). Unless otherwise indicated,
capitalized terms not defined herein have the meaning set forth in the
Agreement.
After due inquiry and investigation regarding the meaning of and factual
support for the following representations, the undersigned hereby certifies
and represents that, assuming the Merger were to occur on the date hereof, the
following facts are true:
1. Pursuant to the Merger, Acquisition Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Acquisition Sub. Specifically, the assets transferred to the Company
pursuant to the Merger will represent at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross assets held by Acquisition Sub
immediately prior to the Merger. In addition, at least ninety percent (90%)
of the fair market value of the net assets and at least seventy percent
(70%) of the fair market value of the gross assets held by the Company
immediately prior to the Merger will continue to be held by the Company
immediately after the Merger. For the purpose of determining the percentage
of the Company's and Acquisition Sub's net and gross assets held by the
Company immediately following the Merger, the following assets will be
treated as property held by Acquisition Sub or the Company, as the case may
be, immediately prior but not subsequent to the Merger: (i) assets used by
the Company or Acquisition Sub (other than assets transferred from Parent
to Acquisition Sub for such purpose) to pay expenses or liabilities
incurred in connection with the Merger and (ii) assets used to make
distributions, redemptions or other payments in respect of stock of the
Company (except for regular, normal distributions) or in respect of rights
to acquire such stock (including payments treated as such for tax purposes)
that are made in contemplation of the Merger or that are related thereto;
2. Other than in the ordinary course of business or pursuant to its
obligations under the Agreement, the Company has not disposed of any of its
assets (including any distribution of assets with respect to, or in
redemption of, stock) since commencement of negotiations with Parent
regarding the Merger;
3. The Company's principal reasons for participating in the Merger are
bona fide business purposes unrelated to taxes;
4. The Company has no outstanding warrants, options, convertible
securities or any other type of right to acquire the Company stock (or any
other equity interest in the Company) or to vote (or restrict or otherwise
control the vote of) shares of stock of the Company which, if exercised,
would affect Parent's acquisition and retention of Control of the Company;
5. In the Merger, shares of stock of the Company representing "Control"
of the Company will be exchanged solely for shares of voting stock of
Parent. For purposes of this paragraph, shares of the stock of Company
exchanged in the Merger for cash and other property (including, without
limitation, cash paid to shareholders of the Company in lieu of fractional
shares of Parent voting stock) will be treated as shares of
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stock of the Company outstanding on the date of the Merger but not
exchanged for shares of voting stock of Parent. As used in this letter,
"Control" shall consist of direct ownership of shares of stock possessing
at least eighty percent (80%) of the total combined voting power of shares
of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the
corporation. For purposes of determining Control, a person shall not be
considered to own shares of voting stock if rights to vote such shares (or
to restrict or otherwise control the voting of such shares) are held by a
third party (including a voting trust) other than an agent of such person;
6. The payment of cash in lieu of fractional shares of Parent stock is
solely for the purpose of avoiding the expense and inconvenience to Parent
of issuing fractional shares and does not represent separately bargained
for consideration. The total cash consideration that will be paid in the
Merger to the Company shareholders in lieu of fractional shares of Parent
stock will not exceed one (1) percent of the total consideration that will
be issued in the Merger to the Company shareholders in exchange for their
Shares;
7. The Company has no plan or intention to issue additional shares of
stock after the Merger, or take any other action, that would result in
Parent losing Control of the Company;
8. The Company has no plan or intention to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Acquisition Sub in
the Merger except for dispositions made in the ordinary course of business
or payment of expenses incurred by the Company pursuant to the Merger and
except for transfers described in both Section 368(a)(2)(C) of the Code and
Treasury Regulation Section 1.368-23(j)(4);
9. Following the Merger, the Company will continue its historic business
or use a significant portion of its historic business assets in a business;
10. In the Merger, Acquisition Sub will have no liabilities assumed by
the Company and will not transfer to the Company any assets subject to
liabilities, except to the extent incurred in connection with the
transactions contemplated by the Agreement;
11. The fair market value of the Company's assets will, at the Effective
Time of the Merger, exceed the aggregate liabilities of the Company plus
the amount of liabilities, if any, to which such assets are subject;
12. The Company is not an "investment company" within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code;
13. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code;
14. There is no plan or intention ("Plan") on the part of the
shareholders of the Company who own five percent or more of the Company
stock and, after due inquiry with its officers and directors, the Company
has no knowledge of, and believes that there does not exist, any Plan on
the part of the remaining shareholders of the Company to engage in a sale,
exchange, transfer, distribution (including, without limitation, a
distribution by a corporation to its stockholders), pledge, disposition or
any other transaction which results in a reduction in the risk of ownership
or a direct or indirect disposition (a "Sale") of shares of Parent stock
received in the Merger that would reduce ownership by shareholders of the
Company of Parent stock to a number of shares having a value as of the
effective time of the Merger of less than fifty percent (50%) of the
aggregate fair market value, immediately prior to the Merger, of all
outstanding shares of the Company stock. For purposes of this paragraph,
shares of the Company stock (i) with respect to which a shareholder of the
Company receives consideration in the Merger other than shares of Parent
stock (including, without limitation, cash received in lieu of fractional
shares of Parent stock) and/or (ii) with respect to which a Sale occurs
prior to and in contemplation of the Merger, shall be considered
