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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
LOTUS DEVELOPMENT CORPORATION
(Name of Subject Company)
LOTUS DEVELOPMENT CORPORATION
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
545700106
(CUSIP Number of Class of Securities)
JIM P. MANZI
CHAIRMAN OF THE BOARD,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
LOTUS DEVELOPMENT CORPORATION
55 CAMBRIDGE PARKWAY
CAMBRIDGE, MASSACHUSETTS 02142
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
COPIES TO:
KENNETH S. SIEGEL BARRY A. BRYER
BAKER & BOTTS, L.L.P. WACHTELL, LIPTON, ROSEN & KATZ
885 THIRD AVENUE 51 WEST 52ND STREET
NEW YORK, NEW YORK 10022-4834 NEW YORK, NEW YORK 10019-6150
(212) 705-5000 (212) 403-1000
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THIS SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 COMPLETES,
CORRECTS AND SUPERSEDES AN UNAUTHORIZED PRIOR VERSION WHICH WAS FILED
ELECTRONICALLY AT 2:16 P.M. ON JUNE 12, 1995. SUCH PRIOR VERSION WAS NOT
AUTHORIZED FOR FILING BY THE COMPANY AND SHOULD NOT BE RELIED UPON FOR ANY
PURPOSE WHATSOEVER.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Lotus Development Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 55 Cambridge Parkway, Cambridge, Massachusetts 02142. The
title of the class of equity securities to which this statement relates is the
Company's Common Stock, par value $.01 per share (the "Common Stock"). Unless
the context otherwise requires, as used herein the term "Shares" shall mean
shares of the Common Stock and the associated preferred share purchase rights
(the "Rights") issued pursuant to the Rights Agreement dated as of November 7,
1988, as amended (the "Rights Agreement"), between the Company and The First
National Bank of Boston, as Rights Agent.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1 dated June 6, 1995 (as amended or
supplemented, the "Schedule 14D-1"), filed by White Acquisition Corp., a New
York corporation (the "Purchaser"), which is a wholly owned subsidiary of
International Business Machines Corporation, a New York corporation ("IBM"),
with the Securities and Exchange Commission (the "Commission"), relating to an
offer by the Purchaser to purchase all the issued and outstanding Shares at a
price of $64 per Share, net to the seller in cash, without interest thereon
(the "Offer Price"), upon the terms and subject to the conditions set forth in
the Purchaser's Offer to Purchase dated June 6, 1995, as amended and
supplemented by the Supplement to the Offer to Purchase dated June 13, 1995,
as amended or supplemented, and the related Letter of Transmittal (which
together constitute the "Offer Documents"). The Offer Documents indicate that
the principal executive offices of the Purchaser and IBM are located at Old
Orchard Road, Armonk, New York 10504.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of June 11, 1995 (the "Merger Agreement"), among the Company, IBM and the
Purchaser. A copy of the Merger Agreement is filed as Exhibit 1 to this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9")
and is incorporated herein by reference in its entirety. Pursuant to the Merger
Agreement, as soon as practicable following the consummation of the Offer and
the satisfaction or waiver of certain conditions, the Purchaser will be merged
with and into the Company (the "Merger"), with the Company continuing as the
surviving corporation (the "Surviving Corporation"). In the Merger, each Share
outstanding at the Effective Time (as defined below) (other than Shares held in
the treasury of the Company, Shares owned by IBM, the Purchaser or any other
subsidiary of IBM or of the Company or shares held by stockholders who properly
exercise their dissenters' rights under the Delaware General Corporation Law
("Delaware Law")) will, by virtue of the Merger and without any action by the
holder thereof, be converted into the right to receive $64 per Share, net to
the Seller in cash, without interest thereon (the "Merger Consideration"), upon
the surrender of the certificate formerly representing such Share
("Certificate"). The Merger Agreement is summarized in Item 3 of this Schedule
14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above. Unless the context otherwise
requires, references to the Company in this Schedule 14D-9 are to the Company
and its direct and indirect subsidiaries, viewed as a single entity.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Proxy Statement dated March 20,
1995, relating to its May 2, 1995 Annual Meeting of Shareholders (the "Proxy
Statement"), under the headings "Principal Holders of Voting
Securities--Security Ownership of Directors and Executive Officers" and
"Executive Compensation and Other Information Concerning
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Directors and Executive Officers". A copy of such portions of the Proxy
Statement has been filed as Exhibit 2 to this Schedule 14D-9 and is incorporated
herein by reference.
The amendment to the Company's 1992 Stock Option Plan (the "1992 Plan")
described in the Proxy Statement, which increased the authorized number of
shares of Common Stock that may be offered under the plan from 6,000,000 to
12,000,000 shares, was approved by the shareholders of the Company at the
annual meeting held on May 2, 1995.
On May 2, 1995, the Board of Directors of the Company voted to terminate
the Lotus Development Corporation Pension Plan (the "Pension Plan") effective
July 15, 1995 or such later date as is practical and consistent with applicable
legal requirements. The Pension Plan, which is described in Exhibit 2 to this
Schedule 14D-9, had been suspended since June 1, 1992. All benefits accrued
under the Pension Plan through May 31, 1992, have been fully vested, and no
further benefits have accrued to employees thereunder after that date.
Effective May 9, 1995, the Company entered into a Consulting Agreement dated
May 9, 1995 (as amended and restated, the "Consulting Agreement") with Richard
S. Braddock, a member of the Company's Board of Directors, pursuant to which Mr.
Braddock agreed to assist the Company's senior management in a major effort to
reorganize the Company into separate business units and in related restructuring
and cost reduction activities. Under the terms of the Consulting Agreement, Mr.
Braddock would not receive cash compensation under most circumstances, but would
instead receive stock options so that his remuneration would be tied to an
increase in stockholder value. Mr. Braddock agreed to devote at least 50% of his
professional time and effort on a monthly basis to the benefit of the Company
through December 31, 1995, and up to 10% of his professional time on such
matters thereafter (the "Service Requirement"). Pursuant to the Consulting
Agreement, Mr. Braddock was granted options to purchase up to 130,000 Shares
(the "Braddock Option") at a purchase price of $31.75 per Share (the fair market
value of the Common Stock on May 9, 1995), subject to the terms of an Option
Agreement dated May 9, 1995 (the "Braddock Option Agreement") and to the further
terms of the 1992 . A copy of the Consulting Agreement has been filed as Exhibit
3 to this Schedule 14D-9 and is incorporated herein by reference in its
entirety.
Under the terms of the Braddock Option Agreement, the Braddock Option would
become exercisable for up to approximately 90,500 Shares on November 10, 1995 if
the Service Requirement was satisfied and for up to an additional 39,500 Shares
in approximately 10,000 Share increments if the Service Requirement continued to
be satisfied through March 1, 1996.
The Braddock Option was subject to acceleration of exercise at the
discretion of the Stock Option Committee of the Company's Board of Directors on
the same basis as other options granted under the 1992 Plan, but would terminate
if a "Change in Control" (as defined in the Consulting Agreement) occurred prior
to November 9, 1995. The Offer and the Merger would constitute a Change in
Control under the Consulting Agreement. Under the terms of the Consulting
Agreement, upon a Change in Control Mr. Braddock agreed to devote at least 50%
of his professional time to assisting the chief executive officer of the Company
in coordinating the transition issues associated with the Change in Control
through December 31, 1995 and up to 10% of his professional time to such matters
through the twenty-fourth month after the Change in Control. For his consulting
services after a Change in Control (and in lieu of the stock-based compensation
described above), Mr. Braddock will be entitled to receive up to $2,925,000 over
a period of up to twenty-four months.
The Consulting Agreement also includes provisions under which Mr. Braddock
will receive payments sufficient to compensate him for any excise taxes imposed
pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (as well as any related interest or penalties) on any payments made
pursuant to the Consulting Agreement or the Braddock Option Agreement.
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INDEMNIFICATION
The Company has previously entered into indemnification agreements with each
person who as of June 11, 1995 was a director of the Company. The
indemnification agreements generally provide (i) for indemnification against all
costs and expenses (including attorneys' fees) actually and reasonably incurred
in connection with the investigation, defense or appeal of any threatened,
pending or completed action, suit or proceeding related to the fact that such
indemnitee is or was serving the Company or any affiliate of the Company as a
director, officer, employee, agent or fiduciary, or by reason of anything done
or not done by such indemnitee in any such capacity and any and all judgments,
fines, penalties and amounts paid in settlement of any claim, unless it is
determined that such indemnification is not permitted under applicable law or
as a result of certain culpable action by such indemnitee and (ii) for the
prompt advancement of expenses to an indemnitee as well as the reimbursement
by such indemnitee of any such advances to the Company if it is determined
that the indemnitee is not entitled to such indemnification. Indemnitees'
rights under the indemnification agreements are not exclusive of any other
rights they may have under Delaware law, the Company's By-Laws or otherwise. A
copy of the form of indemnification agreement has been filed as Exhibit 4 to
this Schedule 14D-9 and is incorporated herein by reference in its entirety.
Article Ninth of the Second Restated Certificate of Incorporation of the
Company, as amended, limits the personal liability of directors of the Company
and provides for indemnification of the officers and directors of the Company,
in each case to the full extent permitted by the Delaware Law and other
applicable law. A copy of such Article Ninth has been filed as Exhibit 5 to
this Schedule 14D-9 and is incorporated herein by reference in its entirety.
Article VII of the By-Laws of the Company also provides for indemnification of
officers and directors of the Company, except in the case of any "Culpable
Action", as defined therein. A copy of such Article VII has been filed as
Exhibit 6 to this Schedule 14D-9 and is incorporated herein by reference in
its entirety.
PRIOR RELATIONSHIP WITH IBM
The Company has entered into agreements from time to time in the ordinary
course of business with IBM and certain of its subsidiaries, none of which the
Company believes to be material to this transaction. See "Item 4, The
Solicitation or Recommendation--(b) Background of the Offer; Reasons for the
Recommendation--Background" for a description of such agreements.
MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit 1 to
this Schedule 14D-9. The Merger Agreement should be read in its entirety for a
more complete description of the matters summarized below.
The Offer. In the Merger Agreement, the Purchaser has agreed, subject to
certain conditions, among other things, to amend the Offer (a) to increase the
purchase price offered from $60 per Share to $64 per Share and (b) to amend and
restate the conditions to the Offer to those set forth below under "Amended
Conditions to the Offer". The Merger Agreement provides that, without the
consent of the Company, the Purchaser will not (a) reduce the number of Shares
sought in the Offer, (b) amend the Offer so that it is at a price less than $64
net per Share in cash, (c) modify or add to the conditions set forth below under
"Amended Conditions to the Offer", (d) except as provided in the next sentence,
extend the Offer, (e) change the form of consideration payable in the Offer or
(f) make any other
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change in the terms or conditions of the Offer that is in any manner adverse to
the holders of Shares. Notwithstanding the foregoing, the Purchaser may, without
the consent of the Company (a) extend the Offer if, at the scheduled expiration
date of the Offer, any of the conditions to the Purchaser's obligation to
purchase the Shares shall not be satisfied or waived, until such time as such
conditions are satisfied or waived, (b) extend the Offer for any period required
by any rule, regulation, interpretation or position of the Commission applicable
to the Offer and (c) extend the Offer for any reason on one or more occasions
for an aggregate period of not more than 25 business days (for all such
extensions) beyond the latest expiration date that would otherwise be permitted
under clause (a) or (b) of this sentence.
The Merger. The Merger Agreement provides that, at the effective time of the
Merger, the Purchaser will be merged with and into the Company, with the Company
continuing as the Surviving Corporation, and each then outstanding Share
(other than Shares held in the treasury of the Company, Shares owned by IBM,
the Purchaser or any other subsidiary of IBM or of the Company, or Shares held
by stockholders who properly exercise their dissenters' rights under Delaware
Law) will be converted into the right to receive $64 per Share in cash,
without interest.
Representations and Warranties. The Merger Agreement contains
representations and warranties by the Company with respect to, among other
things, its organization, its capitalization, its authority to enter into the
Merger Agreement, its filings with the Commission and its financial statements,
the absence of certain changes in its business, information supplied by the
Company in connection with the Offer, the Company's employee benefit plans and
other compensation arrangements, the absence of certain litigation with
respect to the Company, compliance by the Company with applicable law, the
inapplicability of the Rights Agreement to the Offer and the Merger, tax
matters relating to the Company, the inapplicability of state anti-takeover
statutes, including Section 203 of the Delaware Law and Chapter 110E of the
Massachusetts General Laws (the "Massachusetts Control Share Acquisition
Statute"), and intellectual property matters.
The Merger Agreement also contains representations and warranties by IBM and
the Purchaser with respect to, among other things, their organization, their
authority to enter into the Merger Agreement, information supplied by them in
connection with the Offer and their ability to finance the purchase of the
Shares.
Covenants of the Company. In the Merger Agreement, the Company has
covenanted and agreed that, among other things, during the period from the date
of the Merger Agreement until the time that IBM's designees constitute a
majority of the Board of Directors of the Company, except as expressly
contemplated by the Merger Agreement or to the extent that IBM shall otherwise
consent in writing, among other things, (a) the Company and its subsidiaries
will, subject to certain exceptions set forth in the Merger Agreement, carry on
their respective businesses in the ordinary course in substantially the same
manner as conducted through the date of the Merger Agreement; (b) the Company
will not, and will not permit any of its non-U.S. subsidiaries to, (i) declare
or pay any dividends on, or make other distributions in respect of, any of its
capital stock, (ii) split, combine or reclassify any of its capital stock or
issue or authorize, redeem or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company or (iii) repurchase, redeem or otherwise acquire, or permit any of its
subsidiaries to repurchase, redeem or otherwise acquire, any shares of its
capital stock; (c) the Company will not, and will not permit any of its
subsidiaries to, issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or any securities
convertible into, or rights, warrants, calls, subscriptions or options to
acquire, any such shares or convertible securities, or any other ownership
interest in the Company, other than (i) the issuance of Shares upon the exercise
of employee stock options or other awards granted under stock option plans of
the Company and outstanding on the date of the Merger Agreement in accordance
with their terms or (ii) issuances by a wholly owned subsidiary of the Company
of its capital stock to the Company; (d) the Company will not amend its
Certificate of Incorporation or its By-Laws; (e) the Company will not, and it
will not permit any of its subsidiaries to, acquire or agree to acquire (by
merger, consolidation,
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acquisition of stock or assets, or by any other manner) any business,
corporation, partnership, association or other business organization or division
thereof; (f) the Company will not, and it will not permit any of its
subsidiaries to, sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose of, any of its
assets, except in the ordinary course of business consistent with past practice;
(g) the Company will not, and it will not permit any of its subsidiaries to,
incur or guarantee indebtedness for borrowed money or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company
(or any of its subsidiaries), or guarantee any debt securities of others, except
in the ordinary course of business consistent with prior practice; (h) the
Company will confer on a regular basis with IBM, report on operational matters,
and promptly advise IBM of any material adverse change, and will promptly
provide to IBM (or its counsel) copies of all filings made by the Company with
any governmental entity in connection with the Merger Agreement and the
transactions contemplated thereby; (i) the Company will not make any tax
election that would have a material effect on the tax liability of the Company
or any of its subsidiaries or settle or compromise any material income tax
liability of the Company or any of its subsidiaries; (j) the Company will not,
and it will not permit any of its subsidiaries to, discharge any claims,
liabilities or obligations, other than the discharge of certain liabilities of
the Company in the ordinary course of business consistent with past practice or
in accordance with their terms and (k) the Company will not, and it will not
permit any of its subsidiaries to, modify, amend or terminate any material
contract or agreement to which the Company or such subsidiary is a party, or
waive, release or assign any material rights or claims.
In addition to the foregoing, the Company has agreed that it will not take
any action, or permit any of its subsidiaries to take any action, that would
result in (a) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality becoming untrue,
(b) any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (c) any of the conditions to the
Merger set forth in the Merger Agreement not being satisfied.
Prohibition on Solicitation. Pursuant to the Merger Agreement, the Company
has agreed that the Company and its officers, directors, employees,
representatives and agents will cease any discussions or negotiations with any
parties with respect to any Takeover Proposal (as defined below) and the Company
will not, nor will it authorize or permit any officer, director or employee of,
or any investment banker, attorney, accountant or other representative retained
by, the Company or any of its subsidiaries to, (a) solicit, initiate, encourage
or take any other action to facilitate any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Takeover Proposal or (b) participate in any discussions or negotiate regarding
any Takeover Proposal.
The Merger Agreement provides that, notwithstanding the foregoing, if at any
time prior to the acceptance for payment of Shares pursuant to the Offer, the
Board of Directors of the Company determines in good faith, after consultation
with counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the Company
may, in response to an unsolicited Takeover Proposal, (a) furnish information
with respect to the Company to any person pursuant to a confidentiality
agreement in a form approved by IBM and (b) participate in negotiations
regarding such Takeover Proposal.
The Merger Agreement provides further that neither the Board of Directors of
the Company nor any committee thereof will (a) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to IBM, the approval or recommendation
by such Board of Directors or such committee of the Offer, the Merger Agreement
or the Merger, (b) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (c) cause the Company to enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, in the event
that prior to the time of acceptance for payment of Shares in the Offer the
Board of Directors of the Company determines in good faith, after consultation
with counsel, that it is necessary to do so in order to comply with its
fiduciary duties to the Company's stockholders under applicable law, the Merger
Agreement provides
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that the Board of Directors of the Company may withdraw or modify its approval
or recommendation of the Offer, the Merger Agreement and the Merger, approve or
recommend a Superior Proposal (as defined below), or cause the Company to enter
into an agreement with respect to a Superior Proposal, but in each case only at
a time that is after the second business day following IBM's receipt of written
notice advising IBM that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal.
Pursuant to the Merger Agreement, and in addition to the obligations of the
Company described above, the Company has agreed that (a) it will immediately
advise IBM orally and in writing of any request for information or of any
Takeover Proposal, or any inquiry with respect to or which could lead to any
Takeover Proposal, the material terms and conditions of such request, Takeover
Proposal or inquiry and the identity of the person making such request, Takeover
Proposal or inquiry, (b) it will keep IBM fully informed of the status and
details (including amendments or proposed amendments) of any such request,
Takeover Proposal or inquiry and (c) it will concurrently with entering into an
agreement with respect to any Takeover Proposal, pay, or cause to be paid, to
IBM the Expenses and the Termination Fee (each as defined below).
The Merger Agreement does not prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Securities and Exchange Act of 1934, as amended,
(the "Exchange Act") or from making any disclosure to the Company's
stockholders if, in the opinion of the Board of Directors of the
Company, after consultation with counsel, failure so to disclose would be
inconsistent with its fiduciary duties to the Company's stockholders under
applicable law, except that neither the Company nor its Board of Directors nor
any committee thereof may (other than as described above) withdraw or modify,
or propose to withdraw or modify, its position with respect to the Merger or
approve or recommend, or propose to approve or recommend, a Takeover Proposal
(as defined below).
As used herein, the term "Takeover Proposal" means any inquiry, proposal or
offer (other than the transactions contemplated by the Merger Agreement) from
any person relating to any direct or indirect acquisition of a substantial
amount of assets of the Company or any of its subsidiaries or of more than 20%
of any class of equity securities of the Company or any of its subsidiaries, or
any tender offer or exchange offer that if consummated would result in any
person beneficially owning 20% or more of any class of equity securities of the
Company or any of its subsidiaries, any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Offer or the Merger or which would reasonably be expected to dilute
materially the benefits to IBM of the transactions contemplated by the Merger
Agreement, and the term "Superior Proposal" means any bona fide Takeover
Proposal to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than 50% of the shares of Common Stock of the
Company then outstanding or all or substantially all the assets of the Company
and otherwise on terms which the Board of Directors of the Company determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger.
Stockholder Approval; Preparation of Proxy Statement. The Merger Agreement
provides that the Company shall, at IBM's request and if required in accordance
with applicable law, (a) duly call, give notice of, convene and hold a special
meeting of its stockholders as soon as practicable following the expiration of
the Offer for the purpose of approving and adopting the Merger Agreement and the
transactions contemplated thereby and (b) prepare and file with the Commission
under the Exchange Act a proxy statement with respect to the meeting of
shareholders described above.
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The Company has agreed in the Merger Agreement to use its best efforts to
respond to any comments of the Commission or its staff and to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the staff, and to
keep IBM informed of all its correspondence with the Commission with respect to
the Proxy Statement.
Pursuant to the Merger Agreement, the Company, through its Board of
Directors, will recommend to its stockholders that the Merger Agreement be
approved.
For a description of the short-form merger provisions of the Delaware
Law, which, under certain circumstances, could be applicable to the Merger,
see Section 12 of the Offer to Purchase contained in the Offer Documents.
Access to Information. Pursuant to the Merger Agreement, from the date of
the Merger Agreement to the effectiveness of the Merger, subject to the
appropriate provisions of confidentiality agreements applicable to the Company,
the Company will, upon reasonable notice to the Company, afford to IBM and its
officers, employees, independent accountants, counsel and other representatives
(each of whom shall agree to be bound by the confidentiality provisions of the
Merger Agreement), access to all of the Company's properties, books, contracts,
commitments and records, and will promptly furnish to IBM a copy of each
document filed or received by it during such period pursuant to the requirements
of the Federal securities laws or the Federal tax laws, and such other
information as IBM may reasonably request.
Reasonable Efforts. Each of IBM, the Purchaser and the Company has agreed
in the Merger Agreement to use its reasonable efforts to take all actions
necessary to comply promptly with all legal requirements which may be imposed on
itself with respect to the Offer and the Merger, to cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them in connection with the Offer and the Merger and to (subject to
certain limitations) use its reasonable efforts to take all reasonable actions
necessary to obtain (and to cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any governmental
entity or other public or private third party required to be obtained or made by
IBM, the Purchaser, the Company or any of their subsidiaries in connection with
the Offer and the Merger.
The Rights Agreement. The Company has agreed in the Merger Agreement that it
will not redeem the Rights or amend the Rights Agreement (other than to delay
the Distribution Date or to render the Rights inapplicable to the Offer and the
Merger), or terminate the Rights Agreement prior to the effectiveness of the
Merger, unless required to do so by order of a court of competent jurisdiction.
Certain Litigation. In the Merger Agreement, each of IBM, the Purchaser and
the Company has agreed to use reasonable efforts to obtain a dismissal without
prejudice of International Business Machines Corporation and White Acquisition
Corp. v. Lotus Development Corporation and Jim P. Manzi, with each party bearing
its own costs and attorneys' fees therefor. The Company has also agreed that (a)
it will not, without the prior written consent of IBM, settle any litigation
against the Company or any of its directors (other than litigation relating to
software piracy matters or human resources or employment matters), (b) it will
not voluntarily cooperate with any third party which has sought or may seek to
restrain or prohibit or otherwise oppose the Offer or the Merger and (c) it will
cooperate with IBM and the Purchaser to resist any such effort to restrain or
prohibit or otherwise oppose the Offer or the Merger, unless such action would
constitute a breach of the Company's Board of Directors' fiduciary duty under
applicable law.
Board of Directors; Corporate Governance. The Merger Agreement provides
that, upon the Purchaser's acceptance for payment and payment for Shares
pursuant to the Offer, the Purchaser will be entitled to designate such number
of directors on the Company's Board of Directors as will give the Purchaser,
subject to compliance with Section 14(f) of the Exchange Act, a majority of such
directors.
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The Merger Agreement further provides that, notwithstanding the foregoing, until
the effectiveness of the Merger, the Company shall have on the Board of
Directors of the Company at least two directors who were directors of the
Company as of the date of the Merger Agreement and who are not officers of the
Company (such two directors, the "Independent Directors"). Subject to applicable
law, the Company has agreed to take all action necessary to effect the election
of the Purchaser's designees to the Board of Directors and, in connection
therewith, the Company will promptly, as reasonably agreed upon by IBM and the
Company, either increase the size of the Company's Board of Directors or obtain
the resignation of such number of its current directors as is necessary to
enable the Purchaser's designees to be elected to the Company's Board of
Directors as provided above.
Following the election or appointment of the Purchaser's designated
directors, the affirmative vote of a majority of the Independent Directors then
in office will be required by the Company to (i) amend or terminate the Merger
Agreement by the Company, (ii) exercise or waive any of the Company's rights or
remedies under the Merger Agreement or (iii) extend the time for performance of
IBM's and the Purchaser's respective obligations under the Merger Agreement.
IBM, the Purchaser and the Company have reached a general understanding as
to certain matters relating to corporate governance of the Company, the
objective of which is to achieve a balance between the independence of the
Company and its integration with IBM. Jim P. Manzi, Chief Executive Officer of
the Company, will continue in that position after consummation of the Merger and
will become a Senior Vice President of IBM.
Treatment of Stock Options; Certain Benefits. Pursuant to the Merger
Agreement, the Company has agreed to amend each of the Company's stock option
plans to provide that each outstanding option to purchase common stock of the
Company issued pursuant to such stock option plan, whether vested or unvested,
shall remain outstanding after the effectiveness of the Merger and shall be
assumed by IBM (except as described below). IBM has agreed to assume such stock
options (a) such that IBM is a corporation "assuming a stock option in a
transaction to which Section 424(a) applied" within the meaning of Section 424
of the Code, or (b) to the extent that Section 424 of the Code does not apply
to any such stock options, such that IBM would be such a corporation were
Section 424 of the Code applicable to such option. Under the Merger
Agreement, each such stock option assumed by IBM shall be exercisable
upon the same terms and conditions as under the applicable stock option
plan of the Company and the applicable option agreement issued thereunder,
except that (a) such option shall be exercisable for that number of
shares of common stock of IBM equal to the product of (i) the number of shares
of common stock of the Company for which such option was exercisable and (ii)
the Offer Price divided by the average closing price of common stock of IBM on
the New York Stock Exchange Composite Tape for the 30 consecutive trading days
prior to the effectiveness of the Merger (such quotient, the "Conversion
Number"), and (b) the exercise price of such option shall be equal to the
exercise price of such option as of the date of the Merger Agreement divided by
the Conversion Number.
The foregoing paragraph notwithstanding, in the Merger Agreement, the
Company has agreed to amend its stock option plans to provide holders of stock
options issued pursuant thereto, whether or not then exercisable or vested, the
opportunity to elect to receive cash in an amount equal to the Option Amount (as
defined below) in exchange for such stock option, and in accordance therewith,
IBM and the Company have agreed to take all actions necessary to provide that,
as to those holders who so elect, on the day after the date on which the
Purchaser accepts Shares for payment and purchase pursuant to the Offer, (a)
each such stock option, so surrendered for cash, whether or not then exercisable
or vested, shall become fully exercisable and vested, (b) each such stock option
shall be cancelled and (c) in consideration of such cancellation, and except to
the extent that IBM or the Purchaser and the holder of any such stock option
otherwise agree, the Company shall pay to each such holder of such stock options
an amount in cash in respect thereof equal to the product of (i) the excess of
the Offer Price over the
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exercise price thereof and (ii) the number of Shares subject thereto (such
product, the "Option Amount").
The Merger Agreement provides that if it is determined that compliance with
any of the provisions described above would cause any individual subject to
Section 16 of the Exchange Act to become subject to the profit recovery
provisions thereof, any options with respect to common stock of the Company held
by such individual will be cancelled or purchased, as the case may be, at the
effectiveness of the Merger or at such later time as may be necessary to avoid
application of such profit recovery provisions, and such individual will be
entitled to receive from the Company or the Surviving Corporation an amount
equal to the excess, if any, of (a) the Offer Price over (b) the per Share
exercise price of such stock option multiplied by the number of Shares subject
thereto, and IBM, the Purchaser and the Company have agreed to cooperate so as
to achieve the intent of such provisions without giving rise to such profit
recovery.
IBM, the Purchaser and the Company have reached a general understanding as
to the continuation of the Company's other existing employee compensation and
benefit plans.
In addition, IBM has agreed to an enhanced severance program for employees
of the Company and executives for a two-year period after the acquisition. Any
persons who were employees of the Company as of the date of the Merger Agreement
and who are terminated other than for cause, or who leave the Company for reason
of constructive termination, will be entitled to a separation benefit equaling
16 weeks of base salary plus an additional two weeks for each six months of
service and, in the case of employees at the level of director and higher
and other senior managers, other than those who are eligible for the executive
severance plan, 24 weeks of base salary and target bonus, plus an additional
two weeks for each six months of service. Health and welfare benefits will
continue for the payout period and outplacement counseling will be provided.
No mitigation is required nor reduction made if other employment is obtained.
The separation benefit is payable in installments.
The executive severance plan provides a separation benefit based on total
annual compensation (then current base and management incentive plan target)
and is computed based on one year plus four weeks for every six months of
tenure, subject to a cap of two years for senior vice presidents and above.
Health and welfare benefits will continue for the payout period and
outplacement and financial counseling will be provided. Those eligible for the
executive severance plan are each corporate vice president, each senior vice
president and the president of the Company. Each such executive will also be
entitled to a gross-up payment for any excise taxes imposed on any parachute
payments under the Code and any income or excise taxes relating to the gross-up
payment. No mitigation is required nor reduction made if other employment
is obtained. The separation benefit is payable in installments. The executive
severance plan provides that the recipient (other than corporate staff) shall
not render services for any organizations or engage directly or indirectly in
any business which is competitive with the relevant business units of the
Company.
Indemnification and Insurance. In the Merger Agreement, IBM and the
Purchaser have agreed that all rights to indemnification for acts or omissions
occurring prior to the effectiveness of the Merger that are in existence as of
the date of the Merger Agreement in favor of the current or former directors or
officers of the Company and its subsidiaries as provided in their respective
Certificates of Incorporation or By-laws or contractual arrangements or as
otherwise provided by applicable law shall survive the Merger and shall continue
in full force and effect in accordance with their terms. Pursuant to the Merger
Agreement, IBM will, for a period of six years (or the period of the applicable
statute of limitations, if longer) from the effectiveness of the Merger, unless
IBM agrees in writing to guarantee the indemnification obligations set forth
above, maintain in effect the Company's current directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy except that, to
the extent that such coverage is not obtainable at less than or equal to 150%
of the current per annum cost, IBM will be obligated to purchase only so much
coverage as may then be obtained for such amount.
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Consent Solicitation. Pursuant to the Merger Agreement, IBM and the
Purchaser have agreed to terminate the Consent Solicitation (as defined in the
Introduction to the Offer to Purchase), to withdraw the filings made by the
Purchaser with the Commission in connection therewith and to cease soliciting
written consents from the stockholders of the Company.
Conditions to Merger. The respective obligation of each party to the Merger
Agreement to effect the Merger shall be subject to the satisfaction, prior to
the closing of the transactions contemplated by the Merger Agreement, of the
following conditions: (a) if required by applicable law, the Merger Agreement
and the transactions contemplated thereby shall have been approved by the
affirmative vote of the stockholders of the Company; (b) no statute, rule,
regulation, executive order, decree, temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other governmental entity or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect; and
(c) the Purchaser shall have previously accepted for payment and paid for Shares
pursuant to the Offer. For a description of the conditions to the Offer, see
"Amended Conditions to the Offer" below.
Termination. The Merger Agreement may be terminated at any time prior to the
effective time of the Merger, whether before or after approval of the terms of
the Merger Agreement by the stockholders of the Company (a) by mutual written
consent of IBM and the Company; (b) by either IBM or the Company (i) if (A) as
result of the failure of any of the conditions to the Offer set forth below
under "Amended Conditions to the Offer", the Offer shall have terminated or
expired in accordance with its terms without the Purchaser's having accepted for
payment any Shares pursuant to the Offer or (B) the Purchaser shall not have
accepted for payment any Shares pursuant to the Offer within 180 days following
the date of the Merger Agreement; provided, however, that such right to
terminate the Merger Agreement by either of IBM or the Company shall not be
available to any party the failure of which (or the failure of the affiliates of
which) to perform any of its obligations under the Merger Agreement results in
the failure of any such condition, or if the failure of such condition results
from facts or circumstances that constitute a breach of any representation or
warranty under the Merger Agreement by such party, or (ii) if any governmental
entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance for
payment of, or payment for, the Shares pursuant to the Offer or the Merger and
such order, decree or ruling or other action shall have become final and
nonappealable; (c) by IBM or the Company prior to the purchase of the Shares
pursuant to the Offer in the event of a breach by the Company of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement which (i) would give rise to the failure of a condition set forth in
paragraph (e) or (f) under the heading "Amended Conditions of the Offer" below
and (ii) cannot be or has not been cured within 20 days after the giving of
written notice to the Company; (d) by IBM or the Purchaser if either IBM or the
Purchaser is entitled to terminate the Offer as a result of the occurrence of
any event set forth in paragraph (d) under the heading "Amended Conditions of
the Offer" below; (e) by the Company in connection with its entering into a
definitive agreement in connection with a Superior Proposal as described above
under the heading "Prohibition on Solicitation", provided it has complied with
all the requirements in connection therewith and that it makes a simultaneous
payment of the Expenses and the Termination Fee; or (f) by the Company, if IBM
or the Purchaser shall have breached in any material respect any of their
respective representations, warranties, covenants or other agreements contained
in the Merger Agreement, which breach is incapable of being cured or has not
been cured within 20 days after the giving of written notice to IBM or the
Purchaser, as applicable, except, in any case, such breaches which are not
reasonably likely to adversely affect IBM's or the Purchaser's ability to
complete the Offer or the Merger.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any party thereto except as described under "Fees and Expenses" below or
as otherwise expressly provided for in the Merger Agreement; provided,
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however, that nothing in the Merger Agreement will relieve any party from
liability for any breach thereof.
Fees and Expenses. The Merger Agreement provides that, except as provided in
the following paragraph, all fees and expenses incurred in connection with the
Offer, the Merger, the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such fees or expenses, whether or
not the Offer or the Merger is consummated.
Under the Merger Agreement the Company will pay, or cause to be paid, to IBM
the sum of (a) all of IBM's out-of-pocket fees and expenses incurred or paid by
or on behalf of IBM in connection with the Offer, the Merger or the consummation
of any of the transactions contemplated by the Merger Agreement, including all
fees and expenses of counsel, commercial banks, investment banking firms,
accountants, experts and consultants to IBM in an amount not to exceed
$20,000,000 (the "Expenses") and (b) $100,000,000 (the "Termination Fee") upon
demand if (i) IBM or the Purchaser terminates the Merger Agreement in accordance
with clause (d) under the heading "Termination" above; (ii) the Company
terminates the Merger Agreement in accordance with clause (e) under the heading
"Termination" above; or (iii) prior to any termination of the Merger Agreement
(other than by the Company in accordance with clause (f) under the heading
"Termination" above), a Takeover Proposal shall have been made and, within 12
months of such termination, a transaction constituting a Takeover Proposal is
consummated or the Company enters into an agreement with respect to, approves or
recommends or takes any action to facilitate such Takeover Proposal.
Amendment. The Merger Agreement may be amended by the parties thereto, by
action taken or authorized by their respective Boards of Directors, provided,
however, that after any approval of the Merger Agreement by the stockholders of
the Company, no amendment will be made to the Merger Agreement which by law
requires further approval by such stockholders without such further approval.
AMENDED CONDITIONS OF THE OFFER.
Notwithstanding any other term of the Offer, the Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered shares
after the termination or withdrawal of the Offer), to pay for any Shares
tendered pursuant to the Offer unless (i) the Minimum Tender Condition
(as defined in the Offer Documents) shall have been satisfied and (ii) any
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, (the "HSR Act") applicable to the purchase of Shares pursuant to
the Offer shall have expired or been terminated. Furthermore, notwithstanding
any other term of the Offer, the Purchaser shall not be required to accept for
payment or, subject as aforesaid, to pay for any Shares not theretofore
accepted for payment or paid for, and may terminate the Offer if, at any time
on or after the date of the Merger Agreement and before the acceptance of such
Shares for payment or the payment therefor, any of the following conditions
exists (other than as a result of any action or inaction of IBM or any of its
subsidiaries that constitutes a breach of the Merger Agreement):
(a) there shall be instituted or pending by any governmental entity any
suit, action or proceeding, (i) challenging the acquisition by IBM or the
Purchaser of any Shares under the Offer or seeking to restrain or prohibit
the making or consummation of the Offer or the Merger, (ii) seeking to
prohibit or materially limit the ownership or operation by the Company, IBM
or any of their respective subsidiaries of a material portion of the
software business or assets of the Company
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and its subsidiaries, taken as a whole, or IBM and its subsidiaries, taken
as a whole, or to compel the Company or IBM to dispose of or hold separate
any material portion of the software business or assets of the Company and
its subsidiaries, taken as a whole, or IBM and its subsidiaries, taken as a
whole, as a result of the Offer or any of the other transactions
contemplated by the Merger Agreement, (iii) seeking to impose material
limitations on the ability of IBM or the Purchaser to acquire or hold, or
exercise full rights of ownership of, any Shares accepted for payment
pursuant to the Offer including, without limitation, the right to vote such
Shares on all matters properly presented to the stockholders of the Company
or (iv) seeking to prohibit IBM or any of its subsidiaries from effectively
controlling in any material respect any material portion of the software
business or operations of the Company and its subsidiaries;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
governmental entity or court, other than the application to the Offer or the
Merger of applicable waiting periods under the HSR Act, that is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
(c) any material adverse change (or any development that, insofar as
reasonably can be foreseen, is reasonably likely to result in any material
adverse change) in the financial condition (other than attributable to a
change in results of operations) or business of the Company and its
subsidiaries, taken as a whole;
(d) (i) the Board of Directors of the Company or any committee thereof
shall have withdrawn or modified in a manner adverse to IBM or the Purchaser
its approval or recommendation of the Offer, the Merger or the Merger
Agreement, or approved or recommended any Takeover Proposal, (ii) the
Company shall have entered into any agreement with respect to any Superior
Proposal in accordance with the terms of the Merger Agreement or (iii) the
Board of Directors of the Company or any committee thereof shall have
resolved to take any of the foregoing actions;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement that are qualified as to materiality shall not be
true and correct or any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each
case at the date of the Merger Agreement and at the scheduled expiration of
the Offer;
(f) the Company shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or complied
with by it under the Merger Agreement;
(g) there shall have occurred and continued to exist for at least three
business days (i) any general suspension of trading in, or limitation on
prices for, securities on a national securities exchange in the United
States (excluding any coordinated trading halt triggered solely as a result
of a specified decrease in a market index), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (iv) any limitation (whether or not mandatory) by any governmental
entity on, or other event that materially adversely affects, the extension
of credit by banks or other lending institutions or (v) in case of any of
the foregoing existing on the date of the Merger Agreement, material
acceleration or worsening thereof;
(h) the Merger Agreement shall have been terminated in accordance with
its terms.
The foregoing conditions are for the sole benefit of the Purchaser and IBM
and may, subject to the terms of the Merger Agreement, be waived by the
Purchaser and IBM in whole or in part at any time and from time to time in their
sole discretion. The failure by IBM or the Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any
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such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
Except as described herein or as otherwise disclosed in this Schedule
14D-9, to the knowledge of the Company, as of the date hereof there are no
material contracts, agreements, arrangements or understandings with respect to
the Offer or the Merger Agreement, or any potential or actual conflicts of
interest, between the Company or its affiliates and (i) the Company, its
directors, executive officers or affiliates or (ii) the Purchaser, IBM or
their directors, executive officers or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Company's Board of Directors has determined unanimously that the Offer
and the Merger are fair to and in the best interests of the stockholders of the
Company (other than IBM and its subsidiaries) and recommends that all
stockholders of the Company accept the Offer and tender all their Shares
pursuant to the Offer. This recommendation is based in part upon an opinion
received by the Company from Lazard Freres & Co. LLC ("Lazard Freres") that
the per Share consideration to be received by the Company's stockholders in
the Offer and received by the Company's stockholders in the Merger, taken as a
whole, is fair to the stockholders (other than IBM and its subsidiaries) from
a financial point of view. THE FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY
THE COMPANY FROM LAZARD FRERES IS FILED AS EXHIBIT 8 TO THIS SCHEDULE 14D-9
AND IS ALSO ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
As set forth in the Offer Documents, the Purchaser will purchase Shares
tendered prior to the close of the Offer if the Minimum Tender Condition
has been satisfied by that time and if all other conditions to the Offer have
been satisfied (or waived). Stockholders considering not tendering their Shares
in order to wait for the Merger should note that if the Minimum Tender Condition
is not satisfied or any of the other conditions to the Offer are not satisfied,
the Purchaser is not obligated to purchase any Shares, and can terminate the
Offer and the Merger Agreement and not proceed with the Merger. Under Delaware
Law, the approval of the Board and the affirmative vote of the holders of a
majority of the outstanding Shares are required to approve the Merger.
Accordingly, if the Minimum Tender Condition is satisfied, the Purchaser will
have sufficient voting power to cause the approval of the Merger without the
affirmative vote of any other stockholder.
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Monday, July 3, 1995, unless the Purchaser, in its sole discretion, elects to
extend the period of time for which the Offer is open. A copy of the press
release issued jointly by the Company and the Purchaser on June 11, 1995
announcing the Merger and the amendedd Offer is filed as Exhibit 9 to this
Schedule 14D-9 and is incorporated herein by reference in its entirety.
(B) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION.
In reaching its conclusions described in paragraph (a) above, the Board of
Directors of the Company considered a number of factors, including, without
limitation, the following:
(i) the financial and other terms and conditions of the Offer and the
Merger Agreement;
(ii) the fact that the $64 per Share price to be recieved by the
Company's Stockholders in both the Offer and the Merger represents a
substantial premium over the closing market price of $32.50 per Share on
June 2, 1995, the last full trading day prior to IBM's first public
announcement of the intention to commence a tender offer for the Shares;
(iii) the oral opinion of Lazard Freres, confirmed in writing, that the
consideration to be received by the Company's stockholders (other than IBM
and its affiliates) pursuant to the Offer and the
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Merger, taken as a whole, is fair to such stockholders from a financial
point of view. A copy of Lazard Freres's written opinion is attached to this
Schedule 14D-9 as Annex A and is incorporated herein by reference. Such
opinion should be read in its entirety for a description of the procedures
followed, assumptions and qualifications made, matters considered and
limitations of the review undertaken by Lazard;
(iv) the presentation of Lazard Freres to the Board of Directors at its
meeting on June 10, 1995, as to various financial and other matters deemed
relevant to the Board of Director's consideration, including, among other
things, (a) an analysis of the Company's historical and projected operating
performance, (b) a review of public information with respect to
certain other companies in the software business (c) a review of various
financial forecasts and other data provided to Lazard Freres relating to
it business, (d) a review of the historical stock prices and trading volumes
of the Shares, (e) a hypothetical public market valuation of the Company,
(f) a hypothetical private market valuation of the Company, (g) a discounted
cash flow valuation of the Company, (h) an analysis of the Offer Price as
a multiple of various measures of the Company's operating performance, and
(h) a review of the pro forma impact of the Offer and Merger on IBM;
(v) the fact that no other potential strategic partner had expressed an
interest in engaging in a business combination or other strategic
transaction that would likely be on terms as favorable to the Company's
stockholders as those of the Offer and Merger;
(vi) the risk, in light of the Offer, that delay by the Company would
damage its franchise and would have an adverse impact on the Company's
relationships with its employees and customers, and the risk that any such
damage or adverse impact would increase with time;
(vii) the advice of the Company's legal advisors with respect to the
Company's various legal options for responding to IBM's attempt to acquire
the Company; and
(viii) the fact that, to the extent required by the fiduciary
obligations of the Board of Directors of the Company to the stockholders
under Delaware Law, the Company may terminate the Merger Agreement in order
to approve a tender offer or exchange offer for the Shares or other proposed
business combination by a third party on terms more favorable to the
Company's stockholders than the Offer and the Merger taken together, upon
the payment of a $100,000,000 termination fee and up to $20,000,000 of IBM's
expenses associated with the Offer and the Merger. See "Termination" under
the description of the Merger Agreement above.
Background
For the past several years, IBM and its subsidiaries have been parties to
various transactions with the Company that have generally involved (i) acquiring
the Company's products for internal use by IBM and its subsidiaries, (ii)
marketing and distribution of the Company's products and (iii) development
transactions designed to enable products from IBM and the Company to function
together more effectively. The following is a summary of such transactions for
the periods specified or that are currently proposed.
Various operating units within IBM and its subsidiaries regularly acquire
the Company's products for internal use. IBM estimates in the Schedule 14D-1
that in 1994 it acquired approximately $20 million of the Company's products
worldwide for internal use by IBM and its subsidiaries. These products were
purchased directly from the Company or one of the Company's alternate channels
of distribution, or they were acquired as royalty free copies pursuant to the
SmartSuite marketing agreement described below. For 1993 and 1992, IBM
estimates that IBM and its subsidiaries acquired for their internal use
approximately $16 million and $11 million of the Company's products,
respectively.
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In 1991, IBM and the Company entered into joint development and marketing
agreements with respect to two of the Company's communications software
products--Lotus Notes and Lotus cc:Mail. IBM and its subsidiaries received the
right to market these communications products, and IBM provided technical
expertise and funding of approximately $25 million to the Company with respect
to Notes. Under this arrangement, IBM and its subsidiaries received fee
payments from the Company that totaled approximately $28 million in 1993 and
$12 million in 1992. In November 1993, IBM and the Company entered into
new agreements under which IBM and its subsidiaries were granted the right
to market the Company's SmartSuite product. Under these new agreements, IBM
exchanged the rights to further fee payments with respect to Notes and cc:Mail
for 400,000 royalty free copies of the Company's SmartSuite product in each of
1994 and 1995 and the Company's agreement to continue to develop products for,
and to promote, IBM's software. Under the SmartSuite marketing agreement, for
additional sales of the SmartSuite product beyond the royalty free copies, the
royalty to be paid to the Company is $100 per copy. As of the date of the
Offer to Purchase, no royalties have been earned by or paid to the Company for
sales of the SmartSuite product by IBM and its subsidiaries.
After November 1993, IBM and certain of its subsidiaries began to market the
Company's communications products under new marketing agreements for a fee,
which agreements resulted in aggregate payments to them by the Company estimated
by IBM in the Schedule 14D-1 at approximately $6 million for 1994. Other IBM
subsidiaries have reseller agreements with the Company, some of which were
executed as early as approximately 1992, under which the IBM subsidiary
purchases the Company's desktop productivity products for resale. After November
1993, the Company's communications products were also added to many of these
reseller agreements. Aggregate purchases under these reseller agreements are
estimated by IBM in the 14D-1 at approximately $18.5 million for 1994, $10
million for 1993 and $6 million for 1992.
Other distribution agreements between the Company and IBM, executed
beginning in 1994, provide for IBM to install certain of the Company's software
products on IBM's computer products prior to sale of the computer. Payments made
with respect to these agreements by IBM to the Company are estimated at
approximately $8 million for 1994.
IBM has provided in the past, technical support and resources to assist the
Company in porting its Notes product to IBM's AIX operating system platform.
In addition, the Company and IBM have been discussing a series of proposals
for potential marketing and development transactions. Various marketing and
licensing arrangements have been discussed, including the preloading of
certain of the Company's products on IBM's computer products and the packaging
of certain of the Company's products with certain of IBM's products. The
development aspects have included, among other things, collaboration on future
development of various of the Company's products. Numerous products and
packaging alternatives at various royalty rates have been discussed. The value
of these various proposals have varied widely and some of the most recent ones
have included guaranteed minimum payments from IBM to the Company that range
from approximately $50 million to $150 million for each of several years. The
Company and IBM have been unable to reach agreement on any of these various
proposals, except that they have generally agreed that any marketing and
development transaction would include as a component thereof the payment
by IBM to the Company of approximately $14 million to upgrade the
functionality of the Company's SmartSuite product by the end of 1995.
In August 1994, James A. Cannavino, then the Senior Vice President--Strategy
and Development of IBM, met with Jim P. Manzi, the Chairman, President and
Chief Executive Officer of the Company to discuss additional opportunities for
the two companies to work together, with a particular focus on the Company's
SmartSuite product and IBM's use of the Company's Notes product within IBM. Mr.
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Manzi suggested the Company and IBM form a joint venture to produce desktop
applications. Teams from the Company and IBM met over the next few weeks. These
meetings did not result in any final agreement or understanding regarding a
joint venture or other material transaction. However, executives from the
Company and IBM continued to meet, and are continuing on an ongoing basis to
meet, to discuss possible marketing and development collaboration. In addition,
technical representatives from IBM and the Company have been meeting on an
ongoing basis.
In January 1995, John M. Thompson, Senior Vice President and Group Executive
of IBM, became the head of IBM's software group. On January 31, 1995, Mr.
Thompson met with Mr. Manzi, who proposed that the Company and IBM resume their
discussions regarding a possible joint venture or other transaction between the
two companies relating to the Company's desktop applications business. Mr.
Thompson inquired whether there would be any interest in having IBM acquire the
Company, but Mr. Manzi indicated that the Company was not for sale. On February
1, 1995, Mr. Manzi wrote to Mr. Thompson and provided additional information
with respect to the possible joint venture discussed the previous day.
In a telephone conversation with Mr. Manzi in February 1995, Mr. Thompson
indicated that IBM was not interested in the desktop application business by
itself, but would consider a transaction that involved the Company's
communications business as well. Mr. Manzi indicated at that time that the
Company would have no interest in IBM owning more than a small minority share in
the communications business. This led to a discussion of a possible transaction
in which the Company would continue to own the communications business directly,
the desktop application business of the Company would be transferred to a
subsidiary of the Company and IBM would acquire a 50% interest in that
subsidiary as well as a 15-20% interest in the entire Company. In a subsequent
telephone conversation in February 1995, Mr. Thompson and Mr. Manzi concluded
that the transaction structure described above was undesirable. Instead, they
decided to consider a non-equity arrangement that would not involve dividing up
the Company. Any equity participation by IBM would be secondary and could be
done independently.
Mr. Thompson and Mr. Manzi met on March 16, 1995, to review the status of
the ongoing discussions concerning marketing and development collaboration. At
that meeting, Mr. Thompson outlined three potential business arrangements
between IBM and the Company: (i) a commercial arrangement involving some form of
marketing and development collaboration, but no equity investment by IBM, (ii) a
commercial arrangement along with a minority equity investment by IBM in the
Company and (iii) an acquisition by IBM of the Company. Mr. Thompson and Mr.
Manzi discussed the first two alternatives, but Mr. Manzi said that he was not
prepared to discuss the third alternative with Mr. Thompson. With respect to a
minority equity investment in the Company by IBM, Mr. Manzi responded that he
did not want to sell equity directly to IBM, but he reiterated that he would
have no objection to IBM buying a small stake from one of the Company's other
investors or in the open market. On March 17, 1995, Mr. Thompson and Mr. Manzi
met again to continue their discussions.