outstanding shares of stock of the Company exchanged for shares of Parent
stock in the Merger and then disposed of pursuant to a Plan;
15. The fair market value of the shares of Parent stock received by each
shareholder of the Company will be approximately equal to the fair market
value of the shares of stock of the Company surrendered in
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exchange therefor and the aggregate consideration received by shareholders
of the Company in exchange for their shares of stock of the Company will be
approximately equal to the fair market value of all of the outstanding
shares of stock of the Company immediately prior to the Merger;
16. Acquisition Sub, Parent, the Company and the shareholders of the
Company will each pay separately its or their own expenses relating to the
Merger;
17. There is no intercorporate indebtedness existing between Parent and
the Company or between Acquisition Sub and the Company that was issued,
acquired, or will be settled at a discount as a result of the Merger;
18. The terms of the Agreement are the product of arm's length
negotiations;
19. None of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent stock received
by any shareholder-employees of the Company will be separate consideration
for, or allocable to, any employment agreement or any covenants not to
compete; and the compensation paid to any shareholder-employees of the
Company will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining to arm's length for similar
services;
20. To the best knowledge of the Company, during the past five (5) years,
none of the outstanding shares of capital stock of the Company, including
the right to acquire or vote any such shares, have directly or indirectly
been owned by Parent.;
21. Factual statements contained in the S-4 with respect to the Company
and its subsidiaries are true, correct and complete in all material
respects;
22. The Company is authorized to make all of the representations set
forth herein; and
23. The Agreement represents the full and complete agreement among
Parent, Acquisition Sub and the Company regarding the Merger, and there are
no other written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the representations
set forth herein and on the statements contained in the Agreement (including
all schedules and exhibits thereto) and documents related thereto, and (ii)
your opinions will be subject to certain limitations and qualifications
including that they may not be relied upon if any such representations are not
accurate in all material respects.
Notwithstanding anything herein to the contrary, the undersigned makes no
representations regarding any actions or conduct of the Company pursuant to
Parent's exercise of control over the Company after the Merger. It is
understood that your opinions will not address any tax consequence of the
Merger or any action taken in connection therewith except as expressly set
forth in such opinions.
Very truly yours,
The Continuum Company, Inc.
a Delaware corporation
By: _________________________________
Title: ______________________________
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<PAGE>
EXHIBIT C-2
[FORM OF OFFICER'S CERTIFICATE REGARDING CERTAIN TAX MATTERS
TO BE EXECUTED BY PARENT AND ACQUISITION SUB]
, 1996
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Gentlemen:
This letter is being delivered to you pursuant to Section 4.14 of the
Agreement and Plan of Merger (the "Agreement"), dated as of April 28, 1996,
among The Continuum Company, Inc., a Delaware corporation (the "Company"),
Computer Sciences Corporation, a Nevada corporation ("Parent"), and
Continental Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Acquisition Sub"). Unless otherwise indicated,
capitalized terms not defined herein have the meanings set forth in the
Agreement.
After due inquiry and investigation regarding the meaning of and factual
support for the following representations, the undersigned hereby certify and
represent that, assuming the Merger were to occur on the date hereof, the
following facts are true:
1. Pursuant to the Merger, Acquisition Sub will merge with and into the
Company, and the Company will acquire all of the assets and liabilities of
Acquisition Sub. Specifically, the assets transferred to the Company
pursuant to the Merger will represent at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross assets held by Acquisition Sub
immediately prior to the Merger. In addition, at least ninety percent (90%)
of the fair market value of the net assets and at least seventy percent
(70%) of the fair market value of the gross assets held by the Company
immediately prior to the Merger will continue to be held by the Company
immediately after the Merger. For the purpose of determining the percentage
of the Company's and Acquisition Sub's net and gross assets held by the
Company immediately following the Merger, the following assets will be
treated as property held by Acquisition Sub or the Company, as the case may
be, immediately prior but not subsequent to the Merger: (i) assets used by
the Company or Acquisition Sub (other than assets transferred from Parent
to Acquisition Sub for such purpose) to pay expenses or liabilities
incurred in connection with the Merger and (ii) assets used to make
distributions, redemptions or other payments in respect of stock of the
Company (except for regular, normal distributions) or in respect of rights
to acquire such stock (including payments treated as such for tax purposes)
that are made in contemplation of the Merger or that are related thereto;
2. Acquisition Sub was formed solely for the purpose of consummating the
transactions contemplated by the Agreement and at no time will Acquisition
Sub conduct any business activities or other operations, or dispose of any
of its assets, other than pursuant to its obligations under the Agreement;
3. Parent's principle reasons for participating in the Merger are bona
fide business purposes not related to taxes;
4. Prior to the Merger, Parent will be in "Control" of Acquisition Sub.
As used in this letter, "Control" shall consist of direct ownership of
shares of stock possessing at least eighty percent (80%) of the total
combined voting power of all classes of stock entitled to vote and at least
eighty percent (80%) of the total number of shares of all other classes of
stock of the corporation. For purposes of determining Control, a person
shall not be considered to own shares of voting stock if rights to vote
such shares (or to restrict or otherwise control the voting of such shares)
are held by a third party (including a voting trust) other than an agent of
such person;
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<PAGE>
5. In the Merger, shares of stock of the Company representing Control of
the Company will be exchanged solely for shares of voting stock of Parent.