On March 27, 1995, Mr. Thompson wrote to Mr. Manzi on the subject of the
marketing and development collaboration. In that letter Mr. Thompson mentioned
that if he and Mr. Manzi concluded that IBM should hold a minority equity
interest in the Company, IBM would have board representation. When Mr. Thompson
called Mr. Manzi the following day, Mr. Manzi responded that he had not agreed
to IBM's having board representation.
Although Mr. Thompson and Mr. Manzi have had discussions subsequent to March
27, they have dealt only with marketing and development collaboration.
16
<PAGE>
On June 5, 1995, the Purchaser commenced litigation against the Company and
Mr. Manzi in the United States District Court for the District of Delaware
seeking, among other things, an order compelling the Board of Directors of the
Company to redeem the Rights or to make the Rights inapplicable to the Offer and
a proposed merger of the Purchaser with and into the Company, compelling the
Board of Directors of the Company to approve the Offer and such proposed merger
for purposes of Section 203 of Delaware Law and enjoining enforcement of the
Massachusetts Control Share Acquisition Statute. In addition, Louis V. Gerstner,
Jr., the Chairman and Chief Executive Officer of IBM, telephoned Mr. Manzi to
inform him of the Offer and the announcement of the litigation described above.
Mr. Gerstner also telecopied the following letter to Mr. Manzi:
June 5, 1995
Mr. Jim P. Manzi
Chairman, President and Chief Executive Officer
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, Massachusetts 02142
Dear Jim:
As you know from your conversations with IBM Senior Vice President
John M. Thompson, IBM has been interested for some time in pursuing a
business combination with Lotus.
Because you have been unwilling to proceed with such a transaction,
we are announcing this morning our intention to buy all of Lotus
Development Corporation's outstanding common shares for a price of
$60 per share, or $3.3 billion. This is an all-cash offer. We believe
this is now the fastest, most efficient way to bring our companies
together.
We have the highest respect for you and all Lotus employees. We
believe our companies share similar visions of the future of
information technology--a future built on a truly open, collaborative
computing environment where people can work and communicate across
enterprises and across corporate and national borders. Combining our
efforts will mean that both of us reach that future sooner.
This is truly a win/win opportunity for IBM and Lotus shareholders,
employees and customers. With IBM's financial resources,
technological expertise and unmatched customer base, Lotus will have
greater opportunities for growth and expansion. With IBM's global
marketing and sales capability, we can rapidly grow Notes' user base
and vastly increase its sales potential and acceptance as an open
industry standard. Working with industry partners and customers
around the world, we will help them embrace this powerful new way of
computing, working and communicating. We also have the strength and
resources to support Lotus's mail and application products.
Our objective is a transaction that is enthusiastically supported by
you and the Lotus Board of Directors, as well as Lotus employees,
shareholders and your many loyal customers, software developers and
industry partners.
We respect the creative environment and entrepreneurial spirit you
have fostered at Lotus. We do not want to change that. We believe
Lotus's employees are among the best in the industry at developing
innovative and successful products. Our intent is to keep Lotus
intact and managed out of its current headquarters in Cambridge and
to make Lotus primarily responsible for key, complementary IBM
software products.
We and our advisors are prepared to meet with you and all other
members of the Lotus Board of Directors, management and advisors to
answer any questions you or they may
17
<PAGE>
have about our offer. We are convinced that together we can achieve a
business combination that serves the best interests of Lotus and IBM.
We believe, as you do, that the future of information technology is
one in which anyone, anywhere will be able to share information and
interact--easily and instantaneously--no matter where they are or
what system they use. We look forward to working with you and your
colleagues to develop products and systems that will allow customers
around the world to realize this vision.
Louis V. Gerstner, Jr.
IBM Chairman and Chief Executive Officer
On June 5, 1995, IBM announced the intention to commence the Offer.
On June 6, 1995, IBM and the Purchaser filed the Schedule 14D-1 with the
Commission and commenced the Offer. On the same date, IBM filed with the
Commission a preliminary copy of a Consent Solicitation Statement pursuant to
Schedule 14A of the Exchange Act (the "Consent Statement") for the purpose of
removing the Company's Board of Directors and replacing them with IBM's
nominees, amending the Company's By-laws to eliminate the section thereof making
the Massachusetts Control Share Acquisition Statute applicable to certain
acquisitions of Company Common Stock and repealing certain other provisions of
the Company's By-laws. According to the Consent Statement, IBM's nominees
intended to redeem the Rights (or amend the Rights Agreement to make the Rights
inapplicable to the Offer and the Merger), approve the Offer and the Merger
under Section 203 of Delaware Law and otherwise expedite the prompt
consummation of the Offer and the Merger.
On June 6, 1995, Mr. Manzi met with Mr. Gerstner to ask for more
information about the Offer and to determine IBM's intentions for the Company if
the Offer were to be consummated. That initial meeting led to further
conversations about the possibility of a modified offer on terms that the
Company's management might be prepared to recommend to the Company's Board of
Directors.
On June 7, 1995, the Board of Directors met by telephone to discuss the
proposed bid by IBM and the Company's possible responses. Mr. Manzi discussed
his recent contacts with IBM as well as his preliminary discussions with Lazard
and the Company's other legal and financial advisors. After discussion, the
Board authorized management to further explore and evaluate IBM's proposal, and
to determine whether any other companies would be interested in exploring
strategic transactions with the Company that might provide greater value to
stockholders than the IBM offer, including contacting directly certain selected
companies. The Board of Directors also engaged Lazard to represent the Company
in connection with this matter and agreed to meet each morning by telephone call
to discuss management's progress.
On June 8, 1995, Mr. Manzi reported to the Board that, although other
companies had from time to time expressed an interest in pursuing a strategic
alliance with the Company, no potential strategic partners had expressed an
interest to either the Company or Lazard in making a proposal that would be
competitive with IBM's bid, and that further bidders would be unlikely to enter
into a bidding war with IBM given the strong cash position disclosed by IBM in
the Schedule 14D-1.
Throughout the period from June 6 through June 9, 1995, the respective
financial advisors to IBM and the Company discussed the possibility of a
modified offer on terms, including an increased price per Share, that management
might be prepared to recommend to the Board of Directors and pursuant to which
the Company might be willing to enter into a merger agreement with IBM.
On the evening of June 9, 1995, representatives of IBM and the Company
agreed to definitive terms for an amended offer and merger, subject to
approval by their respective Boards of Directors and completion of
documentation. On June 10, 1995, the Board of Directors of the Company
approved the Merger Agreement. The Board of Directors
18
<PAGE>
of IBM approved the Merger Agreement on June 11, 1995. On June 11, 1995, the
Merger Agreement was executed and the parties issued a joint press release with
respect thereto.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Lazard is acting as the Company's financial advisor in connection with the
Offer and the Merger. Pursuant to its agreement with the Company, Lazard will be
entitled to receive, at the time IBM, the Purchaser or any other third party
acquires ownership of more than 50% of the outstanding Shares, $5,000,000 plus
2% of the product of (a) the number of outstanding Shares on a fully diluted
basis multiplied by (b) the Offer Price minus $60. In addition, whether or not
the Offer or the Merger is completed, the Company has agreed to reimburse Lazard
periodically for its reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, and to indemnify Lazard against certain expenses
and liabilities incurred in connection with its engagement, including
liabilities under Federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate, or subsidiary of the Company, except as
follows:
(i) On May 9, 1995, the Company granted 130,000 non-qualifying stock
options at $31.75 per Share to Mr. Braddock. (See Item 3, "Indentity and
Background" above.)
(ii) On May 12, 1995, June L. Rokoff exercised 6,250 outstanding stock
options at $21.00 per Share and sold those 6,250 Shares the same day at
$36.00.
(iii) For the period ending May 31, 1995, Mr. Manzi purchased 250
Shares; Robert K. Weiler purchased 229 Shares; John B. Landry purchased 250
Shares; Ms. Rokoff purchased 250 Shares; and Edward J. Gillis purchased 250
Shares, all through the Employee Stock Purchase Plan. The purchase price was
$26.2438 per Share.
(iv) Between April 1, 1995 and June 2, 1995, the Company repurchased in
the open market an aggregate of 1,807,500 Shares pursuant to its previously
announced stock repurchase program. The aggregate purchase price for such
Shares was $60,074,904.10 (including commissions) and the price per Share
ranged between $30.3125 and $35.750. The Company has not purchased any
Shares since June 2, 1995.
(v) Other transactions include regular on-going acquisitions through the
Company's Profit Sharing and 401(k) Plan.
(b) To the best of the Company's knowledge, all of the Company's executive
officers and directors who own Shares of Common Stock currently intend to tender
all of their Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
19
<PAGE>
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relate
to or would result in one or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
CERTAIN LITIGATION.
Delaware Chancery Court Actions. On June 5 and June 6, 1995, the following
ten class action complaints were filed by stockholders of the Company in the
Court of Chancery in the State of Delaware, New Castle County, in which Jim P.
Manzi, Richard S. Braddock, Elaine L. Chao, William H. Gray, III, Michael E.
Porter and Henri A. Termeer (together, the "Directors") and the Company were
named as defendants: Shaev v. Lotus, et al., Civ. Action No. 14331; Kassoway, et
al. v. Manzi, et al., Civ. Action No. 14332; Shapiro v. Manzi, et al.; Civil
Action No. 14333, Brickell Partners v. Manzi, et al., Civil Action No. 14334;
Brown v. Lotus, et al., Civil Action No. 14335; Brilliant Trading v. Lotus, et
al., Civ. Action No. 14337; Oppenheim v. Lotus, et al., Civ. Action No. 14338;
Katz v. Manzi, et al., Civ. Action No. 14341; Wald v. Manzi, et al., Civ. Action
No. 14344; Siegel v. Manzi, et al., Civ. Action No. 14345. In the suits, the
plaintiff stockholders have alleged, among other things, that the
Directors have breached their fiduciary duties, have failed to attempt to
maximize shareholder value, and have engaged in a plan to entrench themselves
and thwart legitimate offers. The suits seek as relief, among other things, (i)
class certification, (ii) a declaratory judgment that the conduct of the
Company's Board of Directors is unfair, unjust and inequitable to the members of
the class and that such conduct breaches their fiduciary duties of loyalty, due
care, good faith, fair dealing, and candor to the class, (iii) preliminary and
permanent injunctions ordering the individual defendants to carry out their
fiduciary duties to the class by, inter alia, rescinding, redeeming or
invalidating the adoption or implementation of the Company's Rights Agreement,
requiring defendants to consider the Offer in good faith and to maximize the
value of the Company to the class, and requiring defendants to make full and
fair disclosure of the Offer and all other matters concerning a possible
acquisition or merger of the Company and (iv) damages, costs and disbursements
of the action.
Massachusetts State Court Action. On June 6, 1995, a class action was filed
by Marjorie Slater, Trustee for Rita Slater in Superior Court, Commonwealth of
Massachusetts, Middlesex County, naming the Directors and the Company as
defendants (Slater v. Manzi, et al., Civ. Action No. 95-3313). Plaintiff's
allegations are similar to the actions filed in the Delaware court. Plaintiff
seeks, among other things, (i) class certification, (ii) a declaration that the
individual defendants have committed a gross abuse of trust and have breached
their fiduciary duties to the class, (iii) a preliminary and permanent
injunction prohibiting defendants from enforcing the challenged anti-takeover
procedures or otherwise violating their fiduciary duties to the class, (iv) an
order that defendants fulfill their fiduciary duties to maximize shareholder
values by exploring interest and accepting the highest offer obtainable for the
public shareholders or by permitting the shareholders to make that decision free
from any coercion and (v) damages, costs and disbursements of the action.
Federal Court Action. On June 9, 1995, Steven G. Cooperman filed a
shareholder class action complaint in the U.S. District Court in Delaware naming
the Directors and the Company as defendants (Cooperman v. Lotus, et al., Civ.
Action No. 95-346). Plaintiff's allegations are similar to the actions filed in
the Delaware court. Plaintiff seeks, among other things, (i) class
certification, (ii) an order that the individual defendants carry out their
fiduciary duties to the members of the class, (iii) an order that the
individual defendants take steps to facilitate a premium acquisition by,
inter alia, redeeming the Rights, (iv) a declaration that the Massachusetts
Anti-Takeover Statute and the Massachusetts Control Share Acquisition Statute,
Mass. Gen. L. Ch. 110C and 110E are unconstitutional, (v) an injunction
prohibiting the defendants from taking any actions to enforce or apply these
statutes in connection with the Offer, (vi) an invalidation of the election of
directors at the May 2, 1995 annual meeting and all other matters considered at
that meeting, including the amendment to the 1992 Stock Option Plan, and
20
<PAGE>
directing that defendants issue appropriate disclosures with respect to all such
matters, and (vii) damages, costs and disbursements of the action.
AMENDMENT TO RIGHTS AGREEMENT AMENDMENT.
Prior to the execution of the Merger Agreement, the Board of Directors
authorized and the Company executed an amendment to the Rights Agreement
(the "Rights Agreement Amendment"), which renders the Rights Agreement
inapplicable to the Offer and the Merger by providing, among other things,
that the execution of the Merger Agreement, the announcement or making of the
Offer prior to its amendment (the "Original Offer"), the announcement or
making of the Offer as amended, the acquisition of Shares pursuant to the
Offer and the Merger and the other transactions contemplated in the Merger
Agreement will not (a) result in either IBM or the Purchaser or any of their
affiliates being considered an Acquiring Person or (b) cause the occurrence of
a Distribution Date. The Rights Agreement provides that the Rights become
exercisable upon the occurrence of certain triggering events, including the
acquisition of 15% or more of the outstanding Shares should a triggering event
occur, holders of Rights(other than any holder whose action triggered the
Rights) would be generally entitled to purchase Shares with a market value
aggregating $150 for a price of $75 any holder whose action triggered the
Rights. Except as expressly provided in the Rights Agreement Amendment, the
Rights Agreement remains in full force in effect.
A copy of the Rights Agreement Amendment is filed herewith as Exhibit 7, and
is incorporated herein by reference, and the foregoing summary is qualified in
its entirety by reference thereto.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1 Merger Agreement
2 Pages 4-11 of the Proxy Statement
3 Consulting Agreement
4 Form of Indemnification Agreement
5 Article Ninth of the Second Restated Certificate of Incorporation of the Company
6 Article VII of the By-Laws of the Company
7 Rights Agreement Amendment
8 Opinion of Lazard, dated June 10, 1995*
9 Press Release of the Company and IBM, issued June 11, 1995
10 Letter, dated June 12, 1995, from the Chairman of the Board and President to the
Stockholders of the Company
</TABLE>
- ------------
* Attached hereto as Annex A.
21
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
June 12, 1995
LOTUS DEVELOPMENT CORPORATION
By /s/ Thomas M. Lemberg
...................................
Thomas M. Lemberg
Vice President, General
Counsel and Secretary
22
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------- ----
<C> <S> <C>
1 Merger Agreement.............................................................
2 Pages 4-11 of the Proxy Statement............................................
3 Consulting Agreement.........................................................
4 Form of Indemnification Agreement............................................
5 Article Ninth of the Second Restated Certificate of Incorporation of the
Company......................................................................
6 Article VII of the By-Laws of the Company....................................
7 Rights Agreement Amendment...................................................
8 Opinion of Lazard, dated June 10, 1995*......................................
9 Press Release of the Company and IBM, issued June 11, 1995...................
10 Letter, dated June 12, 1995, from the Chairman of the Board and President to
the Stockholders of the Company..............................................
</TABLE>
- ------------
* Attached hereto as Annex A.
AGREEMENT AND PLAN OF MERGER
Among
INTERNATIONAL BUSINESS MACHINES CORPORATION,
WHITE ACQUISITION CORP.
and
LOTUS DEVELOPMENT CORPORATION
Dated as of June 11, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
The Offer
---------
SECTION 1.01. The Offer . . . . . . . . . . . . . . . 3
SECTION 1.02. Company Actions . . . . . . . . . . . . 6
ARTICLE II
The Merger
----------
SECTION 2.01. The Merger . . . . . . . . . . . . . . 8
SECTION 2.02. Closing . . . . . . . . . . . . . . . . 9
SECTION 2.03. Effective Time . . . . . . . . . . . . 9
SECTION 2.04. Effects of the Merger . . . . . . . . . 10
SECTION 2.05. Certificate of Incorporation and
By-laws . . . . . . . . . . . . . . . 10
SECTION 2.06. Directors . . . . . . . . . . . . . . . 10
SECTION 2.07. Officers . . . . . . . . . . . . . . . 10
ARTICLE III
Effect of the Merger on the Capital Stock of the
------------------------------------------------
Constituent Corporations; Exchange of Certificates
--------------------------------------------------
SECTION 3.01. Effect on Capital Stock . . . . . . . . 11
(a) Capital Stock of Sub . . . . . . . 11
(b) Cancellation of Treasury Stock and
Parent Owned Stock . . . . . . . 11
(c) Conversion of Company Common Stock 12
(d) Shares of Dissenting Stockholders 12
(e) Withholding Tax . . . . . . . . . 13
SECTION 3.02. Exchange of Certificates . . . . . . . 13
(a) Paying Agent . . . . . . . . . . . 13
(b) Exchange Procedure . . . . . . . . 14
(c) No Further Ownership Rights in
Company Common Stock . . . . . . 16
(d) No Liability . . . . . . . . . . . 16
<PAGE>
Contents, p. 2
Page
----
ARTICLE IV
Representations and Warranties of the Company
---------------------------------------------
SECTION 4.01. Organization . . . . . . . . . . . . . 17
SECTION 4.02. Capitalization . . . . . . . . . . . . 19
SECTION 4.03. Authority . . . . . . . . . . . . . . . 21
SECTION 4.04. Consents and Approvals; No Violations . 22
SECTION 4.05. SEC Reports and Financial Statements . 23
SECTION 4.06. Absence of Certain Changes or Events . 25
SECTION 4.07. No Undisclosed Liabilities . . . . . . 27
SECTION 4.08. Information Supplied . . . . . . . . . 28
SECTION 4.09. Benefit Plans . . . . . . . . . . . . . 29
SECTION 4.10. Other Compensation Arrangements. . . . . 30
SECTION 4.11. Litigation . . . . . . . . . . . . . . . 32
SECTION 4.12. Compliance with Applicable Law . . . . 32
SECTION 4.13. Rights Agreement . . . . . . . . . . . 33
SECTION 4.14. Tax Matters . . . . . . . . . . . . . . 34
SECTION 4.15. State Takeover Statutes . . . . . . . . 37
SECTION 4.16. Brokers . . . . . . . . . . . . . . . . 37
SECTION 4.17. Opinion of Financial Advisor . . . . . 38
SECTION 4.18. Intellectual Property . . . . . . . . . 38
ARTICLE V
Representations and Warranties
------------------------------
of Parent and Sub
-----------------
SECTION 5.01. Organization . . . . . . . . . . . . . 43
SECTION 5.02. Authority . . . . . . . . . . . . . . . 43
SECTION 5.03. Consents and Approvals; No Violations . 44
SECTION 5.04. Information Supplied . . . . . . . . . 45
SECTION 5.05. Interim Operations of Sub . . . . . . . 46
SECTION 5.06. Brokers . . . . . . . . . . . . . . . . 47
SECTION 5.07. Financing . . . . . . . . . . . . . . . 47
ARTICLE VI
Covenants
---------
SECTION 6.01. Covenants of the Company . . . . . . . 47
(a) Ordinary Course . . . . . . . . . 48
(b) Dividends; Changes in Stock . . . 48
(c) Issuance of Securities . . . . . . 49
(d) Governing Documents . . . . . . . 49
<PAGE>
Contents, p. 3
Page
----
(e) No Acquisitions . . . . . . . . . 50
(f) No Dispositions . . . . . . . . . 50
(g) Indebtedness . . . . . . . . . . . 50
(h) Advice of Changes; Filings . . . . 51
(i) Tax Matters . . . . . . . . . . . 51
(j) Discharge of Liabilities . . . . . 51
(k) Material Contracts . . . . . . . . 51
SECTION 6.02. No Solicitation . . . . . . . . . . . . 52
SECTION 6.03. Other Actions . . . . . . . . . . . . . 57
ARTICLE VII
Additional Agreements
---------------------
SECTION 7.01. Stockholder Approval; Preparation of
Proxy Statement . . . . . . . . . . . 58
SECTION 7.02. Access to Information . . . . . . . . . 60
SECTION 7.03. Reasonable Efforts . . . . . . . . . . 62
SECTION 7.04. [Not used] . . . . . . . . . . . . . . 63
SECTION 7.05. Certain Benefits; Company
Stock Options . . . . . . . . . . . . . 63
SECTION 7.06. Directors . . . . . . . . . . . . . . . 67
SECTION 7.07. Fees and Expenses . . . . . . . . . . . 69
SECTION 7.08. Indemnification; Insurance . . . . . . 70
SECTION 7.09. Rights Agreement . . . . . . . . . . . 71
SECTION 7.10. Certain Litigation . . . . . . . . . . 72
SECTION 7.11. Consent Solicitation . . . . . . . . . 72
ARTICLE VIII
Conditions
----------
SECTION 8.01. Conditions to Each Party's Obligation To
Effect the Merger . . . . . . . . . . 73
(a) Company Stockholder Approval . . . 73
(b) No Injunctions or Restraints . . . 73
(c) Purchase of Shares . . . . . . . . 74
ARTICLE IX
Termination and Amendment
-------------------------
SECTION 9.01. Termination . . . . . . . . . . . . . . 74
SECTION 9.02. Effect of Termination . . . . . . . . . 76
<PAGE>
Contents, p. 4
Page
----
SECTION 9.03. Amendment . . . . . . . . . . . . . . . 77
SECTION 9.04. Extension; Waiver . . . . . . . . . . . 78
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Nonsurvival of Representations,
Warranties and Agreements . . . . . . 78
SECTION 10.02. Notices . . . . . . . . . . . . . . . . 79
SECTION 10.03. Interpretation . . . . . . . . . . . . 80
SECTION 10.04. Counterparts . . . . . . . . . . . . . 81
SECTION 10.05. Entire Agreement; No Third Party
Beneficiaries . . . . . . . . . . . . 81
SECTION 10.06. Governing Law . . . . . . . . . . . . . 82
SECTION 10.07. Publicity . . . . . . . . . . . . . . . 82
SECTION 10.08. Assignment . . . . . . . . . . . . . . 82
Exhibits
--------
Exhibit A Conditions of the Offer
Exhibit B Rights Plan Amendment
Exhibit C Executive Severance
Disclosure Schedules
--------------------
Company Disclosure Schedule
---------------------------
Section 4.04 Consents and Approvals; No Violations
Section 4.07 No Undisclosed Liabilities
Section 4.09 Benefit Plans
Section 4.10 Other Compensation Arrangements
Section 4.11 Litigation
Section 4.12 Compliance with Applicable Law
Section 6.01 Covenants (Capital Expenditures)
Parent Disclosure Schedule
--------------------------
Section 5.03 Consents and Approvals; No Violations
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of
June 11, 1995, among INTERNATIONAL BUSINESS
MACHINES CORPORATION, a New York corporation
("Parent"), WHITE ACQUISITION CORP., a New
York corporation and a wholly owned
subsidiary of Parent ("Sub"), and LOTUS
DEVELOPMENT CORPORATION, a Delaware
corporation (the "Company").
WHEREAS, Sub has outstanding an offer (the
"Existing Offer", and, as amended pursuant to this
Agreement, the "Offer") to purchase all the outstanding
shares of Common Stock, par value $.01 per share, of the
Company (the "Company Common Stock"; all the outstanding
shares of Company Common Stock being hereinafter
collectively referred to as the "Shares") and the associated
Preferred Share Purchase Rights (the "Rights") issued
pursuant to the Rights Agreement dated as of November 7,
1988, as amended as of April 5, 1990, as of September 16,
1991, and as of the date hereof, between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights
Agreement"), at a purchase price of $60 per Share (and
associated Right), net to the seller in cash, without
interest thereon, upon the terms and subject to the
<PAGE>
2
conditions set forth in the Offer to Purchase dated June 6,
1995, and in the related letter of transmittal;
WHEREAS, in consideration of the Company's
entering into this Agreement, Parent is willing to cause Sub
to increase the price to be paid pursuant to the Offer to
$64 per Share, net to the seller in cash, without interest
thereon (such amount being hereinafter referred to as the
("Offer Price");
WHEREAS, the Board of Directors of the Company has
(i) determined that the consideration to be paid for each
Share in the Offer and in the Merger (as defined below) is
fair to and in the best interests of the stockholders of the
Company, (ii) approved this Agreement and the transactions
contemplated hereby and (iii) resolved to recommend
acceptance of the Offer and the Merger and approval of this
Agreement by such stockholders; and
WHEREAS, the Board of Directors of Parent and Sub
have each approved the merger (the "Merger") of Sub with the
Company in accordance with the Business Corporation Law of
the State of New York (the "BCL") and the General
Corporation Law of the State of Delaware (the "DGCL") upon
the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing
and the mutual covenants and agreements herein contained,
<PAGE>
3
and intending to be legally bound hereby, Parent, Sub and
the Company hereby agree as follows:
ARTICLE I
The Offer
---------
SECTION 1.01. The Offer. (a) Sub shall amend
----------
the Offer as soon as practicable after the date hereof to
(i) increase the purchase price offered to the Offer Price,
(ii) modify the conditions of the Offer to conform to the
conditions or events set forth in Exhibit A hereto (the
"Offer Conditions") and no others and (iii) to make such
other amendments as are required to conform the Offer to
this Agreement, it being understood that except for the
foregoing amendments or as otherwise provided herein, the
Offer shall be on the same terms and conditions as the
Existing Offer. The obligation of Sub to, and of Parent to
cause Sub to, accept for payment, and pay for, any Shares
tendered pursuant to the Offer shall be subject to the Offer
Conditions (any of which may be waived in whole or in part
by Sub in its sole discretion, provided that, without the
consent of the Company, Sub shall not waive the Minimum
Condition (as defined in Exhibit A)) and to the terms and
conditions of this Agreement. Without the consent of the
Company, Sub shall not (i) reduce the number of Shares
sought in the Offer, (ii) reduce the Offer Price,
<PAGE>
4
(iii) change or add to the Offer Conditions, (iv) except as
provided in the next sentence, extend the Offer, (v) change
the form of consideration payable in the Offer or (vi) amend
any other term of the Offer in any manner adverse to the
holders of the Shares. Notwithstanding the foregoing, Sub
may, without the consent of the Company, (A) extend the
Offer, if at the scheduled expiration date of the Offer any
of the Offer Conditions shall not be satisfied or waived,
until such time as such conditions are satisfied or waived,
(B) extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and
Exchange Commission (the "SEC") or the staff thereof
applicable to the Offer and (C) extend the Offer for any
reason on one or more occasions for an aggregate period of
not more than 25 business days (for all such extensions)
beyond the latest expiration date that would otherwise be
permitted under clause (A) or (B) of this sentence. Subject
to the terms and conditions of the Offer and this Agreement,
Sub shall, and Parent shall cause Sub to, accept for
payment, and pay for, all Shares validly tendered and not
withdrawn pursuant to the Offer that Sub becomes obligated
to accept for payment, and pay for, pursuant to the Offer as
soon as practicable after the expiration of the Offer.
<PAGE>
5
(b) As soon as reasonably practicable after the
date hereof, Sub shall amend its Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") with respect to the
Offer that was originally filed with the SEC on June 6,
1995, and shall file such amendment with the SEC. The
Schedule 14D-1 will contain a supplement to the Offer to
Purchase dated June 6, 1995, and a revised form of the
related letter of transmittal (which Schedule 14D-1, Offer
to Purchase and other documents, as amended and
supplemented, together with any further amendments or
supplements thereto, are referred to herein collectively as
the "Offer Documents"), which shall be mailed to the holders
of Shares. Parent, Sub and the Company each agrees promptly
to correct any information provided by it for use in the
Offer Documents that shall have become false or misleading
in any material respect, and Parent and Sub further agree to
take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of
Shares, in each case as and to the extent required by
applicable Federal securities laws.
(c) Parent shall provide or cause to be provided
to Sub on a timely basis the funds necessary to accept for
<PAGE>
6
payment, and pay for, any Shares that Sub becomes obligated
to accept for payment, and pay for, pursuant to the Offer.
SECTION 1.02. Company Actions. (a) The Company
----------------
hereby approves of and consents to the Offer and represents
that the Board of Directors of the Company, at a meeting
duly called and held, duly and unanimously adopted
resolutions approving this Agreement, the Offer and the
Merger, determining that the terms of the Offer and the
Merger are fair to, and in the best interests of, the
Company's stockholders and recommending that the Company's
stockholders accept the Offer and tender their shares
pursuant to the Offer and approve and adopt this Agreement.
The Company has been advised by each of its directors and
executive officers that each such person intends to tender
all Shares owned by such person pursuant to the Offer.
(b) On the date the Offer Documents are filed
with the SEC, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 with
respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the
recommendation described in paragraph (a) and shall mail the
Schedule 14D-9 to the stockholders of the Company. Each of
the Company, Parent and Sub agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if
<PAGE>
7
and to the extent that such information shall have become
false or misleading in any material respect, and the Company
further agrees to take all steps necessary to amend or
supplement the Schedule 14D-9 and to cause the
Schedule 14D-9 as so amended or supplemented to be filed
with the SEC and disseminated to the Company's stockholders,
in each case as and to the extent required by applicable
Federal securities laws.
(c) In connection with the Offer, the Company
shall cause its transfer agent to furnish Sub promptly with
mailing labels containing the names and addresses of the
record holders of Shares as of a recent date and of those
persons becoming record holders subsequent to such date,
together with copies of all lists of stockholders, security
position listings and computer files and all other
information in the Company's possession or control regarding
the beneficial owners of Company Common Stock, and shall
furnish to Sub such information and assistance (including
updated lists of stockholders, security position listings
and computer files) as Parent may reasonably request in
communicating the Offer to the Company's stockholders.
Subject to the requirements of applicable law, and except
for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate
<PAGE>
8
the Merger, Parent and Sub and their agents shall hold in
confidence the information contained in any such labels,
listings and files, will use such information only in
connection with the Offer and the Merger and, if this
Agreement shall be terminated, will, upon request, deliver,
and will use their best efforts to cause their agents to
deliver, to the Company all copies of and any extracts or
summaries from such information then in their possession or
control.
ARTICLE II
The Merger
----------
SECTION 2.01. The Merger. Upon the terms and
-----------
subject to the conditions set forth in this Agreement, and
in accordance with the DGCL and the BCL, Sub shall be merged
with and into the Company at the Effective Time (as
hereinafter defined). Following the Effective Time, the
separate corporate existence of Sub shall cease and the
Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the
DGCL and the BCL. At the election of Parent, any direct or
indirect wholly owned subsidiary (as defined in
Section 10.03) of Parent may be substituted for Sub as a
constituent corporation in the Merger, provided that no such
--------
<PAGE>
9
substitution shall be made if it would materially delay or
impede the transactions contemplated hereby. In such event,
the parties agree to execute an appropriate amendment to
this Agreement in order to reflect the foregoing.
SECTION 2.02. Closing. The closing of the Merger
--------
will take place at 10:00 a.m. on a date to be specified by
Parent or Sub, which shall be no later than the second
business day after satisfaction or waiver of the conditions
set forth in Article VIII (the "Closing Date"), at the
offices of Cravath, Swaine & Moore, Worldwide Plaza,
825 Eighth Avenue, New York, New York 10019, unless another
date or place is agreed to in writing by the parties hereto.
SECTION 2.03. Effective Time. Subject to the
---------------
provisions of this Agreement, as soon as practicable on or
after the Closing Date, the parties shall file a certificate
of merger or other appropriate documents (in any such case,
the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and the BCL and shall make
all other filings or recordings required under the DGCL and
the BCL. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware
Secretary of State and the New York Secretary of State, or
at such other time as Sub and the Company shall agree should
be specified in the Certificate of Merger (the time the
<PAGE>
10
Merger becomes effective being hereinafter referred to as
the "Effective Time").
SECTION 2.04. Effects of the Merger. The Merger
----------------------
shall have the effects set forth in Section 259 of the DGCL
and Section 907 of the BCL.
SECTION 2.05. Certificate of Incorporation and
--------------------------------
By-laws. (a) The certificate of incorporation of the
--------
Company, as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
(b) The by-laws of the Company as in effect at
the Effective Time shall be the by-laws of the Surviving
Corporation, until thereafter changed or amended as provided
therein or by applicable law.
SECTION 2.06. Directors. The directors of Sub
----------
immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective
successors are duly elected and qualified, as the case may
be.
SECTION 2.07. Officers. The officers of the
---------
Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, until the earlier of
<PAGE>
11
their resignation or removal or until their respective
successors are duly elected and qualified, as the case may
be.
ARTICLE III
Effect of the Merger on the Capital Stock of the
-------------------------------------------------
Constituent Corporations; Exchange of Certificates
--------------------------------------------------
SECTION 3.01. Effect on Capital Stock. As of the
------------------------
Effective Time, by virtue of the Merger and without any
action on the part of the holder of any Shares or any shares
of capital stock of Sub:
(a) Capital Stock of Sub. The issued and
---------------------
outstanding shares of capital stock of Sub shall be
converted into and become 57 million fully paid and
nonassessable shares of Common Stock, par value $.01
per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent
-----------------------------------------
Owned Stock. Each share of Company Common Stock (and
------------
associated Right) that is owned by the Company or by
any subsidiary of the Company and each Share (and
associated Right) that is owned by Parent, Sub or any
other subsidiary of Parent shall automatically be
cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
<PAGE>
12
(c) Conversion of Company Common Stock. Subject
-----------------------------------
to Section 3.01(d), each Share (and associated Right)
issued and outstanding (other than shares to be
cancelled in accordance with Section 3.01(b)) shall be
converted into the right to receive from the Surviving
Corporation in cash, without interest, the price paid
in the Offer (the "Merger Consideration"). As of the
Effective Time, all such Shares (and associated Rights)
shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such
Shares (and Rights) shall cease to have any rights with
respect thereto, except the right to receive the Merger
Consideration, without interest.
(d) Shares of Dissenting Stockholders.
----------------------------------
Notwithstanding anything in this Agreement to the
contrary, any issued and outstanding Shares (and
associated Rights) held by a person (a "Dissenting
Stockholder") who objects to the Merger and complies
with all the provisions of Delaware law concerning the
right of holders of Company Common Stock to dissent
from the Merger and require appraisal of their Shares
("Dissenting Shares") shall not be converted as
described in Section 3.01(c) but shall become the right
<PAGE>
13
to receive such consideration as may be determined to
be due to such Dissenting Stockholder pursuant to the
laws of the State of Delaware. If, after the Effective
Time, such Dissenting Stockholder withdraws his demand
for appraisal or fails to perfect or otherwise loses
his right of appraisal, in any case pursuant to the
DGCL, his Shares shall be deemed to be converted as of
the Effective Time into the right to receive the Merger
Consideration. The Company shall give Parent
(i) prompt notice of any demands for appraisal of
Shares received by the Company and (ii) the opportunity
to participate in and direct all negotiations and
proceedings with respect to any such demands. The
Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such
demands.
(e) Withholding Tax. The right of any
----------------
stockholder to receive the Merger Consideration shall
be subject to and reduced by the amount of any required
tax withholding obligation.
SECTION 3.02. Exchange of Certificates.
-------------------------
(a) Paying Agent. Prior to the Effective Time, Parent shall
-------------
designate a bank or trust company to act as paying agent in
<PAGE>
14
the Merger (the "Paying Agent"), and, from time to time on,
prior to or after the Effective Time, Parent shall make
available, or cause the Surviving Corporation to make
available, to the Paying Agent funds in amounts and at the
times necessary for the payment of the Merger Consideration
upon surrender of certificates representing Shares as part
of the Merger pursuant to Section 3.01, it being understood
that any and all interest earned on funds made available to
the Paying Agent pursuant to this Agreement shall be turned
over to Parent.
(b) Exchange Procedure. As soon as reasonably
-------------------
practicable after the Effective Time, the Paying Agent shall
mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time
represented Shares (the "Certificates"), (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
Paying Agent and shall be in a form and have such other
provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed
<PAGE>
15
by Parent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be
required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the amount
of cash into which the Shares theretofore represented by
such Certificate shall have been converted pursuant to
Section 3.01, and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of
ownership of Shares that is not registered in the transfer
records of the Company, payment may be made to a person
other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be
properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay
any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such
Certificate or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this
Section 3.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without
interest, into which the Shares theretofore represented by
such Certificate shall have been converted pursuant to
<PAGE>
16
Section 3.01. No interest will be paid or will accrue on
the cash payable upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common
---------------------------------------------
Stock. All cash paid upon the surrender of Certificates in
------
accordance with the terms of this Article III shall be
deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore represented by such
Certificates. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no
further registration of transfers on the stock transfer
books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason,
they shall be cancelled and exchanged as provided in this
Article III.
(d) No Liability. None of Parent, Sub, the
-------------
Company or the Paying Agent shall be liable to any person in
respect of any cash delivered to a public official pursuant
to any applicable abandoned property, escheat or similar
law.
ARTICLE IV
Representations and Warranties of the Company
---------------------------------------------
Except as set forth on the disclosure schedule
<PAGE>
17
delivered by the Company to Parent prior to the execution of
this Agreement (the "Company Disclosure Schedule"), the
Company represents and warrants to Parent and Sub as
follows:
SECTION 4.01. Organization. Each of the Company
-------------
and its Significant Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and
corporate authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have
such power, authority, and governmental approvals would not
have a material adverse effect. For purposes of this
Agreement, a "Significant Subsidiary" means any subsidiary
of the Company that constitutes a significant subsidiary
within the meaning of Rule 1-02 of Regulation S-X of the
SEC. The Company and each of its subsidiaries is duly
qualified or licensed to do business and in good standing 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
where the failure to be so duly qualified or licensed and in
<PAGE>
18
good standing would not have a material adverse effect or
prevent or materially delay the consummation of the Offer or
the Merger. The Company has made available to Parent
complete and correct copies of the certificate of
incorporation and by-laws of the Company, in each case as
amended to the date of this Agreement, and will make
available immediately following the date of this Agreement
the certificates of incorporation and by-laws or other
organizational documents of its subsidiaries, in each case
as amended to the date of this Agreement. The respective
certificates of incorporation and by-laws or other
organizational documents of the subsidiaries of the Company
do not contain any provision limiting or otherwise
restricting the ability of the Company to control such
subsidiaries. The list of subsidiaries of the Company filed
by the Company with its most recent Report on Form 10-K is a
true and accurate list of all the subsidiaries of the
Company which are required to be set forth therein. All the
outstanding shares of capital stock of each subsidiary are
owned by the Company, by another wholly owned subsidiary of
the Company or by the Company and another wholly owned
subsidiary of the Company, free and clear of all liens, and
are duly authorized, validly issued, fully paid and
nonassessable.
<PAGE>
19
SECTION 4.02. Capitalization. As of the date
---------------
hereof, the authorized capital stock of the Company consists
of (i) 200,000,000 shares of Company Common Stock of which,
as of May 27, 1995, 46,579,120 shares were issued and
outstanding and 16,997,590 shares were held in treasury; and
(ii) 5,000,000 shares of preferred stock, par value $1.00
per share ("Company Preferred Stock"), none of which are
issued and outstanding. As of May 27, 1995, (i) no shares
of Company Common Stock and 550,000 shares of Company
Preferred Stock are reserved for issuance in accordance with
the Rights Agreement and (ii) 9,030,132 shares of Company
Common Stock were reserved for issuance upon exercise of
outstanding options or stock appreciation rights pursuant to
the Company's stock option and similar plans (collectively,
the "Company Stock Plans"). Since May 27, 1995, options to
purchase 23,300 shares of Company Common Stock have been
granted and no shares of Company Common Stock have been
issued except for 231,658 shares of Company Common Stock
issued pursuant to the Company's Employee Stock Purchase
Plan and shares issued pursuant to the exercise of options
outstanding as of June 10, 1995. All the outstanding shares
of Company Common Stock are, and all shares which may be
issued pursuant to Company Stock Plans will be, when issued
in accordance with the terms thereof, duly authorized,
<PAGE>
20
validly issued, fully paid and nonassessable and free of any
preemptive rights in respect thereto. As of the date
hereof, no bonds, debentures, notes or other indebtedness of
the Company convertible into securities having the right to
vote ("Convertible Debt") are issued or outstanding. Except
as set forth above, as of the date hereof, no shares of
capital stock or other voting securities of the Company are
outstanding, no equity equivalents, interests in the
ownership or earnings of the Company or other similar rights
are outstanding and there are no existing options, warrants,
calls, subscriptions or other rights or other agreements or
commitments of any character relating to the issued or
unissued capital stock or Convertible Debt of the Company or
any of its subsidiaries or obligating the Company or any of
its subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or
Convertible Debt of, or other equity interests in, the
Company or of any of its subsidiaries or securities
convertible into or exchangeable for such shares or equity
interests or obligating the Company or any of its
subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement or
commitment. As of the date hereof, there are no outstanding
contractual obligations of the Company or any of its
<PAGE>
21
subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its
subsidiaries.
SECTION 4.03. Authority. The Company has the
----------
requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby (other than, with respect to the Merger,
the approval of the terms of this Agreement by the holders
of a majority of the outstanding shares of Company Common
Stock). The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to
the Merger, the approval of the terms of this Agreement by
the holders of a majority of the outstanding shares of
Company Common Stock). This Agreement has been duly
executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding obligation of
Parent and Sub, constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance
with its terms.
<PAGE>
22
SECTION 4.04. Consents and Approvals; No
--------------------------
Violations. Except as set forth in the Company Disclosure
-----------
Schedule, and except for filings, permits, authorizations,
consents and approvals as may be required under, and other
applicable requirements of, the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including the filing
with the SEC of the Schedule 14D-9 and a proxy statement
relating to any required approval by the Company's
stockholders of this Agreement (the "Proxy Statement")), the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the DGCL, the BCL, blue sky laws,
state takeover laws and foreign laws, neither the execution,
delivery or 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 certificate of incorporation
or by-laws of the Company or of the equivalent
organizational documents of any of its Significant
Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral
tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency (a
"Governmental Entity") (except where the failure to obtain
such permits, authorizations, consents or approvals or to
<PAGE>
23
make such filings would not have a material adverse effect),
(iii) 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) 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 properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its subsidiaries or any of
their properties or assets, except in the case of clauses
(iii) or (iv) for violations, breaches or defaults that
would not have a material adverse effect or prevent or
materially delay the consummation of the Offer or the
Merger.
SECTION 4.05. SEC Reports and Financial
-------------------------
Statements. Each of the Company and its subsidiaries has
-----------
filed with the SEC, and has heretofore made available to
Parent true and complete copies of, all forms, reports,
schedules, statements and other documents required to be
filed by it since December 31, 1993, under the Exchange Act
or the Securities Act of 1933 (the "Securities Act") (such
<PAGE>
24
forms, reports, schedules, statements and other documents,
to the extent filed and publicly available prior to the date
of this Agreement, other than preliminary filings, are
referred to as the "Company SEC Documents"). The Company
SEC Documents, at the time filed, (a) did not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading and
(b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as
the case may be, and the applicable rules and regulations of
the SEC thereunder. The Company SEC Documents, considered
as a whole, do not contain an untrue statement of a material
fact or omit 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 financial statements of the Company included in the
Company SEC Documents comply as to form in all material
respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
<PAGE>
25
during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly
present (subject, in the case of the unaudited statements,
to normal, recurring audit adjustments) the consolidated
financial position of the Company and its consolidated
subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods
then ended. Any change in the Company's results of
operations will not be deemed to make the foregoing
representations not true and correct.
SECTION 4.06. Absence of Certain Changes or
-----------------------------
Events. Except as contemplated by this Agreement and as
-------
disclosed in the Company SEC Documents or in the Company
Disclosure Schedule, since April 1, 1995, the Company and
its subsidiaries have conducted their respective businesses
only in the ordinary course, and there has not been (i) any
material adverse change, (ii) any declaration, setting aside
or payment of any dividend or other distribution with
respect to its capital stock or any redemption, purchase or
other acquisition of any of its capital stock, (iii) any
split, combination or reclassification or any of its capital
stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of or in
<PAGE>
26
substitution for shares of its capital stock, (iv) (w) any
granting by the Company or any of its subsidiaries to any
officer of the Company or any of its subsidiaries of any
increase in compensation, except in the ordinary course of
business (including in connection with promotions)
consistent with prior practice or as was required under
employment agreements in effect as of the date of the most
recent audited financial statements included in the Company
SEC Documents, (x) any granting by the Company or any of its
subsidiaries to any such officer of any increase in
severance or termination pay, except as part of a standard
employment package to any person promoted or hired (but not
including the five most senior officers), or as was required
under employment, severance or termination agreements in
effect as of the date of the most recent audited financial
statements included in the Company SEC Documents, (y) except
termination arrangements in the ordinary course of business
consistent with past practice with employees other than any
executive officer of the Company, any entry by the Company
or any of its subsidiaries into any employment, severance or
termination agreement with any such officer or (z) any
increase in benefits available under or establishment of any
Benefit Plan (as defined in Section 4.09(a)) (including the
granting of stock options, stock appreciation rights,
<PAGE>
27
performance awards or restricted stock awards or the
amendment or acceleration of vesting of any existing stock
options, stock appreciation rights, performance awards or
restricted stock awards but excluding any amendment
accelerating vesting of existing stock options), except in
the ordinary course of business consistent with past
practice, (v) any damage, destruction or loss to physical
properties owned or used by the Company, whether or not
covered by insurance, that has or reasonably could be
expected to have a material adverse effect on the Company,
(vi) any revaluation by the Company of any of its material
assets or (vii) any material change in accounting methods,
principles or practices by the Company.
SECTION 4.07. No Undisclosed Liabilities. Except
---------------------------
as and to the extent set forth in the Company's Annual
Report to Shareholders for the year ended December 31, 1994,
or in any subsequently filed Company SEC Document, neither
the Company nor any of its subsidiaries has 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 and its
subsidiaries (including the notes thereto), except for
liabilities or obligations incurred in the ordinary course
<PAGE>
28
of business since December 31, 1994, that would not,
individually or in the aggregate, have a material adverse
effect.
SECTION 4.08. Information Supplied. None of the
---------------------
information supplied or to be supplied by the Company
specifically for inclusion or incorporation by reference in
(i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the
information to be filed by the Company in connection with
the Offer pursuant to Rule 14f-1 promulgated under the
Exchange Act (the "Information Statement") or (iv) the Proxy
Statement, will, in the case of the Offer Documents, the
Schedule 14D-9 and the Information Statement, at the
respective times the Offer Documents, the Schedule 14D-9 and
the Information Statement are filed with the SEC or first
published, sent or given to the Company's stockholders, or,
in the case of the Proxy Statement, at the time the Proxy
Statement is first mailed to the Company's stockholders or
at the time of the Stockholders Meeting (as hereinafter
defined), 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, except that no representation or
warranty is made by the Company with respect to statements
<PAGE>
29
made or incorporated by reference therein based on
information supplied by Parent or Sub in writing
specifically for inclusion or incorporation by reference
therein. The Schedule 14D-9, the Information Statement and
the Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.09. Benefit Plans. Subject to
--------------
Section 4.14(h), (a) Each "employee pension benefit plan"
(as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"))(a
"Pension Plan"), "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA)(a "Welfare Plan"), and each other
plan, arrangement or policy (written or oral) relating to
stock options, stock purchases, compensation, deferred
compensation, bonuses, severance, fringe benefits or other
employee benefits, in each case maintained or contributed
to, or required to be maintained or contributed to, by the
Company or its subsidiaries for the benefit of any present
or former employee, officer or director (each of the
foregoing, a "Benefit Plan") has been administered in
accordance with its terms. The Company and its subsidiaries
and all the Benefit Plans are in compliance with the
applicable provisions of ERISA, the Internal Revenue Code of
<PAGE>
30
1986, as amended (the "Code"), all other applicable laws and
all applicable collective bargaining agreements.
(b) None of the Company or any other person or
entity that, together with the Company, is treated as a
single employer under Section 414 of the Code (each,
including the Company, a "Commonly Controlled Entity") has
incurred any liability to a Pension Plan under Title IV of
ERISA (other than for contributions not yet due) or to the
Pension Benefit Guaranty Corporation (other than for payment
of premiums not yet due), which liability has not been fully
paid.
(c) No Commonly Controlled Entity is required to
contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or has withdrawn from any
multiemployer plan where such withdrawal has resulted or
would result in any "withdrawal liability" (within the
meaning of Section 4201 of ERISA) that has not been fully
paid.
(d) Each Benefit Plan that is a Welfare Plan may
be amended or terminated at any time after the Effective
Time without liability to the Company or its subsidiaries.
SECTION 4.10. Other Compensation Arrangements.
--------------------------------
Except as disclosed in the Company Disclosure Schedule or
the Company SEC Documents, and except as provided in this
<PAGE>
31
Agreement, as of the date of this Agreement, neither the
Company nor any of its subsidiaries is a party to any
written (i) consulting agreement not terminable on not more
than 60 calendar days notice involving the payment of more
than $500,000 per annum or union or collective bargaining
agreement which covers more than 100 employees,
(ii) agreement with any executive officer or other key
employee of the Company or any of its subsidiaries (x) the
benefits of which are contingent, or the terms of which are
materially affected or altered, upon the occurrence of a
transaction involving the Company of the nature contemplated
by this Agreement or (y) providing any term of employment or
compensation guarantee extending for a period longer than
two years or the payment of more than $500,000 per year or
(iii) agreement or plan, including any stock option plan,
stock appreciation right plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be
increased or affected, or the vesting of the benefits of
which will be accelerated or affected, by the occurrence of
any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this
Agreement.
<PAGE>
32
SECTION 4.11. Litigation. Except as disclosed in
-----------
the Company SEC Documents or in the Company Disclosure
Schedule and except for suits filed in connection with the
Offer, there is no suit, claim, action, proceeding or
investigation pending before any Governmental Entity or, to
the best knowledge of the Company, threatened against the
Company or any of its subsidiaries that could reasonably be
expected to have a material adverse effect. Except as
disclosed in the Company SEC Documents or in the Company
Disclosure Schedule, neither the Company nor any of its
subsidiaries is subject to any outstanding order, writ,
injunction or decree that could reasonably be expected to
have a material adverse effect.