For purposes of this paragraph, shares of stock of the Company exchanged in
the Merger for cash and other property (including, without limitation, cash
paid to shareholders of the Company in lieu of fractional shares of Parent
voting stock) will be treated as shares of stock of the Company outstanding
on the date of the Merger but not exchanged for shares of voting stock of
Parent;
6. The payment of cash in lieu of fractional shares of Parent stock is
solely for the purpose of avoiding the expense and inconvenience to Parent
of issuing fractional shares and does not represent separately bargained
for consideration. The total cash consideration that will be paid in the
Merger to the Company shareholders in lieu of fractional shares of Parent
stock will not exceed one (1) percent of the total consideration that will
be issued in the Merger to the Company shareholders in exchange for their
Shares;
7. Parent has no plan or intention to cause the Company to issue
additional shares of stock after the Merger, or take any other action, that
would result in Parent losing Control of the Company;
8. Parent has no plan or intention to reacquire any of its stock issued
pursuant to the Merger;
9. Parent has no plan or intention to liquidate the Company; to merge the
company with or into another corporation, including Parent or its
affiliates; to sell, distribute or otherwise dispose of the stock of the
Company; or to cause the Company to sell or otherwise dispose of any of its
assets or of any assets acquired from Acquisition Sub, except for
dispositions made in the ordinary course of business or payment of expenses
incurred by the Company pursuant to the Merger and except for transfers
described in both Section 368(a)(2)(C) of the Code and Treasury Regulation
Section 1.368-2(j)(4);
10. In the Merger, Acquisition Sub will have no liabilities assumed by
the Company and will not transfer to the Company any assets subject to
liabilities, except to the extent incurred in connection with the
transactions contemplated by the Agreement;
11. Following the Merger, the Company will continue its historic business
or use a significant portion of its historic business assets in a business;
12. During the past five (5) years, none of the outstanding shares of
capital stock of the Company, including the right to acquire or vote any
such shares, have directly or indirectly been owned by Parent;
13. Neither Parent nor Acquisition Sub is an "investment company" within
the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
14. The fair market value of the Parent stock received by each
stockholder of the Company will be approximately equal to the fair market
value of the stock of the Company surrendered in exchange therefor, and the
aggregate consideration received by shareholders of the Company in exchange
for their stock of the Company will be approximately equal to the fair
market value of all of the outstanding shares of stock of the Company
immediately prior to the Merger;
15. Acquisition Sub, Parent, the Company and the shareholders of the
Company will each pay separately its or their own expenses relating to the
Merger;
16. There is no intercorporate indebtedness existing between Parent and
the Company or between Acquisition Sub and the Company that was issued,
acquired or will be settled at a discount as a result of the Merger;
17. The terms of the Agreement are the product of arm's-length
negotiations;
18. None of the compensation received by any shareholder-employee of the
Company will be separate consideration for, or allocable to, any of their
shares of stock of the Company; none of the shares of Parent stock received
by any shareholder-employee of the Company will be separate consideration
for, or allocable to, any employment agreement or any covenants not to
compete; and the compensation paid to any shareholder-employee of the
Company will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services;
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<PAGE>
19. Factual statements contained in the S-4 with respect to Parent and
its subsidiaries are true, correct and complete in all material respects;
20. Parent and Acquisition Sub are authorized to make all of the
representations set forth herein; and
21. The Agreement represents the full and complete agreement among
Parent, Acquisition Sub and the Company regarding the Merger, and there are
no other written or oral agreements regarding the Merger.
It is understood that (i) your opinions will be based on the completeness
and accuracy of and compliance with, representations set forth herein and on
the statements contained in the Agreement (including all schedules and
exhibits thereto) and documents related thereto, and (ii) your opinions will
be subject to certain limitations and qualifications, including that they may
not be relied upon if any such representations are not accurate in all
material respect.
It is understood that your opinions will not address any tax consequences of
the Merger or any action taken in connection therewith except as expressly set
forth in such opinions.
Very truly yours,
Computer Sciences Corporation,
a Nevada corporation
By: _________________________________
Title: ______________________________
Continental Acquisition, Inc.,
a Delaware corporation
By: _________________________________
Title: ______________________________
A-49
<PAGE>
ANNEX B
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
- -------------------------
April 28, 1996
Board of Directors
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, CA 90245
Gentlemen:
You have requested our opinion as to the fairness to Computer Sciences
Corporation (the "Company") of the exchange ratio (the "Exchange Ratio") of
0.79 shares of common stock, par value $1.00 per share ("Company Common
Stock") of the Company to be exchanged by the Company for each share of common
stock, par value $.10 per share (the "Common Stock"), of The Continuum
Company, Inc. ("Continuum") pursuant to the Agreement and Plan of Merger dated
as of April 28, 1996 by and among the Company, Continental Acquisition, Inc.,
a wholly-owned subsidiary of the Company, and Continuum (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having provided certain investment
banking and financial advisory services to the Company from time to time,
including having acted as lead manager of the public offering of the Company's
Common Stock in January, 1995 and having acted as the Company's financial
advisor in connection with and having participated in certain of the
negotiations leading to the Agreement.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
Continuum and the Company for the five fiscal years ended March 31; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q for both
Continuum and the Company; certain other communications from Continuum and the
Company to their respective stockholders; and certain internal financial
analyses and forecasts for Continuum and the Company prepared by their
respective managements. We also have held discussions with members of the
senior management of Continuum and the Company regarding the past and current
business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Common Stock and the Company Common Stock, compared
certain financial and stock market information for Continuum and the Company
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the computer and information services industry specifically
and in other industries generally and performed such other studies and
analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of Continuum or the
Company or any of their subsidiaries and we have not been furnished with any
such evaluation or appraisal.
B-1
<PAGE>
Computer Sciences Corporation
April 28, 1996
Page Two
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the Company.
Very truly yours,
GOLDMAN, SACHS & CO.
B-2
<PAGE>
ANNEX C
OPINION OF LEHMAN BROTHERS INC.
April 28, 1996
Board of Directors
The Continuum Company, Inc.
9500 Arboretum Boulevard
Austin, TX 78759-6399
Members of the Board:
We understand that The Continuum Company, Inc. ("Continuum" or the
"Company") intends to merge with Continental Acquisition, Inc.
("Acquisition"), a wholly-owned subsidiary of Computer Sciences Corporation
("CSC"), whereby Continuum shall continue as the surviving corporation and
become a wholly-owned subsidiary of CSC (the "Proposed Merger"). In the
Proposed Merger, each outstanding share of Continuum stock will be exchanged
for 0.790 shares of CSC common stock (the "Exchange Ratio"). In addition, each
outstanding option to purchase Continuum common stock will be converted to an
option to purchase shares of CSC common stock based upon the Exchange Ratio.
The terms and conditions of the Proposed Merger are set forth in more detail
in the Agreement and Plan of Merger by and among Continuum, Acquisition and
CSC dated as of April 28, 1996 (the "Merger Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to
the Company's stockholders of the Exchange Ratio to be offered to such
stockholders in the Proposed Merger. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Proposed Merger, (2) the Agreement and
Plan of Merger dated as of December 10, 1995 by and among Hogan Systems, Inc.
("Hogan"), Continuum and Continuum Acquisition Corporation, a wholly-owned
subsidiary of Continuum, as amended by the First Amendment dated as of
February 7, 1996, (3) such publicly available information concerning the
Company, Hogan and CSC which we believe to be relevant to our inquiry, (4)
financial and operating information with respect to the business, operations
and prospects of the Company and Hogan furnished to us by the Company, (5)
financial and operating information with respect to the business, operations
and prospects of CSC furnished to us by CSC, (6) a trading history of the
Company's common stock and a comparison of that trading history with those of
other companies which we deemed relevant, (7) a trading history of CSC's
common stock and a comparison of that trading history with those of other
companies which we deemed relevant, (8) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies that we deemed relevant, (9) a comparison of the historical
financial results and present financial condition of CSC with those of other
companies that we deemed relevant, (10) a comparison of the financial terms of
the Proposed Merger with the financial terms of certain other recent
transactions that we deemed relevant, and (11) the potential pro forma
earnings per share impact of the Proposed Merger on CSC's earnings. In
addition, we have had discussions with the managements of the Company and CSC
concerning their respective businesses, operations, assets, financial
conditions and prospects and the strategic benefits expected to result from a
combination of the businesses of the Company and CSC, and undertook such other
studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of management of the Company that
they are not aware
C-1
<PAGE>
The Continuum Company, Inc.
April 28, 1996
Page Two
of any facts that would make such information inaccurate or misleading. With
respect to the financial forecasts of the Company, Hogan and CSC, upon advice
of the Company and CSC respectively, we have assumed that such forecasts have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company and CSC as to the
future financial performance of the Company, Hogan and CSC, as the case may
be, and that the Company, Hogan and CSC will perform substantially in
accordance with such forecasts. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the
Company, Hogan or CSC and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company, Hogan or CSC. In
addition, you have not authorized us to solicit, and we have not solicited,
any indications of interest from any third party with respect to the purchase
of all or a part of the Company's business. Upon advice of the Company and its
legal and accounting advisors, we have assumed that the merger will qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and therefore as a tax-free transaction to the
stockholders of the Company, and have further assumed that the merger will
qualify under pooling of interests accounting. Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of the Company in the Proposed Merger is fair to
such stockholders.
We have provided financial advisory services to the Company in connection
with the Proposed Merger and will receive a fee for our services, including a
fee in connection with the delivery of this opinion. In addition, the Company
has agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the equity securities of the Company and CSC for our own account and
for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Merger. This opinion is not intended to be and
does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Merger.
Very truly yours,
LEHMAN BROTHERS
C-2
<PAGE>
ANNEX D
FORM OF RESOLUTION TO BE ADOPTED
BY THE STOCKHOLDERS OF
COMPUTER SCIENCES CORPORATION
AT ITS ANNUAL MEETING
HELD ON JULY 31, 1996
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
RESOLVED, that, the first paragraph of Article FOURTH of the Corporation's
Restated Articles of Incorporation be, and it hereby is, amended to read in
its entirety as follows:
"FOURTH. The total number of shares of capital stock which may be issued
by the corporation is two hundred seventy-six million (276,000,000) shares,
of which two hundred seventy-five million (275,000,000) shares shall be
Common Stock of the par value of one dollar ($1.00) per share (hereinafter
referred to as the "Common Stock"), and one million (1,000,000) shares
shall be Preferred Stock of the par value of one dollar ($1.00) per share
(hereinafter referred to as the "Preferred Stock")."