SECTION 4.12. Compliance with Applicable Law.
-------------------------------
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 that would not,
individually or in the aggregate, have a material adverse
effect. 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
<PAGE>
33
effect. Except as disclosed in the Company SEC Documents,
to the best knowledge of the Company, 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 for possible violations that,
individually or in the aggregate, would not have a material
adverse effect or prevent or materially delay the
consummation of the Offer or the Merger. Except as set
forth in the Company Disclosure Schedule, as of the date of
this Agreement, no investigation or review by any
Governmental Entity with respect to the Company or any of
its subsidiaries is pending or, to the best knowledge of the
Company, threatened, nor has any Governmental Entity
indicated an intention to conduct any such investigation or
review, other than, in each case, those the outcome of which
would not be reasonably expected to have a material adverse
effect or prevent or materially delay the consummation of
the Offer or the Merger.
SECTION 4.13. Rights Agreement. The Company has
-----------------
heretofore provided Parent with a complete and correct copy
of the Rights Agreement, including all amendments and
exhibits thereto. The amendment to the Rights Agreement
attached hereto as Exhibit B has been duly authorized by the
Board of Directors of the Company and has been duly executed
<PAGE>
34
by the Company, and, accordingly, the execution of this
Agreement, the announcement or making of the Existing Offer
or the Offer, the acquisition of Shares pursuant to the
Offer and the Merger and the other transactions contemplated
in this Agreement will not cause the Rights to become
exercisable or result in either Parent or Sub or any of
their Affiliates being considered to be an "Acquiring
Person" (as defined in the Rights Agreement) or the
occurrence of a "Distribution Date", a "Section 11(a)(ii)
Event" or a "Section 13 Event" (as such terms are defined in
the Rights Agreement).
SECTION 4.14. Tax Matters. Except as set forth
------------
in the Company Disclosure Schedule and subject to
Section 4.14(h):
(a) Each of the Company and each of its
subsidiaries has filed all Federal income tax returns and
all other material tax returns and reports required to be
filed by it. All such returns are complete and correct.
Each of the Company and each of its subsidiaries has paid
(or the Company has paid on its subsidiaries' behalf) all
taxes shown as due on such returns and all taxes for which
no return was required to be filed.
(b) No tax return of the Company or any of its
subsidiaries is under audit or examination by any taxing
<PAGE>
35
authority, and no written or unwritten notice of such an
audit or examination has been received by the Company or any
of its subsidiaries. Each deficiency resulting from any
audit or examination relating to taxes by any taxing
authority has been paid, except for deficiencies being
contested in good faith. No issues relating to taxes were
raised in writing by the relevant taxing authority during
any presently pending audit or examination, and no material
issues relating to taxes were raised in writing by the
relevant taxing authority in any completed audit or
examination that can reasonably be expected to recur in a
later taxable period. The Federal income tax returns of the
Company and each of its subsidiaries consolidated in such
returns have been examined by and settled with the Internal
Revenue Service for all years, or all years are otherwise
closed, through 1984.
(c) No liens for taxes exist with respect to any
assets or properties of the Company or any of its
subsidiaries, except for statutory liens for taxes not yet
due.
(d) None of the Company or any of its
subsidiaries is a party to or is bound by any tax sharing
agreement, tax indemnity obligation or similar agreement,
arrangement or practice with respect to taxes (including any
<PAGE>
36
advance pricing agreement, closing agreement or other
agreement relating to taxes with any taxing authority).
(e) Except as contemplated by this Agreement, the
disallowance of a deduction under Section 162(m) of the Code
for employee remuneration will not apply to any amount paid
or payable by the Company or any of its subsidiaries under
any contract, Company Stock Plan, Benefit Plan, program,
arrangement or understanding currently in effect.
(f) Except as contemplated by this Agreement, any
amount or other entitlement that could be received (whether
in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement by
any employee, officer or director of the Company or any of
its affiliates who is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section
280G(b)(1) of the Code).
(g) As used in this Agreement, "taxes" shall
include all Federal, state, local and foreign income,
property, sales, excise, withholding and other taxes,
tariffs or governmental charges of any nature whatsoever.
<PAGE>
37
(h) For purposes of Article IX and Exhibit A to
this Agreement, no representations set forth in
Sections 4.09 and 4.14 (each, a "Relevant Representation")
shall be deemed to be untrue unless all untruths of Relevant
Representations cumulatively would reasonably be expected to
have a material adverse effect.
SECTION 4.15. State Takeover Statutes. The Board
------------------------
of Directors of the Company has approved the Offer, the
Merger and this Agreement and such approval is sufficient to
render inapplicable to the Offer, the Merger and this
Agreement and the transactions contemplated by this
Agreement the provisions of Section 203 of the DGCL and the
provisions of Massachusetts General Laws Chapters 110C and
110E. To the best of the Company's knowledge, no other
state takeover statute or similar statute or regulation
applies or purports to apply to the Offer, the Merger, this
Agreement or any of the transactions contemplated by this
Agreement.
SECTION 4.16. Brokers. No broker, investment
--------
banker, financial advisor or other person, other than Lazard
Freres & Co. LLC, the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this
<PAGE>
38
Agreement based upon arrangements made by or on behalf of
the Company. The estimated fees and expenses incurred and
to be incurred by the Company in connection with this
Agreement and the transactions contemplated by this
Agreement (including the fees of the Company's legal counsel
and the legal counsel for its financial advisor) are set
forth in the Company Disclosure Schedule. The Company has
provided Parent true and correct copies of all agreements
between the Company and Lazard Freres & Co. LLC.
SECTION 4.17. Opinion of Financial Advisor. The
-----------------------------
Company has received the opinion of Lazard Freres & Co. LLC,
to the effect that, as of the date of this Agreement, the
consideration to be received in the Offer and the Merger by
the Company's stockholders is fair to the Company's
stockholders from a financial point of view.
SECTION 4.18. Intellectual Property. (a) Except
----------------------
to the extent that the inaccuracy of any of the following
(or the circumstances giving rise to such inaccuracy),
individually and in the aggregate, would not have a material
adverse effect:
(1) the Company and each of its subsidiaries owns,
or is licensed or otherwise has the right to use (in
each case, clear of any liens or encumbrances of any
<PAGE>
39
kind), all Intellectual Property used in or necessary
for the conduct of its business as currently conducted;
(2) no claims are pending or, to the knowledge of
the Company, threatened that the Company or any of its
subsidiaries is infringing on or otherwise violating
the rights of any person with regard to any
Intellectual Property owned by and/or licensed to the
Company or its subsidiaries;
(3) to the knowledge of the Company, no person is
infringing on or otherwise violating any right of the
Company or any of its subsidiaries with respect to any
Intellectual Property owned by and/or licensed to the
Company or its subsidiaries; provided that all the
--------
foregoing is qualified to the extent of publicly known
problems with respect to software piracy and copyright
protection;
(4) none of the former or current members of
management or key personnel of the Company or any of
its subsidiaries, including all former and current
employees, agents, consultants and contractors who have
contributed to or participated in the conception and
development of computer software or other Intellectual
Property of the Company or any of its subsidiaries has
asserted in writing any claim against the Company or
<PAGE>
40
any of its subsidiaries in connection with the
involvement of such persons in the conception and
development of any computer software or other
Intellectual Property of the Company or any of its
subsidiaries, and no such claim has been asserted or
threatened in writing;
(5) the execution and delivery of this Agreement,
compliance with its terms and the consummation of the
transactions contemplated hereby do not and will not
conflict with or result in any violation or default
(with or without notice or lapse of time or both) or
give rise to any right, license or encumbrance relating
to Intellectual Property, or right of termination,
cancellation or acceleration of any material
Intellectual Property right or obligation, or the loss
or encumbrance of any Intellectual Property or material
benefit related thereto, or result in or require the
creation, imposition or extension of any lien or
encumbrance upon any Intellectual Property or right;
(6) no licenses or rights have been granted to
distribute the source code of, or to use source code to
create Derivative Works (as hereinafter defined) of,
Notes, Lotus 1-2-3, Freelance Graphics, Word Pro,
cc:Mail or any product currently marketed by,
<PAGE>
41
commercially available from, or under development by,
the Company or any of its subsidiaries and
(7) the Company and each of its subsidiaries has
taken reasonable and necessary steps to protect their
Intellectual Property and their rights thereunder, and
to the knowledge of the Company no such rights to
Intellectual Property have been lost or are in jeopardy
of being lost through failure to act by the Company or
any of its subsidiaries.
As used herein, "Derivative Work" shall mean a
work which is based upon one or more preexisting works, such
as a revision, enhancement, modification, abridgement,
condensation, expansion or any other form in which such
preexisting works may be recast, transformed or adapted, and
which, if prepared without authorization of the owner of the
copyright in such preexisting work, would constitute a
copyright infringement. For purposes hereof, a Derivative
Work shall also include any compilation that incorporates
such a preexisting work as well as translations from one
human language to another and from one type of code to
another.
(b) For purposes of this Agreement, "Intellectual
Property" shall mean trademarks (registered or
unregistered), service marks, brand names, certification
<PAGE>
42
marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing,
including any extension, modification or renewal of any such
registration or application; inventions, discoveries and
ideas, whether patented, patentable or not in any
jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any jurisdiction to
limit the use or disclosure thereof by any person; writings
and other works, whether copyrighted, copyrightable or not
in any jurisdiction; registration or applications for
registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual
property or proprietary rights and computer programs and
software (including source code, object code and data);
licenses, immunities, covenants not to sue and the like
relating to the foregoing; and any claims or causes of
action arising out of or related to any infringement or
misappropriation of any of the foregoing.
<PAGE>
43
ARTICLE V
Representations and Warranties
------------------------------
of Parent and Sub
-----------------
Parent and Sub represent and warrant to the
Company as follows:
SECTION 5.01. Organization. Each of Parent and
-------------
Sub is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and
corporate authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its
business as now being conducted except where the failure to
be so organized, existing and in good standing or to have
such power, authority, and governmental approvals would not,
individually or in the aggregate, be reasonably expected to
prevent or materially delay the consummation of the Offer or
the Merger.
SECTION 5.02. Authority. Parent and Sub have
----------
requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and
<PAGE>
44
Sub and no other corporate proceedings on the part of Parent
and Sub are necessary to authorize this Agreement or to
consummate such transactions. No vote of Parent
shareholders is required to approve this Agreement or the
other transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and Sub, as the
case may be, and, assuming this Agreement constitutes a
valid and binding obligation of the Company, constitutes a
valid and binding obligation of each of Parent and Sub
enforceable against them in accordance with its terms.
SECTION 5.03. Consents and Approvals; No
--------------------------
Violations. Except as set forth in the disclosure schedule
-----------
delivered by Parent to the Company on the date hereof (the
"Parent Disclosure Schedule"), and except for filings,
permits, authorizations, consents and approvals as may be
required under, and other applicable requirements of, the
Exchange Act (including the filing with the SEC of the Offer
Documents), the HSR Act, the BCL, the DGCL, blue sky laws,
state takeover laws and foreign laws, neither the execution,
delivery or performance of this Agreement by Parent and Sub
nor the consummation by Parent and Sub of the transactions
contemplated hereby will (i) conflict with or result in any
breach of any provision of the respective certificate of
incorporation or by-laws of Parent and Sub, (ii) require any
<PAGE>
45
filing with, or permit, authorization, consent or approval
of, any Governmental Entity (except where the failure to
obtain such permits, authorizations, consents or approvals
or to make such filings would not be reasonably expected to
prevent or materially delay the consummation of the Offer
and the Merger), (iii) 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) under,
any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, lease, contract,
agreement or other instrument or obligation to which Parent
or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent any of its
subsidiaries or any of their properties or assets, except in
the case of clauses (iii) and (iv) for violations, breach or
defaults which would not, individually or in the aggregate,
be reasonably expected to prevent or materially delay the
consummation of the Offer or the Merger.
SECTION 5.04. Information Supplied. None of the
---------------------
information supplied or to be supplied by Parent or Sub
specifically for inclusion or incorporation by reference in
<PAGE>
46
the Offer Documents, as amended pursuant to Section 1.01,
the Schedule 14D-9, the Information Statement or the Proxy
Statement will, in the case of the Offer Documents, the
Schedule 14D-9 and the Information Statement, at the
respective times the Offer Documents (as so amended), the
Schedule 14D-9 and the Information Statement are filed with
the SEC or first published, sent or given to the Company's
stockholders, or, in the case of the Proxy Statement, at the
date the Proxy Statement is first mailed to the Company's
stockholders or at the time of the meeting of the Company's
stockholders held to vote upon the approval and adoption of
this Agreement, 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, except that no representation is made
by Parent or Sub with respect to information supplied by the
Company in writing specifically for inclusion or
incorporation by reference therein. The Offer Documents, as
amended pursuant to Section 1.01, comply as to form in all
material respects with the Exchange Act and the rules and
regulations promulgated thereunder.
SECTION 5.05. Interim Operations of Sub. Sub was
--------------------------
formed solely for the purpose of engaging in the
<PAGE>
47
transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as
contemplated hereby.
SECTION 5.06. Brokers. No broker, investment
--------
banker, financial advisor or other person, other than
CS First Boston Corporation, the fees and expenses of which
will be paid by Parent, is entitled to any broker's,
finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on
behalf of Parent or Sub.
SECTION 5.07. Financing. Parent has sufficient
----------
funds available to purchase all the outstanding shares on a
fully diluted basis of Company Common Stock pursuant to the
Offer and the Merger and to pay all fees and expenses
related to the transactions contemplated by this Agreement.
ARTICLE VI
Covenants
---------
SECTION 6.01. Covenants of the Company. Until
-------------------------
such time as Parent's designees shall constitute a majority
of the Board of Directors of the Company, the Company agrees
as to itself and its subsidiaries that (except as expressly
<PAGE>
48
contemplated or permitted by this Agreement, or to the
extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company and its
----------------
subsidiaries shall carry on their respective businesses in
the usual, regular and ordinary course in substantially the
same manner as heretofore conducted (except for changes
resulting from actions taken or statements made by Parent or
its affiliates or agents, including without limitation
commencement of the Offer and announcement of the related
consent solicitation or as contemplated by this Agreement)
and shall use all reasonable efforts to preserve intact
their present business organizations, keep available the
services of their present officers and employees and
preserve their relationships with customers, suppliers and
others having business dealings with the Company and its
subsidiaries.
(b) Dividends; Changes in Stock. The Company
----------------------------
shall not, and it shall not permit any of its subsidiaries
that are organized under the laws of a jurisdiction other
than the United States or any state thereof to, (i) declare
or pay any dividends on or make other distributions in
respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of,
<PAGE>
49
in lieu of or in substitution for shares of its capital
stock or (iii) repurchase, redeem or otherwise acquire, or
permit any subsidiary to repurchase, redeem or otherwise
acquire, any shares of capital stock.
(c) Issuance of Securities. The Company shall
-----------------------
not, and it shall not permit any of its subsidiaries to,
issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital
stock of any class or any securities convertible into, or
any rights, warrants, calls, subscriptions or options to
acquire, any such shares or convertible securities, or any
other ownership interest (including but not limited to stock
appreciation rights or phantom stock) other than (i) the
issuance of shares of Company Common Stock upon the exercise
of stock options or stock appreciation rights or warrants
granted under Company Stock Plans and outstanding on the
date of this Agreement and in accordance with the present
terms of such options or stock appreciation rights and
(ii) issuances by a wholly owned subsidiary of the Company
of its capital stock to the Company.
(d) Governing Documents. The Company shall not
--------------------
amend or propose to amend its certificate of incorporation
or by-laws.
<PAGE>
50
(e) No Acquisitions. The Company shall not, and
----------------
it shall not permit any of its subsidiaries to, acquire or
agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or
other business organization or division thereof.
(f) No Dispositions. Other than sales or
----------------
licenses of product or technology in the ordinary course of
business consistent with prior practice, the Company shall
not, and it shall not permit any of its subsidiaries to,
sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets, except in the ordinary course of
business consistent with past practice.
(g) Indebtedness. The Company shall not, and it
-------------
shall not permit any of its subsidiaries to, incur (which
shall not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any
indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the
Company or any of its subsidiaries or guarantee any debt
<PAGE>
51
securities of others, except in the ordinary course of
business consistent with prior practice.
(h) Advice of Changes; Filings. The Company
---------------------------
shall confer on a regular and frequent basis with Parent,
report on operational matters and promptly advise Parent
orally and in writing of any material adverse change. The
Company shall promptly provide to Parent (or its counsel)
copies of all filings made by the Company with any Federal,
state, foreign or supranational Governmental Entity in
connection with this Agreement and the transactions
contemplated hereby.
(i) Tax Matters. The Company shall not make any
------------
tax election that would have a material adverse effect or
settle or compromise any income tax liability of the Company
or any of its subsidiaries that would have a material
adverse effect. The Company shall, before filing or causing
to be filed any material tax return of the Company or any of
its subsidiaries, consult with Parent and its advisors as to
the positions and elections that may be taken or made with
respect to such return.
(j) Discharge of Liabilities. The Company shall
-------------------------
not, and it shall not permit any of its subsidiaries to,
pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
<PAGE>
52
contingent or otherwise), other than the payment, discharge
or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities recognized or disclosed in the most
recent consolidated financial statements (or the notes
thereto) of the Company included in the Company SEC
Documents or incurred since the date of such financial
statements in the ordinary course of business consistent
with past practice, or waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or
similar agreement to which the Company or any of its
subsidiaries is a party.
(k) Material Contracts. Except in the ordinary
-------------------
course of business, neither the Company nor any of its
subsidiaries shall modify, amend or terminate any material
contract or agreement to which the Company or such
subsidiary is a party or waive, release or assign any
material rights or claims.
SECTION 6.02. No Solicitation. (a) The Company
----------------
and its officers, directors, employees, representatives and
agents shall immediately cease any discussions or
negotiations with any parties that may be ongoing with
respect to a Takeover Proposal (as hereinafter defined).
The Company shall not authorize or permit any of its
<PAGE>
53
officers, directors or employees or any investment banker,
financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to
(i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to,
any Takeover Proposal or (ii) participate in any discussions
or negotiations regarding any Takeover Proposal; provided,
--------
however, that, if at any time prior to the acceptance for
-------
payment of Shares pursuant to the Offer, the Board of
Directors of the Company determines in good faith, after
consultation with counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Company's
stockholders under applicable law, the Company may, in
response to an unsolicited Takeover Proposal, and subject to
compliance with Section 6.02(c), (x) furnish information
with respect to the Company to any person pursuant to a
confidentiality agreement in a form approved by Parent (such
approval not to be unreasonably withheld) and (y)
participate in negotiations regarding such Takeover
Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the
preceding sentence by any director or executive officer of
<PAGE>
54
the Company or any of its subsidiaries or any investment
banker, financial advisor, attorney, accountant or other
representative of the Company or any of its subsidiaries
shall be deemed to be a breach of this Section 6.02(a) by
the Company. For purposes of this Agreement, "Takeover
Proposal" means any inquiry, proposal or offer from any
person relating to any direct or indirect acquisition or
purchase of a substantial amount of assets of the Company or
any of its subsidiaries or of over 20% of any class of
equity securities of the Company or any of its subsidiaries,
any tender offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any
class of equity securities of the Company or any of its
subsidiaries, any merger, consolidation, business
combination, sale of substantially all the assets,
recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its
subsidiaries, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of
which could reasonably be expected to impede, interfere
with, prevent or materially delay the Offer or the Merger or
which would reasonably be expected to dilute materially the
benefits to Parent of the transactions contemplated hereby.
(b) Except as set forth in this Section 6.02(b),
<PAGE>
55
neither the Board of Directors of the Company nor any
committee thereof shall (x) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent, the
approval or recommendation by such Board of Directors or
such committee of the Offer, this Agreement or the Merger,
(y) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (z) cause the Company to
enter into any agreement with respect to any Takeover
Proposal. Notwithstanding the foregoing, in the event that
prior to the time of acceptance for payment of Shares in the
Offer the Board of Directors of the Company determines in
good faith, after consultation with counsel, that it is
necessary to do so in order to comply with its fiduciary
duties to the Company's stockholders under applicable law,
the Board of Directors of the Company may withdraw or modify
its approval or recommendation of the Offer, this Agreement
and the Merger, approve or recommend a Superior Proposal (as
defined below) or cause the Company to enter into an
agreement with respect to a Superior Proposal, but in each
case only at a time that is after the second business day
following Parent's receipt of written notice (a "Notice of
Superior Proposal") advising Parent that the Board of
Directors of the Company has received a Superior Proposal,
specifying the material terms and conditions of such
<PAGE>
56
Superior Proposal and identifying the person making such
Superior Proposal. In addition, if the Company proposes to
enter into an agreement with respect to any Takeover
Proposal, it shall concurrently with entering into such an
agreement pay, or cause to be paid, to Parent the Expenses
and the Termination Fee (as such terms are defined in
Section 7.07(b)). For purposes of this Agreement, a
"Superior Proposal" means any bona fide Takeover Proposal to
acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than 50% of the
shares of Company Common Stock then outstanding or all or
substantially all the assets of the Company and otherwise on
terms which the Board of Directors of the Company determines
in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be
more favorable to the Company's stockholders than the
Merger.
(c) In addition to the obligations of the Company
set forth in paragraphs (a) and (b) of this Section 6.02,
the Company shall immediately advise Parent orally and in
writing of any request for information or of any Takeover
Proposal, or any inquiry with respect to or which could lead
to any Takeover Proposal, the material terms and conditions
of such request, Takeover Proposal or inquiry and the
<PAGE>
57
identity of the person making such request, Takeover
Proposal or inquiry. The Company will keep Parent fully
informed of the status and details (including amendments or
proposed amendments) of any such request, Takeover Proposal
or inquiry.
(d) Nothing contained in this Section 6.02 shall
prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders if, in the opinion
of the Board of Directors of the Company, after consultation
with counsel, failure so to disclose would be inconsistent
with its fiduciary duties to the Company's stockholders
under applicable law; provided, however, neither the Company
-------- -------
nor its Board of Directors nor any committee thereof shall,
except as permitted by Section 6.02(b), withdraw or modify,
or propose to withdraw or modify, its position with respect
to the Merger or approve or recommend, or propose to approve
or recommend, a Takeover Proposal.
SECTION 6.03. Other Actions. The Company shall
--------------
not, and shall not permit any of its subsidiaries to, take
any action that would result in (i) any of the
representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality becoming
<PAGE>
58
untrue, (ii) any of such representations and warranties that
are not so qualified becoming untrue in any material respect
or (iii) any of the Offer Conditions not being satisfied
(subject to the Company's right to take actions specifically
permitted by Section 6.02).
ARTICLE VII
Additional Agreements
---------------------
SECTION 7.01. Stockholder Approval; Preparation
---------------------------------
of Proxy Statement. (a) If the Company Stockholder
-------------------
Approval (as hereinafter defined) is required by law, the
Company will, at Parent's request, as soon as practicable
following the expiration of the Offer, duly call, give
notice of, convene and hold a meeting of its stockholders
(the "Stockholders Meeting") for the purpose of approving
and adopting this Agreement (the "Company Stockholder
Approval"). The Company will, through its Board of
Directors, recommend to its stockholders that the Company
Stockholder Approval be given. Notwithstanding the
foregoing, if Sub or any other subsidiary of Parent shall
acquire at least 90% of the outstanding Shares, the parties
shall, at the request of Parent, take all necessary and
appropriate action to cause the Merger to become effective
as soon as practicable after the expiration of the Offer
without a Stockholders Meeting in accordance with
<PAGE>
59
Section 253 of the DGCL. Without limiting the generality of
the foregoing, the Company agrees that its obligations
pursuant to the first sentence of this Section 7.01(a) shall
not be affected by (i) the commencement, public proposal,
public disclosure or communication to the Company of any
Takeover Proposal or (ii) the withdrawal or modification by
the Board of Directors of the Company of its approval or
recommendation of the Offer, this Agreement or the Merger.
(b) If the Company Stockholder Approval is
required by law, the Company will, at Parent's request, as
soon as practicable following the expiration of the Offer,
prepare and file a preliminary Proxy Statement with the SEC
and will use its best efforts to respond to any comments of
the SEC or its staff and to cause the Proxy Statement to be
mailed to the Company's stockholders as promptly as
practicable after responding to all such comments to the
satisfaction of the staff. The Company will notify Parent
promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for
amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of
all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff,
on the other hand, with respect to the Proxy Statement or
<PAGE>
60
the Merger. If at any time prior to the Stockholders
Meeting there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the
Company will promptly prepare and mail to its stockholders
such an amendment or supplement. The Company will not mail
any Proxy Statement, or any amendment or supplement thereto,
to which Parent reasonably objects.
(c) Parent agrees to cause all Shares purchased
pursuant to the Offer and all other Shares owned by Parent
or any subsidiary of Parent to be voted in favor of the
Company Stockholder Approval.