D-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. A corporation may indemnify any such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person identified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the
case of an action by or in the right of the corporation, no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to
the extent that the court in which such action or suit was brought or another
court of competent jurisdiction shall determine that in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity therefor. Section 78.751 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
The Registrant's Restated Articles of Incorporation, as amended (the
"Charter"), provide that the Registrant shall, to the fullest extent permitted
by applicable law, indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding of the type described
above by reason of the fact that he or she is or was or has agreed to become a
director or officer of the Registrant, or is serving at the request of the
Registrant as director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, provided that with
respect to any action, suit or proceeding initiated by a director or officer,
the Registrant shall indemnify such director or officer only if the action,
suit or proceeding was authorized by the Registrant's Board of Directors or is
a suit for enforcement of rights to indemnification or advancement of expenses
in accordance with the procedure therefor prescribed in the Charter.
The Charter also provides that the expenses of directors and officers
incurred as a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, shall be
paid by the Registrant as they are incurred and in advance of the final
disposition of the action, suit or proceeding, provided that if applicable law
so requires, the advance payment of expenses shall be made only upon receipt
by the Registrant of an undertaking by or on behalf of the director or officer
to repay all amounts so advanced in the event it is ultimately determined by a
final decision, order or decree of a court of competent jurisdiction that the
director or officer is not entitled to be indemnified for such expenses under
the Charter.
The Registrant has entered into Indemnification Agreements with each of its
directors and officers pursuant to which it has indemnified them against
expenses incurred in connection with any claims made against them as a result
of any act, omission, neglect or breach of duty committed or suffered while
acting as a director or officer of the Registrant, or while serving at the
request of the Registrant as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
These Indemnification Agreements do not obligate the Registrant to make any
payment in connection with a claim against a director or officer to the extent
that: (a) payment is made under an insurance policy, (b) the director or
officer is otherwise indemnified, (c) the claim is based upon the director or
officer gaining any improper personal profit or advantage to which he or she
is not legally entitled, (d) the claim is for an accounting of profits made
from the purchase or sale by the director or officer of securities of the
Registrant within the meaning of Section 16(b) of the Securities Exchange
II-1
<PAGE>
Act of 1934 or (e) the claim is brought about or contributed to by the
dishonesty of the director or officer, but only if a judgment or other final
adjudication adverse to the director or officer establishes that he or she
committed acts of active and deliberate dishonesty, with actual dishonest
purpose and intent, which acts were material to the cause of action so
adjudicated. The Indemnification Agreements provide that the costs and
expenses incurred by directors and officers in defending or investigating any
action, suit, proceeding or investigation will be paid by the Registrant in
advance of the final disposition of the matter upon receipt of a written
undertaking by or on behalf of the director or officer to repay any such
amounts if it is ultimately determined that he or she is not entitled to
indemnification under the Indemnification Agreement. No such advance will be
made by the Registrant, however, if, within 60 days of a request for such an
advance, a determination is reasonably made by the Board of Directors or
independent legal counsel, based upon the facts known at the time, that it is
more likely than not it will ultimately be determined that the director or
officer is not entitled to indemnification under the Indemnification
Agreement.
The Registrant currently maintains an insurance policy which, within the
limits and subject to the terms and conditions thereof, covers certain
expenses and liabilities that may be incurred by directors and officers in
connection with or as a consequence of certain actions, suits or proceedings
that may be brought against them as a result of an act or omission committed
or suffered while acting as a director or officer of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of April 28, 1996 by and
among the Registrant, The Continuum Company, Inc. and
Continental Acquisition, Inc. (p)
3.1 Restated Articles of Incorporation (d)
3.2 Amendment to Restated Articles of Incorporation (l)
3.3 By-Laws, dated and effective January 31, 1993 (h)
5 Opinion of Gibson, Dunn & Crutcher LLP
8 Opinion of Vinson & Elkins L.L.P.
10.1 Annual Management Incentive Plan (a)
10.2 1978 Stock Option Plan (h)
10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan (h)
10.4 Amendment No. 3 to the 1978 Stock Option Plan (c)
10.5 1980 Stock Option Plan (h)
10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan (b)
10.7 Amendment No. 5 to the 1980 Stock Option Plan (c)
10.8 1984 Stock Option Plan (i)
10.9 Amendment No. 1 to the 1984 Stock Option Plan (b)
10.10 Amendment No. 2 to the 1984 Stock Option Plan (c)
10.11 1987 Stock Incentive Plan (c)
10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel (c)
10.13 1990 Stock Incentive Plan (j)
10.14 1992 Stock Incentive Plan (l)
10.15 Amendment No. 1 to the 1992 Stock Incentive Plan (h)
10.16 1995 Stock Incentive Plan (n)
10.17 Deferred Compensation Plan, amended and restated effective
February 9, 1996 (q)
10.18 Restated Supplemental Executive Retirement Plan, effective
August 14, 1995 (n)
10.19 Form of Indemnification Agreement for Directors (e)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.20 Form of Indemnification Agreement for Officers (h)
10.21 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (k)
10.22 $100 million Credit Agreement dated as of September 15, 1994 (h)
10.23 $150 million Credit Agreement dated as of September 15, 1994 (h)
10.24 $350 million Credit Agreement dated as of September 6, 1995 (n)
10.25 $100 million Credit Agreement dated as of January 3, 1995 (h)
10.26 Amended and Restated Rights Agreement, effective October 30,
1995 (n)
11 Calculation of Primary and Fully Diluted Earnings Per Share (q)
21 Significant Active Subsidiaries and Affiliates of the Registrant (q)
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5)