SECTION 7.02. Access to Information. Upon
----------------------
reasonable notice and subject to restrictions contained in
confidentiality agreements to which the Company is subject
(from which it shall use reasonable efforts to be released),
the Company shall afford to Parent and to the officers,
employees, independent accountants, counsel and other
representatives of Parent access, during normal business
hours during the period prior to the Effective Time, to all
its properties, books, contracts, commitments and records
and, during such period, the Company shall (and shall cause
each of its subsidiaries to) furnish promptly to Parent
(a) a copy of each report, schedule, registration statement
and other document filed or received by it during such
<PAGE>
61
period pursuant to the requirements of the Federal
securities laws or the Federal tax laws and (b) all other
information concerning its business, properties and
personnel as Parent may reasonably request (including the
Company's public accountants' work papers). Except as
otherwise agreed to by the Company, unless and until Parent
and Sub shall have purchased at least a majority of the
outstanding Shares pursuant to the Offer, and
notwithstanding termination of this Agreement, Parent will
keep, and will cause its officers, employees, independent
accountants, counsel, financial advisers and other
representatives and affiliates to keep, all Confidential
Information (as defined below) confidential and not to
disclose any Confidential Information to any person other
than Parent's or Sub's directors, officers, employees,
affiliates or agents, and then only on a confidential basis;
provided, however, that Parent or Sub may disclose
-------- -------
Confidential Information (i) as required by law, rule,
regulation or judicial process, including as required to be
disclosed in connection with the Offer and the Merger,
(ii) to its attorneys, accountants and financial advisors or
(iii) as requested or required by any Governmental Entity.
For purposes of this Agreement, "Confidential Information"
shall include all information about the Company which has
<PAGE>
62
been furnished by the Company to Parent or Sub; provided,
--------
however, that Confidential Information does not include
-------
information which (x) is or becomes generally available to
the public other than as a result of a disclosure by Parent
or Sub not permitted by this Agreement, (y) was available to
Parent or Sub on a non-confidential basis prior to its
disclosure to Parent or Sub by the Company or (z) becomes
available to Parent or Sub on a non-confidential basis from
a person other than the Company who, to the knowledge of
Parent or Sub, as the case may be, is not otherwise bound by
a confidentiality agreement with the Company or is not
otherwise prohibited from transmitting the relevant
information to Parent or Sub. Neither Parent nor any of its
affiliates will use any Confidential Information in any
manner detrimental to the Company or the stockholders of the
Company and, in the event of termination of this Agreement
for any reason, Parent shall, and shall cause Sub to,
promptly return all Confidential Information to the Company.
SECTION 7.03. Reasonable Efforts. Each of the
-------------------
Company, Parent and Sub agree to use its reasonable efforts
to take all actions necessary to comply promptly with all
legal requirements which may be imposed on itself with
respect to the Offer and the Merger (which actions shall
include, without limitation, furnishing all information
<PAGE>
63
required under the HSR Act and in connection with approvals
of or filings with any other Governmental Entity) and will
promptly cooperate with and furnish information to each
other in connection with any such requirements imposed upon
any of them or any of their Subsidiaries in connection with
the Offer and the Merger. Each of the Company, Parent and
Sub will, and will cause its Subsidiaries to, use its
reasonable efforts to take all reasonable actions necessary
to obtain (and will cooperate with each other in obtaining)
any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by
Parent, Sub, the Company or any of their Subsidiaries in
connection with the Offer and the Merger or the taking of
any action contemplated thereby or by this Agreement, except
that no party need take any action that would have any of
the consequences referred to in clauses (i) through (iv) in
paragraph (a) of Exhibit A. Parent shall cause Sub to
comply with its obligations under this Agreement.
SECTION 7.04. [Not used]
SECTION 7.05. Certain Benefits; Company Stock
---------------- -------------
Options. (a) Parent, Sub and the Company shall comply with
--------
the provisions set forth in Exhibit C hereto.
<PAGE>
64
(b) The Company shall amend each of the Company's
stock option plans (the "Company Stock Option Plans") to
provide that each outstanding option to purchase Company
Common Stock (a "Company Stock Option") issued pursuant to a
Company Stock Option Plan, whether vested or unvested, shall
remain outstanding after the Effective Time and shall be
assumed by Parent. Parent shall assume such Company Stock
Options in such manner that Parent (i) is a corporation
"assuming a stock option in a transaction to which
Section 424(a) applied" within the meaning of Section 424 of
the Code, or (ii) to the extent that Section 424 of the Code
does not apply to any such Company Stock Options, would be
such a corporation were Section 424 applicable to such
option. Each Company Stock Option assumed by Parent shall
be exercisable upon the same terms and conditions as under
the applicable Company Stock Option Plan and the applicable
option agreement issued thereunder, except that (i) such
option shall be exercisable for that number of shares of
common stock of Parent equal to the product of (x) the
number of shares of Company Common Stock for which such
option was exercisable and (y) the Merger Consideration
divided by the average closing price of common stock of
Parent on the NYSE Composite Tape for the 30 consecutive
trading days prior to the Effective Date (the "Conversion
<PAGE>
65
Number"), and (ii) the exercise price of such option shall
be equal to the exercise price of such option as of the date
hereof divided by the Conversion Number.
(c) As soon as practicable after the Effective
Time, Parent shall deliver to the holders of the Company
Stock Options appropriate notices setting forth such
holders' rights pursuant to the Company Stock Option Plans
and the agreements evidencing the grants of such Company
Stock Options shall continue in effect on the same terms and
conditions (subject to the adjustments required by this
Section 7.05 after giving effect to the Merger).
Parent shall comply with the terms of the Company
Stock Option Plans and ensure, to the extent required by,
and subject to the provisions of, such Company Stock Option
Plans, that the Company Stock Options which qualified as
qualified stock options prior to the Effective Time continue
to qualify as qualified stock options after the Effective
Time. Parent shall use all reasonable efforts to register
under the Securities Act all shares subject to options that
were formerly Company Stock Options as of the Effective
Time.
(d) Paragraphs (b) and (c) of this Section 7.05
notwithstanding, the Company shall further amend the Company
Stock Option Plans to provide holders of Company Stock
<PAGE>
66
Options, whether or not then exercisable or vested, the
opportunity to elect to receive cash in an amount set forth
below in exchange for each Company Stock Option. Pursuant
to such amendment, Parent and the Company shall take all
actions necessary to provide that, as to those holders who
so elect, on the day after the date on which Sub accepts
Shares for payment and purchase pursuant to the Offer,
(i) each Company Stock Option, so surrendered for cash,
whether or not then exercisable or vested, shall become
fully exercisable and vested, (ii) each such Company Stock
Option shall be cancelled and (iii) in consideration of such
cancellation, and except to the extent that Parent or Sub
and the holder of any such Company Stock Option otherwise
agree, the Company shall pay to each such holder of Company
Stock Options an amount in cash in respect thereof equal to
the product of (1) the excess of the Merger Consideration
over the exercise price thereof and (2) the number of Shares
subject thereto.
(e) Notwithstanding anything to the contrary
herein, if it is determined that compliance with any of the
foregoing would cause any individual subject to Section 16
of the Exchange Act to become subject to the profit recovery
provisions thereof, any Company Stock Options held by such
individual will be cancelled or purchased, as the case may
<PAGE>
67
be, at the Effective Time or at such later time as may be
necessary to avoid application of such profit recovery
provisions and such individual will be entitled to receive
from the Company or the Surviving Corporation an amount
equal to the excess, if any, of the Merger Consideration
over the per Share exercise price of such Company Stock
Option multiplied by the number of Shares subject thereto,
and the parties hereto will cooperate so as to achieve the
intent of the foregoing without giving rise to such profit
recovery.
SECTION 7.06. Directors. Promptly upon the
----------
acceptance for payment of, and payment for, any Shares by
Sub pursuant to the Offer, Sub shall be entitled to
designate such number of directors on the Board of Directors
of the Company as will give Sub, subject to compliance with
Section 14(f) of the Exchange Act, a majority of such
directors, and the Company shall, at such time, cause Sub's
designees to be so elected by its existing Board of
Directors; provided, however, that in the event that Sub's
-------- -------
designees are elected to the Board of Directors of the
Company, until the Effective Time such Board of Directors
shall have at least two directors who are directors on the
date of this Agreement and who are not officers of the
Company (the "Independent Directors"); and provided further
-------- -------
<PAGE>
68
that, in such event, if the number of Independent Directors
shall be reduced below two for any reason whatsoever, the
remaining Independent Director shall designate a person to
fill such vacancy who shall be deemed to be an Independent
Director for purposes of this Agreement or, if no
Independent Directors then remain, the other directors shall
designate two persons to fill such vacancies who shall not
be officers or affiliates of the Company or any of its
subsidiaries, or officers or affiliates of Parent or any of
its subsidiaries, and such persons shall be deemed to be
Independent Directors for purposes of this Agreement.
Subject to applicable law, the Company shall take all action
requested by Parent necessary to effect any such election,
including mailing to its stockholders the Information
Statement containing the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder, and the Company agrees to make such mailing with
the mailing of the Schedule 14D-9 (provided that Sub shall
have provided to the Company on a timely basis all
information required to be included in the Information
Statement with respect to Sub's designees). In connection
with the foregoing, the Company will promptly, at the option
of Parent, either increase the size of the Company's Board
of Directors and/or obtain the resignation of such number of
<PAGE>
69
its current directors as is necessary to enable Sub's
designees to be elected or appointed to the Company's Board
of Directors as provided above.
SECTION 7.07. Fees and Expenses. (a) Except as
------------------
provided below in this Section 7.07, all fees and expenses
incurred in connection with the Offer, the Merger, this
Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such fees or
expenses, whether or not the Offer or the Merger is
consummated.
(b) The Company shall pay, or cause to be paid,
in same day funds to Parent the sum of (x) Parent's Expenses
(as hereinafter defined) in amount up to but not to exceed
$20,000,000 and (y) $100,000,000 (the "Termination Fee")
upon demand if (i) Parent or Sub terminates this Agreement
under Section 9.01(d); (ii) the Company terminates this
Agreement pursuant to Section 9.01(e) or (iii) prior to any
termination of this Agreement (other than by the Company
pursuant to Section 9.01(f)), a Takeover Proposal shall have
been made and within 12 months of such termination, a
transaction constituting a Takeover Proposal is consummated
or the Company enters into an agreement with respect to,
approves or recommends or takes any action to facilitate
such takeover proposal. "Expenses" shall mean documented
<PAGE>
70
out-of-pocket fees and expenses incurred or paid by or on
behalf of Parent in connection with the Offer, the Merger or
the consummation of any of the transactions contemplated by
this Agreement, including all fees and expenses of counsel,
commercial banks, investment banking firms, accountants,
experts and consultants to Parent.
SECTION 7.08. Indemnification; Insurance.
---------------------------
(a) Parent and Sub agree that all rights to indemnification
for acts or omissions occurring prior to the Effective Time
now existing in favor of the current or former directors or
officers of the Company and its subsidiaries as provided in
their respective certificates of incorporation or By-laws or
contractual arrangements or as otherwise provided by
applicable law shall survive the Merger and shall continue
in full force and effect in accordance with their terms.
(b) For six years (or the period of the
applicable statute of limitations, if longer) from the
Effective Time, Parent shall, unless Parent agrees in
writing to guarantee the indemnification obligations set
forth in Section 7.08(a), maintain in effect the Company's
current directors' and officers' liability insurance
covering those persons who are currently covered by the
Company's directors' and officers' liability insurance
policy (a copy of which has been made available to Parent);
<PAGE>
71
provided, however, that in no event shall Parent be required
-------- -------
to expend in any one year an amount in excess of 150% of the
annual premiums currently paid by the Company for such
insurance which the Company represents is $268,975 for the
primary policy and $150,000 for the excess coverage; and,
provided, further, that if the annual premiums of such
-------- -------
insurance coverage exceed such amount, Parent shall be
obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
(c) This Section 7.08 shall survive the
consummation of the Merger at the Effective Time, is
intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be
binding on all successors and assigns of Parent and the
Surviving Corporation.
SECTION 7.09. Rights Agreement. Except as
-----------------
otherwise provided in Section 4.13, the Company shall not
redeem the Rights or amend (other than to delay the
Distribution Date (as defined therein) or to render the
Rights inapplicable to the Offer and the Merger) or
terminate the Rights Agreement prior to the Effective Time
unless required to do so by order of a court of competent
jurisdiction.
<PAGE>
72
SECTION 7.10. Certain Litigation. (a) Each
-------------------
party agrees to use reasonable efforts to obtain a dismissal
without prejudice of International Business Machines
Corporation and White Acquisition Corp. v. Lotus Development
Corporation and Jim P. Manzi, with each party bearing its
own costs and attorneys' fees therefor. The Company agrees
that it will not settle any litigation currently pending, or
commenced after the date hereof, against the Company or any
of its directors (other than piracy matters and human
resources/employment matters), without the prior written
consent of Parent.
(b) The Company will not voluntarily cooperate
with any third party which has sought or may hereafter seek
to restrain or prohibit or otherwise oppose the Offer or the
Merger and will cooperate with Parent and Sub to resist any
such effort to restrain or prohibit or otherwise oppose the
Offer or the Merger, unless the Board of Directors of the
Company determines in good faith, after consultation with
counsel, that failing so to cooperate with such third party
or cooperating with Parent or Sub, as the case may be, would
constitute a breach of the Board's fiduciary duties under
applicable law.
SECTION 7.11. Consent Solicitation. Parent and
---------------------
Sub shall immediately terminate the solicitation of Company
<PAGE>
73
stockholder consents, withdraw the related SEC filings and
cease soliciting written consents from the stockholders of
the Company.
ARTICLE VIII
Conditions
----------
SECTION 8.01. Conditions to Each Party's
--------------------------
Obligation To Effect the Merger. The respective obligation
--------------------------------
of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. If required by
-----------------------------
applicable law, the Company Stockholder Approval shall
have been obtained.
(b) No Injunctions or Restraints. No statute,
-----------------------------
rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction
or other order issued by any court of competent
jurisdiction or other Governmental Entity or other
legal restraint or prohibition preventing the
consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have
-------- -------
used reasonable efforts to prevent the entry of any
such injunction or other order and to appeal as
<PAGE>
74
promptly as possible any injunction or other order that
may be entered.
(c) Purchase of Shares. Sub shall have
-------------------
previously accepted for payment and paid for Shares
pursuant to the Offer.
ARTICLE IX
Termination and Amendment
-------------------------
SECTION 9.01. Termination. This Agreement may be
------------
terminated at any time prior to the Effective Time, whether
before or after approval of the terms of this Agreement by
the stockholders of the Company:
(a) by mutual written consent of Parent and the
Company;
(b) by either Parent or the Company:
(i) if (x) as a result of the failure of any
of the Offer Conditions the Offer shall have
terminated or expired in accordance with its terms
without Sub having accepted for payment any Shares
pursuant to the Offer or (y) Sub shall not have
accepted for payment any Shares pursuant to the
Offer within 180 days following the date of this
Agreement; provided, however, that the right to
-------- -------
terminate this Agreement pursuant to this
Section 9.01(b)(i) shall not be available to any
<PAGE>
75
party the failure of which (or the failure of the
affiliates of which) to perform any of its
obligations under this Agreement results in the
failure of any such condition or if the failure of
such condition results from facts or circumstances
that constitute a breach of representation or
warranty under this Agreement by such party; or
(ii) if any Governmental Entity shall have
issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment
of, or payment for, shares of Company Common Stock
pursuant to the Offer or the Merger and such
order, decree or ruling or other action shall have
become final and nonappealable;
(c) by Parent or Sub prior to the purchase of
Shares pursuant to the Offer in the event of a breach
by the Company of any representation, warranty,
covenant or other agreement contained in this Agreement
which (A) would give rise to the failure of a condition
set forth in paragraph (e) or (f) of Exhibit A and (B)
cannot be or has not been cured within 20 days after
the giving of written notice to the Company;
<PAGE>
76
(d) by Parent or Sub if either Parent or Sub is
entitled to terminate the Offer as a result of the
occurrence of any event set forth in paragraph (d) of
Exhibit A to this Agreement;
(e) by the Company in connection with entering
into a definitive agreement in accordance with
Section 6.02(b), provided it has complied with all
provisions thereof, including the notice provisions
therein, and that it makes simultaneous payment of the
Expenses and the Termination Fee; or
(f) by the Company, if Sub or Parent shall have
breached in any material respect any of their
respective representations, warranties, covenants or
other agreements contained in this Agreement, which
failure to perform is incapable of being cured or has
not been cured within 20 days after the giving of
written notice to Parent or Sub, as applicable, except,
in any case, such failures which are not reasonably
likely to affect adversely Parent's or Sub's ability to
complete the Offer or the Merger.
SECTION 9.02. Effect of Termination. In the
----------------------
event of a termination of this Agreement by either the
Company or Parent as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no
<PAGE>
77
liability or obligation on the part of Parent, Sub or the
Company or their respective officers or directors, except
with respect to Section 4.16, Section 5.06, the last three
sentences of Section 7.02, Section 7.07, this Section 9.02
and Article X; provided, however, that nothing herein shall
-------- -------
relieve any party for liability for any breach hereof.
SECTION 9.03. Amendment. This Agreement may be
----------
amended by the parties hereto, by action taken or authorized
by their respective Boards of Directors, at any time before
or after approval of the terms of this Agreement by the
shareholders of the Company (if required by law), but, after
any such approval, no amendment shall be made which by law
requires further approval by such shareholders without such
further approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the
parties hereto. Following the election or appointment of
the Sub's designees pursuant to Section 7.06 and prior to
the Effective Time, the affirmative vote of a majority of
the Independent Directors then in office shall be required
by the Company to (i) amend or terminate this Agreement by
the Company, (ii) exercise or waive any of the Company's
rights or remedies under this Agreement or (iii) extend the
time for performance of Parent and Sub's respective
obligations under this Agreement.
<PAGE>
78
SECTION 9.04. Extension; Waiver. At any time
------------------
prior to the Effective Time, the parties hereto, by action
taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant hereto or (iii), subject to the
proviso of Section 9.03 waive compliance with any of the
agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of
these rights.
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Nonsurvival of Representations,
-------------------------------
Warranties and Agreements. None of the representations and
--------------------------
warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time
or, in the case of the Company, shall survive the acceptance
for payment of, and payment for, shares of Company Common
<PAGE>
79
Stock by Sub pursuant to the Offer. This Section 10.01
shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the
Effective Time of the Merger.
SECTION 10.02. Notices. All notices and other
--------
communications hereunder shall be in writing and shall be
deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
International Business Machines Corporation
Old Orchard Road
Armonk, NY 10504
Attention: General Counsel
Telecopy No.: (914) 765-6252
and
(b) if to the Company, to
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, MA 02142
Attention: General Counsel
Telecopy No.: (617) 693-3847
<PAGE>
80
SECTION 10.03. Interpretation. When a reference
---------------
is made in this Agreement to Sections, such reference shall
be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed
to be followed by the words "without limitation". The
phrase "made available" in this Agreement shall mean that
the information referred to has been made available if
requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement",
"the date hereof", and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to
June 11, 1995. As used in this Agreement, the term
"subsidiary" of any person means another person, an amount
of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned
directly or indirectly by such first person. As used in
this Agreement, "material adverse change" or "material
<PAGE>
81
adverse effect" means, when used in connection with the
Company, any change or effect (or any development that,
insofar as can reasonably be foreseen, is likely to result
in any change or effect) that is materially adverse to the
financial condition (other than attributable to a change in
results of operations) or business of the Company and its
subsidiaries taken as a whole.
SECTION 10.04. Counterparts. This Agreement may
-------------
be executed in two or more counterparts, all of which shall
be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same
counterpart.
SECTION 10.05. Entire Agreement; No Third Party
--------------------------------
Beneficiaries. This Agreement (including the documents and
--------------
the instruments referred to herein) (a) constitute the
entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties
with respect to the subject matter hereof, and (b) except as
provided in Sections 7.05, 7.06 and 7.08, are not intended
to confer upon any person other than the parties hereto any
rights or remedies hereunder.
<PAGE>
82
SECTION 10.06. Governing Law. This Agreement
--------------
shall be governed and construed in accordance with the laws
of the State of New York without regard to any applicable
conflicts of law, except to the extent the DGCL shall be
held to govern the terms of the Merger.
SECTION 10.07. Publicity. Except as otherwise
----------
required by law or the rules of the NYSE or the Nasdaq
National Market, for so long as this Agreement is in effect,
neither the Company nor Parent shall, or shall permit any of
its subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to
the transactions contemplated by this Agreement without the
consent of the other party, which consent shall not be
unreasonably withheld.
SECTION 10.08. Assignment. Neither this
-----------
Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Sub may
assign, in its sole discretion, any or all of its rights,
interests and obligations hereunder to Parent or to any
<PAGE>
83
direct or indirect wholly owned Subsidiary of Parent.
Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
IN WITNESS WHEREOF, Parent, Sub and the Company
have caused this Agreement to be signed by their respective
officers thereunto duly authorized as of the date first
written above.
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
by
-----------------------------
Name:
Title:
WHITE ACQUISITION CORP.,
by
--------------------------
Name:
Title:
LOTUS DEVELOPMENT CORPORATION,
by
--------------------------
Name:
Title:
<PAGE>
EXHIBIT A
Conditions of the Offer
-----------------------
Notwithstanding any other term of the Offer or
this Agreement, Sub shall not be required to accept for
payment or, subject to any applicable rules and regulations
of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sub's obligation to pay for or return tendered
Shares after the termination or withdrawal of the Offer), to
pay for any Shares tendered pursuant to the Offer unless,
(i) there shall have been validly tendered and not withdrawn
prior to the expiration of the Offer such number of Shares
which would constitute a majority of the outstanding shares
(determined on a fully diluted basis) of Company Common
Stock (the "Minimum Condition") and (ii) any waiting period
under the HSR Act applicable to the purchase of Shares
pursuant to the Offer shall have expired or been terminated.
Furthermore, notwithstanding any other term of the Offer or
this Agreement, Sub shall not be required to accept for
payment or, subject as aforesaid, to pay for any Shares not
theretofore accepted for payment or paid for, and may
terminate the Offer if, at any time on or after the date of
this Agreement and before the acceptance of such shares for
payment or the payment therefor, any of the following
conditions exists (other than as a result of any action or
inaction of Parent or any of its subsidiaries that
constitutes a breach of this Agreement):
(a) there shall be instituted or pending by any
Governmental Entity any suit, action or proceeding,
(i) challenging the acquisition by Parent or Sub of any
Shares under the Offer or seeking to restrain or
prohibit the making or consummation of the Offer or the
Merger, (ii) seeking to prohibit or materially limit
the ownership or operation by the Company, Parent or
any of their respective subsidiaries of a material
portion of the software business or assets of the
Company and its subsidiaries, taken as a whole, or
Parent and its subsidiaries, taken as a whole, or to
compel the Company or Parent to dispose of or hold
separate any material portion of the software business
or assets of the Company and its subsidiaries, taken as
a whole, or Parent and its subsidiaries, taken as a
whole, as a result of the Offer or any of the other
transactions contemplated by this Agreement,
(iii) seeking to impose material limitations on the
ability of Parent or Sub to acquire or hold, or
exercise full rights of ownership of, any Shares
accepted for payment pursuant to the Offer including,
<PAGE>
2
without limitation, the right to vote such Shares on
all matters properly presented to the stockholders of
the Company or (iv) seeking to prohibit Parent or any
of its subsidiaries from effectively controlling in any
material respect any material portion of the software
business or operations of the Company and its
subsidiaries;
(b) there shall be any statute, rule, regulation,
judgment, order or injunction enacted, entered,
enforced, promulgated or deemed applicable to the Offer
or the Merger, or any other action shall be taken by
any Governmental Entity or court, other than the
application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably
likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of
paragraph (a) above;
(c) any material adverse change (or any
development that, insofar as reasonably can be
foreseen, is reasonably likely to result in any
material adverse change) in the financial condition
(other than attributable to a change in results of
operations) or business of the Company and its
subsidiaries, taken as a whole;
(d) (i) the Board of Directors of the Company or
any committee thereof shall have withdrawn or modified
in a manner adverse to Parent or Sub its approval or
recommendation of the Offer, the Merger or this
Agreement, or approved or recommended any Takeover
Proposal, (ii) the Company shall have entered into any
agreement with respect to any Superior Proposal in
accordance with Section 6.02(b) of this Agreement or
(iii) the Board of Directors of the Company or any
committee thereof shall have resolved to take any of
the foregoing actions;
(e) any of the representations and warranties of
the Company set forth in this Agreement that are
qualified as to materiality shall not be true and
correct or any such representations and warranties that
are not so qualified shall not be true and correct in
any material respect, in each case at the date of this
Agreement and at the scheduled expiration of the Offer;
<PAGE>
3
(f) the Company shall have failed to perform in
any material respect any material obligation or to
comply in any material respect with any material
agreement or material covenant of the Company to be
performed or complied with by it under this Agreement;
(g) there shall have occurred and continued to
exist for at least three business days (i) any general
suspension of trading in, or limitation on prices for,
securities on a national securities exchange in the
U.S. (excluding any coordinated trading halt triggered
solely as a result of a specified decrease in a market
index), (ii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the
United States, (iv) any limitation (whether or not
mandatory) by any Governmental Entity on, or other
event that materially adversely affects, the extension
of credit by banks or other lending institutions or
(v) in case of any of the foregoing existing on the
date of this Agreement, material acceleration or
worsening thereof;
(h) the Agreement shall have been terminated in
accordance with its terms.
The foregoing conditions are for the sole benefit
of Sub and Parent and may, subject to the terms of the
Agreement, be waived by Sub and Parent in whole or in part
at any time and from time to time in their sole discretion.
The failure by Parent or Sub at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any
such right, the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a
waiver with respect to any other facts and circumstances and
each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
<PAGE>
EXHIBIT B
AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT, dated as of June 11, 1995, is between LOTUS DEVELOPMENT
CORPORATION, a Delaware corporation (the "Company"), and THE FIRST NATIONAL BANK
OF BOSTON, a national banking association (the "Rights Agent").
RECITALS
A. The Company and the Rights Agent are parties to a Rights Agreement dated
as of November 7, 1988, as amended as of April 5, 1990, and as of September 16,
1991 (the "Rights Agreement").
B. International Business Machines Corporation, a New York corporation
("IBM"), White Acquisition Corp., a New York corporation ("Sub"), and the
Company have entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Sub will amend its existing offer to purchase all
outstanding shares of common stock of the Company and, following consummation of
the amended offer, Sub will merge with and into the Company (the "Merger"). The
Board of Directors of the Company has approved the Merger Agreement, the amended
offer and the Merger.
C. Pursuant to Section 27 of the Rights Agreement, the Board of Directors of
the Company has determined that an amendment to the Rights Agreement as set
forth herein is necessary and desirable to reflect the foregoing and the Company
and the Rights Agent desire to evidence such amendment in writing.
Accordingly, the parties agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary,
neither IBM nor Sub shall be deemed to be an Acquiring Person solely by
virtue of (i) the announcement or making of the Existing Offer or the
Offer (as such terms are defined in the Merger Agreement), (ii) the
acquisition of Common Shares pursuant to the Offer and the Merger (as
defined in the Merger Agreement), (iii) the execution of the Merger
Agreement or (iv) the consummation of the other transactions contemplated
in the Merger Agreement."
2. Amendment of Section 1(g). Section 1(g) of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred solely as the
result of (i) the announcement or making of the Existing Offer or the
Offer, (ii) the acquisition of Common Shares pursuant to the Offer and
the Merger, (iii) the execution of the Merger Agreement or (iv) the other
transactions contemplated in the Merger Agreement."
3. Amendment of Section 1(j). Section 1(j) of the Rights Agreement is
amended and restated to read as follows:
"(j)(i) 'Final Expiration Date' shall have the meaning set forth in
Section 7 hereof.
(j)(ii) 'IBM' shall mean International Business Machines Corporation,
a New York corporation.
(j)(iii) 'Merger Agreement' shall mean the Agreement and Plan of
Merger dated as of June 11, 1995, among IBM, Sub and the Company, as
amended from time to time."
<PAGE>
4. Amendment of Section 1(r). Section 1(r) of the Rights Agreement is
amended and restated to read as follows:
"(r)(i) 'Shares Acquisition Date' shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(r)(ii) 'Sub' shall mean White Acquisition Corp., a New York
corporation, which is a wholly owned subsidiary of IBM, or any other
subsidiary of IBM that is substituted for Sub pursuant to the Merger
Agreement."
5. Amendment of Section 13. Section 13 of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary,
(i) the announcement or making of the Existing Offer or the Offer, (ii)
the acquisition of Common Shares pursuant to the Offer and the Merger,
(iii) the execution of the Merger Agreement or (iv) the consummation of
the other transactions contemplated in the Merger Agreement shall not be
deemed to be a Section 13 Event and shall not cause the Rights to be
adjusted or exercisable in accordance with Section 13."
6. Effectiveness. This Amendment shall be deemed effective as of June
11, 1995 as if executed on such date. Except as amended hereby, the Rights
Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
7. Miscellaneous. This Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such state
applicable to contracts to be made and performed entirely within such state.
This Amendment may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
If any provision, covenant or restriction of this Amendment is held by a
court of competent jurisdiction or other authority to be invalid, illegal or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and
shall in no way be effected, impaired or invalidated.
EXECUTED as of the date set forth above.
Attest: LOTUS DEVELOPMENT CORPORATION
................................. .................................
Name: Name:
Title: Title:
Attest: THE FIRST NATIONAL BANK OF BOSTON
................................. .................................
Name: Name:
Title: Title:
2
<PAGE>
EXHIBIT C
EXECUTIVE SEVERANCE
A severance program will be available for a two-year period following the
closing date of the acquisition of Lotus by IBM for all individuals holding the
titles of corporate vice president, senior president and president as of the
closing. It will apply to executives terminated other than for cause and
executives terminating for reasons of constructive termination as set forth
below. Payment of the separation benefit will be based on total annual
compensation (then current base and MIP target) and computed based on 1 year
plus 4 weeks for every 6 months of tenure. To be capped at two years for senior
vice presidents and above. Benefits (e.g., health and welfare) for the same
period. IBM will provide outplacement, financial counseling and a gross-up for
any excise taxes imposed on any parachute payments and any income taxes or
excise taxes relating to the gross-up payment. No mitigation shall be required,
and no reduction shall be made if a participant finds employment during the
payout period. Payment will be made monthly over a period equal to the length of
the severance calculation, and during such period the recipient (other than
corporate staff) shall not render services for any organization or engage
directly or indirectly in any business which is competitive with the relevant
Lotus business units.
For purposes of executive severance, the following provisions shall apply:
(i) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant's annual base compensation
is reduced below the higher of (x) the amount in effect on the date Lotus is
acquired by IBM and (y) the highest amount in effect at any time thereafter, a
Participant may terminate his employment within 90 days of the occurrence of
such reduction and be entitled to the Separation Benefits.
(ii) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant's duties and
responsibilities (including reporting requirements) as an employee are
diminished in comparison to the duties and responsibilities enjoyed by the
Participant on the date Lotus is acquired by IBM, the participant may terminate
his or her employment within 90 days of the occurrence of such reduction and be
entitled to the Separation Benefits.
(iii) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant is required to be based at a
location more than 15 miles from the location where the Participant was based
and performed services on the date Lotus is acquired by IBM or is required to
travel materially more often or for materially longer trips than that required
prior to the date Lotus is acquired by IBM, the Participant may terminate his or
her employment and be entitled to the Separation Benefits.
GENERAL SEVERANCE
An enhanced severance program will be available for a two year period
following the closing date of the acquisition of Lotus by IBM for all employees
as of the closing. It will be applicable to employees terminated other than for
cause and employees leaving Lotus for reasons of constructive termination, as
described below. Payment of a Separation Benefit for termination under this plan
will be two times Lotus' severance schedule as of the date of this agreement
(employee payments will become 16 weeks of base salary plus an additional two
weeks for each six months of service, and for directors and senior managers
(grade E20 and above), exclusive of those eligible for the executive severance
plan, becomes 24 weeks of base salary and target bonus plus an additional two
weeks for each six months of service). Benefits (health and welfare) will
continue for the severance period and outplacement counseling will be provided.
No mitigation shall be required, and no reduction shall be made if a participant
finds employment during the payout period. Payments will be made monthly over a
period equal to the length of the severance calculation.
For purposes of general severance, the following provisions shall apply:
<PAGE>
(i) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant's annual base salary is
reduced below the higher of (x) the amount in effect on the date Lotus is
acquired and (y) the highest amount in effect at any time thereafter, a
Participant may terminate his or her employment within 90 days of the occurrence
of such reduction and be entitled to the Separation Benefits.
(ii) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant's duties, responsibilities
and skills required as an employee are materially diminished or significantly
changed in comparison to the duties, responsibilities or skills required by the
Participant on the date Lotus is acquired, such Participant may terminate his or
her employment within 90 days of the occurrence of such reduction and be
entitled to the Separation Benefits in accordance with Section 4.3.
(iii) If, at any time after a Change of Control and before the second
anniversary of the Change of Control, a Participant is required to be based at a
location more than normal commuting distances from the location where the
Participant was based and performed services on the date Lotus is acquired, such
Participant may terminate his or her employment within 90 days of such
relocation and be entitled to the Separation Benefits.
2
EXHIBIT 2
[PAGES 4-11 OF THE COMPANY'S 1995 PROXY STATEMENT]
PRINCIPAL HOLDERS OF VOTING SECURITIES
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth for each member of the Board of Directors,
the Company's Chief Executive Officer ("CEO"), each of the next four most highly
compensated executive officers of the Company, the position presently held by
such person and the number of shares and percentage of outstanding Common Stock
of the Company beneficially owned by each and by all directors and executive
officers as a group, as of February 1, 1995.
<TABLE><CAPTION>
POSITIONS AND OFFICES AMOUNT AND NATURE OF PERCENT
NAME WITH THE COMPANY BENEFICIAL OWNERSHIP (1) OF CLASS
- ----------------------------- ----------------------------- ------------------------ --------
<S> <C> <C> <C>
Jim P. Manzi................. Chairman of the Board, 1,217,072(2) 2.54%
President and Chief
Executive Officer
Richard S. Braddock.......... Director 8,000(3) *
Elaine L. Chao............... Director 0 *
William H. Gray III.......... Director 0 *
Michael E. Porter............ Director 11,083(4) *
Henri A. Termeer............. Director 7,083(5) *
Edwin J. Gillis.............. Senior Vice President-- 101,759(6) *
Finance and Operations and
Chief Financial Officer
John B. Landry............... Senior Vice President-- 42,556(7) *
Communications, Development
and Chief Technology
Officer
June L. Rokoff............... Senior Vice President-- 65,471(8) *
Worldwide Services Group
Robert K. Weiler............. Senior Vice President-- 83,248(9) *
Worldwide Sales and
Marketing
All directors and executive
officers as a group (14
persons)..................... 1,594,572(10) 3.30%
</TABLE>
- ------------
* Less than 1%
(1) Except where expressly stated otherwise, each named person possesses sole
voting and investment power with respect to the shares.
(2) Includes 26,201 shares held in the Jim P. Manzi 1993 Irrevocable Trust for
the benefit of Mr. Manzi's children. Includes 46,666 shares that Mr. Manzi
has the right to acquire within 60 days of February 1, 1995 by the exercise
of stock options.
(3) Includes 7,500 shares that Mr. Braddock has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options.
<PAGE>
(4) Includes 7,083 shares that Mr. Porter has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options.
(5) Includes 7,083 shares that Mr. Termeer has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options.
(6) Includes 99,479 shares that Mr. Gillis has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options. Includes 780
shares held in trust for the benefit of Mr. Gillis under the Company's 401k
and Profit Sharing Plan.
(7) Includes 31,270 shares that Mr. Landry has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options. Includes 112
shares held in trust for the benefit of Mr. Landry under the Company's 401k
and Profit Sharing Plan and 1,200 shares over which Mr. Landry exercises
investment discretion as custodian of such shares held for the benefit of
his minor children.
(8) Includes 48,541 shares that Ms. Rokoff has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options. Includes 7,430
shares held in trust for the benefit of Ms. Rokoff under the Company's 401k
and Profit Sharing Plan.
(9) Includes 81,979 shares that Mr. Weiler has the right to acquire within 60
days of February 1, 1995 by the exercise of stock options.
(10) Includes 387,760 shares that directors and executive officers of the
Company have the right to acquire within 60 days of February 1, 1995 by the
exercise of stock options and 8,463 shares of Common Stock held in trust by
the Company's Profit Sharing and 401k Plan as described above.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION
The following table sets forth information concerning the cash and noncash
compensation in each of the last three fiscal years for the Company's CEO and
the next four most highly compensated executive officers.
<TABLE><CAPTION>
ANNUAL LONG TERM ALL OTHER
COMPENSATION (1) COMPENSATION COMPENSATION
----------------------- ------------ ------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(2)
- ----------------------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jim P. Manzi............................. 1994 650,000 227,500 200,000 31,800
Chairman of the Board and President 1993 650,000 650,000 40,000 35,046
1992 650,000 0 0 34,214
Edwin J. Gillis.......................... 1994 325,000 113,750 100,000 17,100
Chief Financial Officer and Senior Vice 1993 275,000 275,000 17,500 18,597
President--Finance and Operations 1992 275,000 0 50,000 23,805
John B. Landry........................... 1994 325,000 113,750 100,000 18,150
Senior Vice President--Communications 1993 325,000 325,000 12,500 28,325
Development and Chief Technology 1992 325,000 182,000(3) 0 26,889
Officer
June L. Rokoff........................... 1994 325,000 113,750 100,000 18,150
Senior Vice President--Worldwide 1993 325,000 325,000 25,000 19,771
Services Group 1992 307,400 0 65,000 19,945
Robert K. Weiler......................... 1994 350,963 120,313 100,000 18,695
Senior Vice President--Worldwide Sales 1993 325,000 325,000 17,500 19,771
and Marketing 1992 325,000 0 0 24,688
</TABLE>
- ------------
(1) Does not include perquisites or other personal benefits in any year for
which the aggregate amount was less than the lesser of either $50,000 or 10
percent of the total annual salary and bonus for the executive officer in
that year.
(2) Includes amounts credited to the account of the executive officer for those
years in which he or she served in such capacity in connection with (i) the
profit sharing feature of the Company's Profit Sharing and 401k Plan, (ii)
the Company's Defined Contribution Restoration Plan and (iii) the Company
matching contribution under the savings feature of the Profit Sharing and
401k Plan as follows:
<TABLE><CAPTION>
DEFINED
CONTRIBUTION
PROFIT SHARING RESTORATION 401K MATCHING
NAME YEAR AMOUNT ($) PLAN ($) CONTRIBUTION ($)
- ------------------------------------------- ---- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Manzi...................................... 1994 3,150 24,150 4,500
1993 11,084 19,465 4,497
1992 7,781 22,069 4,364
Gillis..................................... 1994 3,150 9,450 4,500
1993 11,084 3,016 4,497
1992 7,781 11,660 4,364
Landry..................................... 1994 3,150 10,500 4,500
1993 11,084 12,744 4,497
1992 7,781 14,744 4,364
Rokoff..................................... 1994 3,150 10,500 4,500
1993 11,084 4,190 4,497
1992 7,781 7,800 4,364
Weiler..................................... 1994 3,150 11,045 4,500
1993 11,084 4,190 4,497
1992 7,781 12,543 4,364
</TABLE>
- ------------
(3) Represents payment by the Company related to Mr. Landry's prior employment
for cash and other compensation that he had foregone by joining the Company.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual stock
option grants made to the Company's CEO and each of the Company's next four most
highly compensated executive officers during fiscal 1994.
<TABLE><CAPTION>
INDIVIDUAL GRANTS (1)
----------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK PRICE
OPTIONS APPRECIATION
GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE ---------------------
GRANTED FISCAL YEAR PRICE 5% 10%
NAME (#) (%) ($/SH) EXPIRATION DATE ($) ($)
- ------------------------------- ------- ------------ -------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jim P. Manzi................... 200,000 5.06 64.5 January 25, 2001 2,226,330 8,048,709
Edwin J. Gillis................ 100,000 2.53 64.5 January 25, 2001 1,113,165 4,024,354
John B. Landry................. 100,000 2.53 64.5 January 25, 2001 1,113,165 4,024,354
June L. Rokoff................. 100,000 2.53 64.5 January 25, 2001 1,113,165 4,024,354
Robert K. Weiler............... 100,000 2.53 64.5 January 25, 2001 1,113,165 4,024,354
</TABLE>
- ------------
(1) All options described above are "premium" options granted at a per share
exercise price 20% above the fair market value of a share of Common Stock on
the date of grant. The options are non-qualified stock options, have a seven
year term and vest over three years beginning on the 25th month following
the date of grant and thereafter in equal monthly installments over the
succeeding 35 months.
(2) Calculation of potential realizable values are based on theoretical rates of
return required to be disclosed by the SEC and may or may not accurately
reflect or predict the actual value of the stock options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning each exercise of stock
options by the CEO and each of the Company's next four most highly compensated
executive officers during fiscal 1994 and the value of unexercised options at
the end of that fiscal year.
<TABLE><CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END (1)
ACQUIRED VALUE EXERCISABLE / EXERCISABLE /
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
- ---------------------------------- ----------- --------- ----------------- ------------------
<S> <C> <C> <C> <C>
Jim P. Manzi...................... 21,250 674,688 44,166/233,333 914,883/669,785
Edwin J. Gillis................... 10,000 421,563 98,385/165,364 961,704/1,047,808
John B. Landry.................... 40,500 1,522,063 40,489/144,010 848,605/915,064
June L. Rokoff.................... 21,250 772,188 46,979/164,270 675,635/925,284
Robert K. Weiler.................. 15,000 643,125 43,385/152,864 949,517/1,168,121
</TABLE>
- ------------
(1) Based on the closing price on the NASDAQ National Market System for a share
of Common Stock on December 31, 1994 of $41.00.
PENSION PLAN
In 1985, the Company established the Lotus Development Corporation Pension
Plan (the "Pension Plan") for the purpose of assisting its employees in meeting
the needs of retirement. In 1992, the Company determined that its Profit Sharing
and 401k Plan could provide adequate retirement
<PAGE>
assistance to employees and, effective June 1, 1992, suspended the Pension Plan.
While all benefits accrued under the Pension Plan through May 31, 1992 have
become fully vested, no further benefits have accrued to employees after that
date.
Benefits under the Pension Plan are based on an average of the participant's
highest consecutive 36 months of total annual compensation during the last 72
months of service ("Final Average Compensation"). The monthly benefit payable
upon normal retirement in the form of a single life annuity is computed as
follows: 1/12th of 1.5% of Final Average Compensation is multiplied by the
participant's total number of years of service at June 1, 1992 up to no more
than 35 years. From that result is subtracted the monthly value of the annuity
that could be acquired (on specified actuarial assumptions) with the amount of
Company profit sharing contributions for the participant's account for 1990 and
subsequent years accumulated with a deemed interest return.
The table below sets forth the estimated annual benefits payable upon normal
retirement under the Pension Plan formula to employees in the specified average
salary and years of service classifications:
<TABLE><CAPTION>
YEARS OF SERVICE
------------------------
<S> <C> <C>
REMUNERATION 5 10
- -------- ------ -------
<CAPTION>
<S> <C> <C>
$ 25,000 $1,875 $ 3,750
50,000 3,750 7,500
75,000 5,625 11,250
100,000 7,500 15,000
125,000 9,375 18,750
150,000 11,250 22,500
175,000 13,125 26,250
200,000 15,000 30,000
228,886* 17,165 34,330
</TABLE>
- ------------
* The maximum permitted salary recognized under the Internal Revenue Code of
1986, as amended (the "Code") as in effect in 1992.
As of June 1, 1992, the date on which the accrual of future benefits was
suspended, Mr. Manzi had eight years, Mr. Landry had less than one year, Ms.
Rokoff had seven years, Mr. Gillis had less than one year and Mr. Weiler had one
year of service under the Pension Plan.
OTHER BENEFIT PLANS
The Company currently provides certain benefits to its eligible employees
(including its executive officers) through the benefit plans described below:
1992 Stock Option Plan. The Company maintains the Lotus Development
Corporation 1992 Stock Option Plan (the "1992 Stock Option Plan") to attract and
retain the best available personnel for positions of substantial responsibility
and to provide additional incentives to certain employees and consultants to
contribute to the success of the Company. The 1992 Stock Option Plan is
administered by a committee of the Board of Directors that consists of
independent directors. Stock options granted under the plan may not be granted
at less than fair market value on the date of grant. See "Proposal No.
2--Approval of Amendment to the 1992 Stock Option Plan" below.
Employee Stock Purchase Plan. The Company maintains the Employee Stock
Purchase Plan (the "Employee Plan") to provide incentive and to encourage
ownership of Common Stock by all eligible employees of the Company and its
subsidiaries. Employees of the Company may participate in the Employee Plan by
authorizing payroll deductions over a six month period, with the proceeds being
used to purchase shares of Common Stock for the participant at a discounted
price. The Employee Plan is intended to be an "employee stock purchase plan"
under Section 423 of the Code.
<PAGE>
Profit Sharing Plan and 401k Plan. The Company's Profit Sharing and 401k
Plan (the "Plan") provides savings options to eligible U.S. employees of the
Company through deferment of a portion of their compensation. Participants may
elect to defer 2% to 12% of their compensation into the Plan and may also elect
to contribute up to an additional 10% of their compensation on a non-deferred
basis; provided that the combination of deferred and non-deferred contributions
cannot exceed 12% of annual compensation. The Company also makes matching
contributions equal to a percentage of the participant's biweekly deferred
contributions.
Under the Plan, an annual discretionary profit sharing contribution by the
Company based on a percentage of operating profit is allocated to the accounts
of all participants, who do not themselves make any profit sharing contribution.
The level of Company profit sharing and matching contributions is set annually
by the Board of Directors.
The Plan is administered by a committee appointed by the Board of Directors.
Each participant's contributions to the Plan are held in trust by a bank trustee
and are invested in certain investment funds in accordance with the
participant's instructions. The Plan is intended to be a qualified plan under
Section 401(k) of the Code.
Defined Restoration Plan. The Company adopted the Defined Contribution
Restoration Plan to provide supplemental retirement benefits to employees, who
because of limitations imposed by the law on benefits under tax qualified plans,
would receive less than the full benefits to which they would have otherwise
been entitled under the Company's qualified retirement plan. Under the Defined
Contribution Restoration Plan, a participant's account is credited each year
with the amount by which his or her profit sharing allocation under the
Company's Profit Sharing and 401k Plan, calculated without consideration of the
limitations imposed under the Code, exceeds the amounts permitted under the
Code. The Company's funding policy is to pay these supplemental benefits
directly to participants as they become due.
Compensation Committee Report on Executive Compensation
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee, which is composed of two independent directors, makes recommendations
to the Board of Directors on the three key components of the Company's executive
compensation program, base salary, annual incentive awards and long term
incentives.
Compensation Policies for Executive Officers.
The Company's executive compensation program is designed to attract and
retain fully qualified executives in the highly competitive high technology
marketplace. The levels of executive compensation established by the Committee
are designed to be consistent with those available to other executives in
similarly sized corporations.
The Committee establishes individual compensation awards based on the
contribution the executive has made in attaining the Company's short term and
strategic performance objectives as well as the executive's anticipated future
contribution. The Company's executive compensation program consists primarily of
the following integrated components:
1. Base Salary--which is designed to compensate executives competitively
within the industry and marketplace.
2. Annual Incentives--which provide a direct link between executive
compensation and annual Company performance against predetermined measures.
<PAGE>
3. Long Term Incentives--which consist of stock options that link
management decision making with long-term Company performance and
shareholder interests.
Base Salary. Base salary levels for executive officers of the Company are
reviewed annually by the Compensation Committee. The Committee's current policy
is to target base salaries at the mid-range of the market and to maintain the
combined amount of base salary and annual incentives within the upper quartile
of the market based on independent nationally-recognized surveys and competitive
analyses of companies whose gross revenues fall within the same range as those
of the Company. The surveys from which this market comparison is drawn include
data from over 400 major manufacturing and service companies and from over 300
high technology companies of various sizes. The surveys include, but are not
limited to, data from all industries represented in the Standard and Poor's 500
High Technology Composite Index, i.e., Computer Software & Services,
Communication Equipment/Manufacturers, Computer Systems, Aerospace/Defense,
Electronics (Instrumentation, Defense and Semiconductors) and Office Equipment
and Supplies. The High Technology Composite Index is the "line of business
index" used in the stock performance graph set forth below. See "Performance
Graph--Cumulative Five-Year Return" below.
Annual Incentives. All executive officers participate in an Executive
Incentive Program, which compensates officers in the form of annual cash
bonuses. Awards under this program are based on the attainment of four specific
Company performance measures established by the Compensation Committee at the
beginning of the fiscal year. These performance measurements are keyed to
management's annual operating plan and are based on the achievement of targeted
(i) operating profit, (ii) revenue growth, (iii) revenue per employee and (iv)
expense per employee. As Company performance for fiscal 1994 did not meet the
targeted measures, the Executive Incentive bonuses actually paid were below
targeted amounts.
Long Term Incentives. The Company provides long term incentives through its
Amended and Restated 1983 Nonqualified Stock Option Plan and its 1992 Stock
Option Plan. The purpose of these plans is to create a direct link between
compensation and the long-term performance of the Company. Stock options under
these plans are granted at or above fair market value and vest in installments,
generally over four years. Options granted before January 1, 1993 have a five
year term and options granted on or after that date have a seven year term. The
Company makes its annual grant of options to its employees, including its
executive officers, in January, to enable the Company to more closely link
option grants to individual contribution and Company performance.
When recommending option awards for an executive officer, the Committee
considers (i) the executive's current contribution to Company performance, (ii)
the anticipated contribution in meeting the Company's long-term strategic
performance goals and (iii) industry practices and norms. Because the receipt of
value by an executive officer under a stock option is dependent upon an increase
in the price of the Company's Common Stock, this portion of the executives'
compensation is directly aligned with an increase in shareholder value.
In 1994, the Company adopted a "premium" stock option program for the CEO,
the executive officers and certain other officers of the Company. The program is
designed to enhance the link between the participant's compensation and the
long-term performance of the Company and assist in the retention of each
participant. Under this program participants receive options to purchase Common
Stock under the 1992 Stock Option Plan at 20% above fair market value. Options
granted under this program have a seven year term and vest over three years
beginning in the 25th month following the date of grant and thereafter in equal
monthly installments over the succeeding 35 months.
In January 1995, the Company granted "premium" options to purchase the
following number of shares of Common Stock to the CEO and the next four most
highly compensated executive officers at an exercise price of $48.60 per share:
Mr. Manzi--100,000; Mr. Landry--50,000; Ms. Rokoff--50,000; Mr. Gillis--50,000;
and Mr. Weiler--50,000.