23.2 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Price Waterhouse LLP
23.6 Consent of Goldman, Sachs & Co.
23.7 Consent of Lehman Brothers Inc.*
24.1 Powers of Attorney*
</TABLE>
- --------
* Previously filed.
(a)-(h) These exhibits are incorporated herein by reference to the Company's
Form 10-K, for the fiscal years ended on the respective date indicated
below:
<TABLE>
<S> <C>
(a) March 30, 1984 (e) April 3, 1992
(b) April 3, 1987 (f) April 2, 1993
(c) April 1, 1988 (g) April 1, 1994
(d) March 31, 1989 (h) March 31, 1995
</TABLE>
(i) Incorporated herein by reference to the Company's Form S-8 filed on
August 17, 1984.
(j) Incorporated herein by reference to the Company's Form S-8 filed on
August 15, 1990.
(k) Incorporated herein by reference to the Company's Form 8-K filed on
November 4, 1991.
(l) Incorporated herein by reference to the Company's Proxy Statement for
its August 10, 1992 Annual Meeting of Stockholders.
(m) Incorporated herein by reference to the Company's Form S-8 filed on
August 12, 1992
(n) Incorporated herein by reference to the Company's Form 10-Q filed on
November 13, 1995.
(o) Incorporated herein by reference to the Form 11-K filed on February 6,
1996.
(p) Incorporated herein by reference to the Company's Form 8-K filed on May
2, 1996.
(q) Incorporated herein by reference to the Company's Form 10-K for the
fiscal year ended on March 29, 1996.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of El
Segundo, State of California, on this 25th day of June, 1996.
Computer Sciences Corporation
By: /s/ LEON J. LEVEL
-----------------------------------
Leon J. Level Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief
* Executive Officer June 25, 1996
- ------------------------------------- and Director
Van B. Honeycutt (Principal
Executive Officer)
Vice President,
* Chief Financial June 25, 1996
- ------------------------------------- Officer and
Leon J. Level Director (Principal
Financial Officer)
Vice President and
* Controller June 25, 1996
- ------------------------------------- (Principal
Denis M. Crane Accounting Officer)
Chairman of the
* Board June 25, 1996
- -------------------------------------
William R. Hoover
Director
* June 25, 1996
- -------------------------------------
Howard P. Allen
Director
* June 25, 1996
- -------------------------------------
Irving W. Bailey, II
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 25, 1996
- -------------------------------------
Richard C. Lawton
* Director June 25, 1996
- -------------------------------------
F. Warren McFarlan
* Director June 25, 1996
- -------------------------------------
James R. Mellor
* Director June 25, 1996
- -------------------------------------
Alvin E. Nashman
*By: /s/ HAYWARD D. FISK
---------------------------------
Hayward D. Fisk
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of April 28, 1996 by and
among the Registrant, The Continuum Company, Inc. and
Continental Acquisition, Inc. (p)
3.1 Restated Articles of Incorporation (d)
3.2 Amendment to Restated Articles of Incorporation (l)
3.3 By-Laws, dated and effective January 31, 1993 (h)
5 Opinion of Gibson, Dunn & Crutcher LLP
8 Opinion of Vinson & Elkins L.L.P.
10.1 Annual Management Incentive Plan (a)
10.2 1978 Stock Option Plan (h)
10.3 Amendment Nos. 1 and 2 to the 1978 Stock Option Plan (h)
10.4 Amendment No. 3 to the 1978 Stock Option Plan (c)
10.5 1980 Stock Option Plan (h)
10.6 Amendment Nos. 1, 2, 3 and 4 to the 1980 Stock Option Plan (b)
10.7 Amendment No. 5 to the 1980 Stock Option Plan (c)
10.8 1984 Stock Option Plan (i)
10.9 Amendment No. 1 to the 1984 Stock Option Plan (b)
10.10 Amendment No. 2 to the 1984 Stock Option Plan (c)
10.11 1987 Stock Incentive Plan (c)
10.12 Schedule to the 1987 Stock Incentive Plan for United Kingdom
personnel (c)
10.13 1990 Stock Incentive Plan (j)
10.14 1992 Stock Incentive Plan (l)
10.15 Amendment No. 1 to the 1992 Stock Incentive Plan (h)
10.16 1995 Stock Incentive Plan (n)
10.17 Deferred Compensation Plan, amended and restated effective
February 9, 1996 (q)
10.18 Restated Supplemental Executive Retirement Plan, effective
August 14, 1995 (n)
10.19 Form of Indemnification Agreement for Directors (e)
10.20 Form of Indemnification Agreement for Officers (h)
10.21 Information Technology Services Agreements with General Dynamics
Corporation, dated as of November 4, 1991 (k)
10.22 $100 million Credit Agreement dated as of September 15, 1994 (h)
10.23 $150 million Credit Agreement dated as of September 15, 1994 (h)
10.24 $350 million Credit Agreement dated as of September 6, 1995 (n)
10.25 $100 million Credit Agreement dated as of January 3, 1995 (h)
10.26 Amended and Restated Rights Agreement, effective October 30,
1995 (n)
11 Calculation of Primary and Fully Diluted Earnings Per Share (q)
21 Significant Active Subsidiaries and Affiliates of the Registrant (q)
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5)
23.2 Consent of Vinson & Elkins L.L.P. (included in Exhibit 8)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Price Waterhouse LLP
23.6 Consent of Goldman, Sachs & Co.
23.7 Consent of Lehman Brothers Inc.*
24.1 Powers of Attorney*
</TABLE>
<PAGE>
Notes to Exhibit Index:
* Previously filed.
(a)-(h) These exhibits are incorporated herein by reference to the Company's
Form 10-K, for the fiscal years ended on the respective date indicated
below:
<TABLE>
<S> <C>
(a) March 30, 1984 (e) April 3, 1992
(b) April 3, 1987 (f) April 2, 1993
(c) April 1, 1988 (g) April 1, 1994
(d) March 31, 1989 (h) March 31, 1995
</TABLE>
(i) Incorporated herein by reference to the Company's Form S-8 filed on
August 17, 1984.
(j) Incorporated herein by reference to the Company's Form S-8 filed on
August 15, 1990.
(k) Incorporated herein by reference to the Company's Form 8-K filed on
November 4, 1991.
(l) Incorporated herein by reference to the Company's Proxy Statement for
its August 10, 1992 Annual Meeting of Stockholders.
(m) Incorporated herein by reference to the Company's Form S-8 filed on
August 12, 1992.
(n) Incorporated herein by reference to the Company's Form 10-Q filed on
November 13, 1995.
(o) Incorporated herein by reference to the Form 11-K filed on February 6,
1996.
(p) Incorporated herein by reference to the Company's Form 8-K filed on May
2, 1996.
(q) Incorporated herein by reference to the Company's Form 10-K for the
fiscal year ended on March 29, 1996.
<PAGE>
EXHIBIT 5
June 24, 1996
(213) 229-7000 C 16084-00093
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, California 90245
Re: Computer Sciences Corporation--Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel for Computer Sciences Corporation, a Nevada
corporation (the "Company"), in connection with the registration by the
Company on the Form S-4 Registration Statement (File No. 333-05649) filed with
the Securities and Exchange Commission on June 10, 1996, as amended and re-
filed as of the date hereof (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), of up to 20,748,963 shares of
the Company's common stock, $1.00 par value per share (the "Common Stock"),
and the Preferred Stock Purchase Rights attached to such shares of Common
Stock (collectively, the "Shares"). The Shares are being issued to the
stockholders of The Continuum Company, Inc., a Delaware corporation
("Continuum"), by the Company in connection with the merger of a wholly owned
subsidiary of the Company with and into Continuum (the "Merger") pursuant to
an Agreement and Plan of Merger dated as of April 28, 1996 by and among the
Company, Continental Acquisition, Inc. and Continuum (the "Merger Agreement").
Consummation of the Merger is conditioned upon, among other things, the
receipt of the requisite vote of shareholders of the Company approving the
issuance of the Shares in the Merger and an amendment to the Company's
Restated Articles of Incorporation increasing the number of authorized shares
of Common Stock.
We are familiar with the corporate actions taken and to be taken by the
Company in connection with the Merger and the authorization and issuance of
the Shares and have made such other legal and factual inquiries as we deem
necessary for the purpose of rendering this opinion.
<PAGE>
Based on the foregoing and in reliance thereon, and subject to the
effectiveness of the Registration Statement under the Act, we are of the
opinion that, (i) upon satisfaction of the conditions to closing contained in
the Merger Agreement, including the receipt of the requisite shareholder
approvals, the Shares will have been duly authorized for issuance, and (ii) the
Shares, when issued in accordance with the terms of the Merger Agreement, will
be validly issued, fully paid and nonassessable.
The Company is incorporated under the laws of the State of Nevada. We are not
admitted to practice in Nevada. However, we are generally familiar with the
Nevada General Corporation Law and have made such review thereof as we consider
necessary for the purpose of rendering this opinion. Subject to the foregoing,
this opinion is limited to Nevada, California and federal law.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" contained in the prospectus that forms a part of the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Act or the General Rules and Regulations of the Commission.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
Gibson, Dunn & Crutcher LLP
PFZ/BPW/DMM
<PAGE>
EXHIBIT 8
VINSON & ELKINS L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
June 24, 1996
The Continuum Company, Inc.
9500 Arboretum Boulevard
Austin, Texas 78759
Gentlemen:
We participated in the preparation of the Joint Proxy Statement/Prospectus
("Prospectus") contained in the Registration Statement on Form S-4 (Registration
No. 333-05649) filed by Computer Sciences Corporation ("CSC") with the
Securities and Exchange Commission (the "Registration Statement"), including the
discussion set forth in the Prospectus under the heading "The Merger--Certain
Federal Income Tax Consequences" (the "Discussion"). We confirm our opinion set
forth in the Discussion. Furthermore, in our opinion the Discussion, insofar as
it relates to matters of law and legal conclusions, is accurate in all material
respects.
As set forth in the Discussion, our opinion is based and conditioned upon
current law, the information contained in the Prospectus, and certain
representations as to factual matters to be made to us by The Continuum Company
("Continuum"), CSC and its wholly-owned subsidiary, Continental Acquisition,
Inc. ("Sub"), and DST Systems, Inc., the largest stockholder of Continuum
("DST"). Such representations of Continuum, on the one hand, and CSC and Sub,
on the other, will be made in the respective forms included in the Prospectus as
Exhibits C-1 and C-2 to the Merger Agreement (as defined in the Prospectus).
DST's representations will be made to us by an officer's certificate in the form
attached as Exhibit A hereto and made a part hereof. Any inaccuracy or change
with respect to such information or representations, or any past or future
actions by Continuum, CSC, Sub or DST contrary to such representations, could
adversely affect the conclusions reached in the Discussion. Our opinion is not
binding on the Internal Revenue Service or the courts.
We hereby consent to the use of our name in the Prospectus and to the
filing of this opinion letter as part of the Registration Statement. This
consent does not constitute an admission that we are "experts" within the
meaning of such term as used in the Securities Act of 1933, as amended.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
--------------------------
VINSON & ELKINS L.L.P.
<PAGE>
EXHIBIT A
TO
EXHIBIT 8
DST SYSTEMS, INC.
1055 Broadway
Kansas City, Missouri 64105
June 30, 1996
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Gentlemen:
This letter is being delivered to you in connection with your delivery of
a tax opinion with respect to the Merger contemplated by the Agreement and Plan
of Merger (the "Agreement"), dated as of April 28, 1996, among The Continuum
Company, Inc., a Delaware corporation (the "Company"), Computer Sciences
Corporation, a Nevada corporation ("Parent"), and Continental Acquisition, Inc.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Acquisition
Sub"). Unless otherwise indicated, capitalized terms not defined herein have the
meaning set forth in the Agreement.
After due inquiry and investigation regarding the meaning of and factual
support for the following representations, the undersigned hereby certifies and
represents that, assuming the Merger were to occur on the date hereof, the
following facts are true:
At the date hereof, there is no plan or intention on the part of DST
Systems, Inc. to engage in a sale, exchange, transfer, distribution
(including, without limitation, a distribution to its stockholders),
disposition or any other transaction which results in a direct or indirect
disposition of any of the shares of Parent stock received in the Merger.
Very truly yours,
DST Systems, Inc.
By:__________________
Title:_______________
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of Computer Sciences Corporation on Form S-4 of our
report dated May 24, 1996, appearing in the Annual Report on Form 10-K of
Computer Sciences Corporation for the year ended March 29, 1996, and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Amendment No. 1 to the Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 24, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to Registration Statement (Form S-4) and related Joint Proxy
Statement of Computer Sciences Corporation for the registration of shares of
its common stock to be issued in connection with the merger with The Continuum
Company, Inc. and to the incorporation by reference therein of our report
dated May 1, 1996, with respect to the financial statements of The Continuum
Company, Inc. included in its Annual Report (Form 10-K) for the year ended
March 31, 1996, as amended, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Austin, Texas
June 24, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Computer
Sciences Corporation of our report dated April 21, 1995, relating to the
financial statements of Hogan Systems, Inc. at March 31, 1995 and 1994 and for
each of the three years in the period ended March 31, 1995, appearing in The
Continuum Company, Inc. Annual Report on Form 10-K, as amended, for the year
ended March 31, 1996. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
June 24, 1996
<PAGE>
EXHIBIT 23.6
PERSONAL AND CONFIDENTIAL
- -------------------------
June 24, 1996
Board of Directors
Computer Sciences Corporation
2100 East Grand Avenue
El Segundo, CA 90245
Re: Registration Statement (File No. 333-05649) of Computer Sciences
Corporation
Gentlemen:
Reference is made to our opinion letter dated April 28, 1996, with respect to
the fairness to Computer Sciences Corporation (the "Company") of the exchange
ratio of 0.79 shares of common stock, par value $1.00 per share, of the
Company to be exchanged by the Company for each share of common stock, par
value $0.10 per share, of The Continuum Company, Inc. ("Continuum") pursuant
to the Agreement and Plan of Merger dated as of April 28, 1996 by and among
the Company, Continental Acquisition, Inc., a wholly owned subsidiary of the
Company, and Continuum.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement. We are providing such
consent in order to comply with requirements under the federal securities
laws. In providing such consent, except as may be required by the federal
securities laws, we do not intend that any person other than the Board of
Directors rely upon such opinion.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "Summary-- Opinions of the Financial Advisors" and "The
Merger--Background of the Merger," "--Reasons for the Merger; Recommendation
of the Board of Directors of CSC," and "--Opinion of CSC's Financial Advisor"
and to the inclusion of the foregoing opinion in the Joint Proxy Statement
included in the above-mentioned Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
GOLDMAN, SACHS & CO.