<PAGE>
CEO Compensation.
Base Salary. The CEO's salary is positioned competitively to the mid-range
of the marketplace, as determined through comparison of surveys and competitive
analyses in the manner described above. The CEO has not received a base salary
increase since January 1990.
Incentive Compensation. The annual Executive Incentive Program is designed
to reward the CEO based on the Company's performance. The CEO's annual bonus
payable under this Program is determined using the same four measurements
employed in determining the annual incentive awards for executive officers
described above. These performance measurement targets are set and approved by
the Committee annually. The CEO's maximum potential annual incentive award under
this program is 150% of base salary. As Company performance for fiscal 1994 did
not meet three of the four measurement targets, the CEO's Executive Incentive
bonus for 1994 was below the targeted amount.
Long Term Incentive. In January 1995, the CEO received a "premium" option
grant as described above. Consistent with the Committee's considerations for
awards under this plan, the award was based on the anticipated contribution of
the CEO to the attainment of the Company's long-term strategic performance.
Based upon its assessment of the industry surveys described above, the Committee
believes that the awarding of this grant is within the scope of the marketplace
for executives of similarly sized companies.
Respectfully submitted by the
Compensation Committee,
Richard S. Braddock, Chairman
Henri Termeer
COMPENSATION OF DIRECTORS
All Directors, with the exception of Mr. Manzi, received an annual retainer
of $24,000 for the fiscal year ended December 31, 1994, together with
reimbursement of expenses incurred in attending meetings of the Board of
Directors.
On January 1, 1995, Mr. Braddock, Ms. Chao, Mr. Gray, Mr. Porter and Mr.
Termeer were each granted an option to acquire 10,000 shares of Common Stock at
an exercise price of $40.50 per share, which price was equal to the market value
of the Company's Common Stock on the first business day following that date,
pursuant to the Company's 1986 Stock Option Plan for Non-Employee Directors. In
addition, in accordance with such plan, Mr. Gray and Ms. Chao were each granted
options to purchase 10,000 shares of Common Stock at an exercise price of
$55.625 and $31.00, respectively, (the market value of such shares on the date
of grant) in connection with their election to the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, Messrs. Aldo Papone, Chester A. Siuda, Richard S. Braddock and
Henri A. Termeer each served on the Compensation Committee of the Board. Messrs.
Papone and Siuda each declined to stand for re-election to the Board of
Directors at the Company's 1994 Annual Meeting of Shareholders in May 1994.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Michael E. Porter, a Director of the Company, made one late filing reporting
the purchase of 500 shares of Common Stock that was required to be filed in 1994
on Form 4 under Section 16(a) of the Exchange Act. Mr. Porter subsequently
reported this transaction.
PERFORMANCE GRAPH
The following indexed graph indicates the Company's total return to its
shareholders for the past five year period ended December 31, 1994 as compared
to the total return over such period for the Standard & Poor's 500 Composite
Index and the Standard & Poor's High Tech Composite Index. This graph asssumes a
$100 investment at the beginning of the five-year period and the reinvestment of
all dividends.
(Pursuant to Item 304 of Regulation S-T, the Company has submitted the
performance graph under cover of Form SE)
EXHIBIT 3
CONFIDENTIAL
CONSULTING AGREEMENT
June 10, 1995
Mr. Richard S. Braddock
126 East 56th Street
24th Floor
New York, NY 10022-3613
Re: Consulting Services Agreement
Dear Rick:
This letter amends and restates in its entirety our
Consulting Agreement dated May 9, 1995.
In recognition of your unique knowledge of the business and
operations of Lotus Development Corporation, a Delaware
corporation ("Lotus") and of the industry in which it operates,
Lotus desires to enter into a consulting arrangement with you,
subject to the terms and conditions set forth below. Hereafter,
for purposes of this Agreement, you will be referred to as the
"Consultant."
1. Consulting Term
This Agreement shall commence on the date set forth above,
and shall continue in effect, unless earlier terminated, for a
period of eight (8) months through December 31, 1995 (the
"Initial Consulting Period"). The parties hereto may elect to
extend or reduce the duration of the Initial Consulting Period,
provided that any option to change the duration of the Initial
Consulting Period must be in writing and executed by both parties
hereto. After the expiration of the Initial Consulting Period,
this Agreement shall automatically renew for successive one-year
periods until the earlier of (i) May 9, 2002, (ii) Consultant's
resignation or removal from Lotus' Board of Directors and
(iii) the termination of the Consulting Term pursuant to Section
7 hereof (such period to be referred to herein as the "Extended
Consulting Period"). The Initial Consulting Period and the
Extended Consulting Period are referred to collectively herein as
the "Consulting Term."
2. Obligations of Lotus; Compensation of Consultant
(i) In consideration of the Consultant's performance of
consulting services as set forth in Section 3 hereof, Lotus
agrees to retain the Consultant pursuant to the terms and
conditions set forth herein and has granted to him on the date
hereof non-qualified options to purchase shares of Lotus Common
Stock, $.01 par value (the "Options"). The Options are evidenced
by a written non-qualified stock option agreement (the "Stock
Option Agreement"), the receipt and execution of which is hereby
acknowledged by the Consultant, and are subject to the terms of
Lotus' 1992 Stock Option Plan (the "Stock Option Plan").
<PAGE>
CONFIDENTIAL
(ii) In the event of a "Change in Control" during the Initial
Consulting Period the following provisions shall apply:
(A) The Consultant shall for the remainder of the
Initial Consulting Period assist the Chief Executive
Officer of Lotus in coordinating transition issues
associated with the Change in Control on the same basis
as set forth in Section 4(i). After the expiration of
the Initial Consulting Period the Consultant shall
continue to assist in coordinating transition issues
for up to twenty-four months after the Change in
Control occurs on the same basis as set forth in
Section 4(ii). After a Change in Control, such twenty-
four month period shall constitute the Consulting
Period for all purposes of this Agreement.
(B) As Compensation for his services after a Change
in Control the Consultant shall receive $2,925,000,
payable as follows:
(1) an initial payment of $1,950,000, payable
immediately upon the occurrence of the Change in
Control; and
(2) $975,000, payable in twenty-four equal
monthly installments commencing on the first day
of each calendar month commencing with the first
calendar month after which the Change in Control
occurs.
(C) The Options shall terminate.
(D) For purposes of this Agreement, a "Change in
Control" shall mean the occurrence on or prior to
November 9, 1995, of (x) an acquisition by any person
(as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended) of
beneficial ownership of more than 50% of the shares
issued and outstanding Common Stock of Lotus or (y) any
reorganization, merger or consolidation of Lotus in
which Lotus is not the continuing or surviving
corporation or in which the shareholders of Lotus prior
to such merger or consolidation do not continue to own
substantially the same percentage of the continuing or
surviving corporation as they owned immediately prior
thereto or any sale (in one transaction or a series of
related transactions) of all, or substantially all, of
the assets of Lotus to another person or entity. For
purposes of this clause (D), an event shall be deemed
to have occurred prior to November 9, 1995, if it
results from an agreement which provides that all
provisions thereof are intended to be binding on all
parties thereto and is subject only to such conditions
to consummation as are common in similar transactions
(including shareholder and regulatory approval
requirements and satisfaction of any fiduciary
obligations of any party's board of directors).
(iii) In addition, Lotus agrees to provide medical and dental
benefits to the Consultant during the Initial Consulting Period
at a level equal to the medical and dental benefits provided to
him by his current employer, or in the alternative to reimburse
the Consultant for an amount
2
<PAGE>
CONFIDENTIAL
equal to the cost of such benefits. This obligation shall survive
termination or expiration of the Initial Consulting Period for a
three (3) month period.
3. Obligations of Consultant
The Consultant shall furnish consulting services to Lotus
as may be assigned to him by its Chief Executive Officer from
time to time during the Consulting Term
4. Efforts Devoted to Lotus; Agreement Not to Compete with
Lotus; Non-Solicitation
(i) During the Initial Consulting Period, the Consultant
agrees to devote an average of (but not less than) fifty percent
(50%) of his professional time and effort on a monthly basis to
the benefit of Lotus and further agrees not to participate,
directly or indirectly, in any capacity in any business or
activity that is in competition with Lotus. For a period of one
year after the expiration or termination of the Initial
Consulting Period, the Consultant shall not attempt to hire, or
hire any employee of Lotus, or assist in such hiring by anyone
else, or directly or indirectly encourage any employees to
terminate his or her employment with Lotus.
(ii) During the Extended Consulting Period, the Consultant
agrees to devote such professional time and effort to the benefit
of Lotus as may be requested from time to time by Lotus' Chief
Executive Officer, provided that Consultant shall not be required
to devote more than ten percent (10%) of his professional time on
a monthly basis to the benefit of Lotus.
5. Unauthorized Disclosure of Confidential Information
During the Consulting Term and thereafter, the Consultant
shall not, directly or indirectly, use or disclose to anyone
outside of Lotus any Confidential Information (as hereinafter
defined) other than pursuant to the performance of his consulting
duties by and for the benefit of Lotus.
The term "Confidential Information" as used throughout this
Agreement means (a) all data or information not generally known
outside of Lotus whether prepared or developed by or for Lotus or
received by Lotus from an outside source. Without limiting the
scope of this definition, Confidential Information as used
throughout this Agreement includes any technical data, design,
pattern, formula, computer program, source code, object code,
algorithm, subroutine, manual, product specification, or plan for
a new or revised product; any business, marketing, financial or
sales record, data, plan, or survey; and any other record or
information relating to the present or future business or
products of Lotus and (b) any and all scientific, technical,
merchandising, production or management design, procedure,
formula, discovery, invention, item of information, idea, concept
or improvement (and any tangible evidence, record or
representation thereof), whether in written, graphic or machine
readable form or otherwise, which is maintained in confidence by
Lotus or by any person or entity affiliated with Lotus, or which
might permit Lotus or its customers to obtain a competitive
advantage over competitors who do not have access thereto. The
Consultant recognizes and agrees that all such Confidential
Information and copies thereof are the sole property of Lotus.
3
<PAGE>
CONFIDENTIAL
Notwithstanding the foregoing, no obligation of
confidentiality shall apply to the Consultant with respect to any
information (i) reasonably required to be disclosed by Consultant
in order to enforce the provisions of this Agreement or
(ii) required to be disclosed by law, provided that Lotus is
given reasonable notice and opportunity to obtain a protective
order.
6. Expenses
(a) General Expenses
Lotus will reimburse the Consultant for all reasonable
expenses incurred by him in the course of providing consulting
services hereunder.
(b) Office Space and Administrative Support
During the Initial Consulting Period and for a period
of three months thereafter, Lotus will reimburse the Consultant
for all expenses in connection with the office condominium space
used by the Consultant in the performance of his duties
hereunder. Such office space shall be located in New York, New
York, the exact location to be determined by the Consultant.
Lotus will also reimburse the Consultant for administrative
support services during the Initial Consulting Period, up to a
maximum amount of ninety thousand dollars ($90,000.00).
7. Termination of Consulting Term
The Consulting Term shall be terminated under the following
conditions:
(i) termination by Lotus with "cause" ("cause" is defined as
the commission by the Consultant of any deliberate and
premeditated act against the interests of Lotus), by giving the
Consultant notice of such termination. For purposes of this
provision, it is expressly agreed that any actions of Consultant
pursuant to this Agreement executed in good faith and at the
request of Lotus' Chief Executive Officer shall be deemed to be
in the interests of Lotus. Termination will take effect
immediately upon the giving of such notice to Consultant by
Lotus; or
(ii) termination by the Consultant by giving Lotus notice of
such termination; or
(iii) the death of the Consultant; or
(iv) the disability of the Consultant, if such disability
results in the Consultant's inability to perform consulting
services as contemplated by the parties hereunder for a
consecutive period of ninety (90) days; or
(v) prior to December 31, 1995, the Consultant accepts
substantially full time employment with any third party (other
than Lotus or an affiliate (within the meaning of the Securities
Exchange Act of 1934) of Lotus); or
(vi) subsequent to a "Change in Control" the following
additional conditions shall constitute a termination of the
Consulting Term:
4
<PAGE>
CONFIDENTIAL
(A) the termination or resignation of the employment
of Jim P. Manzi as Chief Executive Officer of Lotus; or
(B) the determinationby the Chief Executive Officer of
Lotus that the Consultant's services are no longer
required hereunder.
8. Compensation Upon Early Termination
(i) In the event of a termination of the Consulting Term
pursuant to subsection (i), (ii), (iii) or (iv) of Section 7
during the Initial Consulting Period and on or before November 9,
1995, Lotus shall promptly pay to the Consultant (or to his
beneficiary or his estate, as the case may be) an amount equal to
$50,000 for each month elapsed between the date of this Agreement
and the effective date of termination, with such amount to be
pro-rated for any partial month period. In such event, neither
Consultant nor his beneficiary or estate shall be entitled to
receive any additional amounts from Lotus under this Agreement.
(ii) In the event of a termination of the Consulting Term
after the occurrence of a Change in Control:
(A) if such termination occurs pursuant to subsection
(i), (ii) or (v) of Section 7, neither the Consultant
nor his beneficiary or estate shall be entitled to any
further amounts from Lotus under this Agreement; and
(B) if such termination occurs pursuant to subsections
(iii), (iv) or (vi) of Section 7, the Consultant shall
be entitled to receive in a lump sum, payable
immediately upon the occurrence of such termination,
any portion of the $2,925,000 contemplated by Section
2(ii)(B) not theretofore paid to the Consultant.
(iii) In the event of any early termination of the Consulting
Term, under any conditions other than those set forth in
subsections 8(i) and 8(ii) above, neither the Consultant nor his
beneficiary or estate shall be entitled to receive any amounts
from Lotus under this Agreement (except for any applicable right
to exercise the Options in accordance with the Stock Option
Agreement).
9. Certain Additional Payments by Lotus
(a) Gross-Up Payments
Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by Lotus to or for the benefit of the Consultant
(whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or the Stock Option Agreement, but
determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") or any interest or penalties are
incurred by the Consultant with respect to such excise tax (such
excise tax, together
5
<PAGE>
CONFIDENTIAL
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Consultant shall be
entitled to receive from Lotus an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Consultant of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Consultant retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Determination by Accounting Firm
Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be in
accordance with the opinion of Coopers & Lybrand L.L.P. (the
"Accounting Firm"), based upon the facts and circumstances as set
forth in this Agreement and as presented by the Consultant, with
the participation of Lotus. The Accounting Firm shall render an
opinion, which shall set forth its underlying assumptions and
reasoning, and shall provide detailed supporting calculations
both to Lotus and the Consultant within 15 business days of the
receipt of notice from the Consultant that there has been a
Payment, or such earlier time as is requested by Lotus. In the
event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change
of Control, Consultant shall appoint another nationally
recognized accounting firm acceptable to Lotus in its reasonable
judgment to render the opinions required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by Lotus. Any Gross-Up Payment, as determined
pursuant to this Section 9, shall be paid by Lotus to the
Consultant within five days of the receipt of the Accounting
Firm's opinion. If the Accounting Firm opines that no Excise Tax
is payable by the Consultant, it shall furnish the Consultant
with a written opinion that failure to report the Excise Tax on
the Consultant's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. The
opinion of the Accounting Firm shall be binding upon Lotus and
the Consultant. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial opinion by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by Lotus
should have been made, consistent with the calculations required
to be made hereunder. In the event that Lotus exhausts its
remedies pursuant to Section 9(c) and the Consultant thereafter
is required to make a payment of any Excise Tax, the Accounting
Firm shall be asked to render an opinion (based on the facts and
circumstances as set forth in this Agreement and as presented by
the Consultant, with the participation of Lotus), as to the
amount of the payment that should have been made (including any
interest and penalties thereon) shall be promptly paid by Lotus
to or for the benefit of the Consultant.
(c) Contesting of IRS Claims
The Consultant shall notify Lotus in writing of any claims
by the Internal Revenue Service that, if successful, would
require the payment by Lotus of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than 30 days after the Consultant
6
<PAGE>
CONFIDENTIAL
actually receives notice in writing of such claim and shall
apprise Lotus of the nature of such claim and the date on
which such claim is requested to be paid; provided that
the failure of the Consultant to provide such written
notification in such time shall not affect the Consultant's
right to payment by Lotus under this Section 9 if
such failure does not materially adversely affect Lotus' ability
to contest the claim. The Consultant shall not pay such claim
prior to the expiration of the 30-day period following the date
on which he gives such notice to Lotus (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If Lotus notifies the Consultant in writing prior
to the expiration of such period that it desires to contest such
claim, the Consultant shall:
(i) Give Lotus any information reasonably requested by
Lotus relating to such claim,
(ii) take such action in connection with contesting such
claim as Lotus shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Lotus,
(iii) cooperate with Lotus in good faith in order to
effectively to contest such claim, and
(iv) permit Lotus to participate in any proceedings relating
to such claim;
provided, however, that Lotus shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Consultant harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c),
Lotus shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Consultant to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Consultant agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as Lotus shall determine; provided, however, that if
Lotus directs the Consultant to pay such claim and sue for a
refund, Lotus shall advance the amount of such payment to the
Consultant, on an interest free basis and shall indemnify and
hold the Consultant harmless, on an after-tax basis from any
Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
further provided that if Lotus directs the Consultant to agree to
any extension of the statute of limitation relating to payment of
taxes for the taxable year of the Consultant with respect to
which such contested amount is claimed to be due, Consultant
shall not be obligated to agree to an extension unless it is
limited solely to such contested amount. Furthermore, Lotus'
control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the
Consultant shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
7
<PAGE>
CONFIDENTIAL
(a) Application of Advance
If, after the receipt by the Consultant of any amount
advanced by Lotus pursuant to Section 9(c), the Consultant
becomes entitled to receive any refund with respect to the claim
to which the amount so advanced was intended to be applied, the
Consultant shall (subject to Lotus' complying with the
requirements of Section 9(c)) promptly pay to Lotus the amount of
such refund (together with, to the extent deductible by the
Consultant, any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Consultant of
an amount advanced by Lotus pursuant to Section 9(c), a
determination is made that the Consultant shall not be entitled
to any refund with respect to such claim and Lotus does not
notify the Consultant in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. No Right to Employment
This Agreement shall not be construed as creating an express
or implied contract of employment and, except as otherwise agreed
to in writing between the Consultant and Lotus, the Consultant
shall not be considered an employee of Lotus.
11. The Stock Option Plan
Lotus represents that the Stock Option Plan, as administered
by Lotus, complies with the provisions of Rule 16b-3 under
Section 16 of the Securities and Exchange Act of 1934, as
amended.
12. Complete Understanding
All negotiations between the parties have been merged in
this Agreement and there are no understandings or agreements
other than those incorporated herein.
13. Modification of Agreement
This Agreement may not be modified in any respect except by
an instrument in writing duly executed by the parties hereto. No
modification or amendment of any term, provision or condition of
this Agreement shall be binding or enforced unless executed in
writing by the parties hereto.
14. Assignment
The Consultant may not assign any of the benefits or
obligations under this Agreement.
8
<PAGE>
CONFIDENTIAL
15. Governing Law
This Agreement shall be governed by and construed under the
laws of the Commonwealth of Massachusetts, other than its
conflicts of laws principles.
16. Counterparts
This Agreement may be executed in counterparts which when
placed together shall constitute a fully executed agreement.
If you are in agreement with the terms and conditions set
forth above, please execute in the space provided below.
ACCEPTED AND AGREED TO AS OF THIS 11th DAY OF JUNE, 1995.
CONSULTANT LOTUS DEVELOPMENT CORPORATION
By:___________________________ By:_________________________________
Richard S. Braddock Russell J. Campanello
Vice President, Human Resources
9
EXHIBIT 4
INDEMNITY AGREEMENT dated as of
___________, between:
LOTUS DEVELOPMENT CORPORATION, a
Delaware corporation (the
"Company"), and __________ (the
"Indemnitee")
Section 145 of the Delaware General Corporation law empowers
any corporation formed thereunder to indemnify any person serving
as a director, officer, employee or agent of such corporation or
who serves at the request or for the convenience or to represent
the interest of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise (collectively, "Capacities"), and
Section 145(f) of said Law further specifies that the
indemnification set forth in said Section shall not be deemed
exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
The Company desires to have the Indemnitee serve or continue
to serve in such Capacities as have been or may be (a) authorized
by resolution of the Company's shareholders, or of the directors
of the Company or any of its subsidiaries, or (b) designated in
writing by an officer of the Company authorized pursuant to the
Company's By-Laws as from time to time in effect, in either such
case free from undue concern for unpredictable, inappropriate or
unreasonable claims or proceedings by reason of the Indemnitee's
serving or having served the Company or any other corporation,
partnership, joint venture, trust or other enterprise
(collectively, including the Company, "Affiliates") in any
Capacity or by reason of the Indemnitee's decisions, actions or
omissions on behalf of any Affiliate or in connection with such
Capacity; and the Indemnitee desires to serve, or to continue to
serve, in any and all such Capacities. Accordingly, in
consideration of the Indemnitee's serving or continuing to serve
in any such Capacities, the parties agree as follows:
1. Indemnification. (a) The Company shall indemnify,
---------------
defend and hold harmless the Indemnitee against all expenses,
losses, claims, damages and liabilities, including, without
limitations, attorneys' fees, judgments, fines and amounts paid
in settlement (all such expenses, collectively, "Costs"),
actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which the
Indemnitee is a party or threatened to be made a party (all such
actions, collectively, "Proceedings") (i) by reason of the fact
that the Indemnitee is or was serving any Affiliate in any
Capacity or (ii) by reason of anything done or not done by the
Indemnitee in such Capacity.
2. Culpable Action. (a) Notwithstanding the provisions
---------------
of Section 1, the Indemnitee shall not be entitled to
indemnification if (i) the Company is prohibited form paying such
indemnification under applicable law, (ii) the Indemnitee
breached the Indemnitee's duty of
1
<PAGE>
loyalty to any Affiliate or its stockholders, (iii) the
Indemnitee's actions or omissions were not in good faith or
involved intentional misconduct or knowing violation of
law or (iv) the Indemnitee derived an improper personal
benefit from any transaction which is a subject of the
applicable Proceeding (any existence or occurrence described in
the foregoing clauses (i) - (iv), individually, a "Culpable
Action").
(b) The existence or occurrence of a Culpable Action
shall be conclusively determined by (i) a non-appealable, final
decision of the court having jurisdiction over the applicable
Proceeding or (ii) a non-appealable, final decision of the Court
of Chancery of the State of Delaware (or if such a decision is
appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision). Such determination
shall be final and binding upon the parties hereto.
(c) The existence or occurrence of a Culpable Action
may also be determined by (i) the Board of Directors of the
Company, by a majority vote of a quorum consisting of directors
who were not parties to the applicable Proceeding (the
"Disinterested Directors"), (ii) the stockholders of the Company,
by a majority vote of a quorum consisting of stockholders who
were not parties to the applicable Proceeding (the "Disinterested
Stockholders"), or (iii) any other entity to which the
Disinterested Directors or the Disinterested Stockholders shall
have delegated the authority to make such a determination;
provided, however, that such determination shall be binding upon
the parties hereto only if a determination shall not have been
made and shall not subsequently be made pursuant to subsection
(b) immediately above.
(d) If a Proceeding involves more than one claim,
issue or matter, the determination as to whether there exists or
has occurred a Culpable Action shall be severable as to each and
every claim, issue and matter.
(e) The termination of any Proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, does not affect the provisions of
Section 1 for indemnification hereunder and does not create a
presumption that there exists a Culpable Action.
3. Payment of Costs. The Costs incurred by the
------------------
Indemnitee in connection with any Proceeding, including any
Proceeding brought pursuant to Section (2)(b), shall be paid by
the Company on an "as incurred" basis; provided, however, that if
it shall ultimately be determined that there exists or has
occurred a Culpable Action with respect to such Proceeding, the
Indemnitee shall repay to the Company the amount (or the
appropriate portion thereof as contemplated by Section 2(d)) so
advanced, including the costs of obtaining a determination
pursuant to Section 2(b).
4. Severability. If any provision of this Agreement
------------
shall be determined to be illegal and unenforceable by any court
of law, the remaining provisions shall be severable and
enforceable in accordance with their terms.
5. No Right to Engagement, Employment or Directorship.
----------------------------------------------------
This Agreement shall not entitle the Indemnitee to any right or
claim to be retained as an agent, employee, officer or
2
<PAGE>
director of any Affiliate or limit any right of any Affiliate to
terminate the engagement, employment or directorship of the
Indemnitee or to change the terms of such engagement, employment
or directorship.
6. Other Rights and Remedies. This Agreement shall not
--------------------------
be deemed exclusive of any other contractual or non-contractual
right to indemnification to which the Indemnitee may be entitled
under any provision of law, or any corporate charter, articles,
memorandum or by-law, insurance, or otherwise.
7. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each such counterpart shall be deemed
to be an original instrument, but all such together shall
constitute but one agreement.
8. Descriptive Headings. Descriptive headings are for
--------------------
convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
9. Modification. This Agreement shall not be altered or
------------
otherwise amended except pursuant to an instrument in writing
signed by each of the parties.
10. Notice to the Company by the Indemnitee. The
----------------------------------------------
Indemnitee, as a condition precedent to the Indemnitee's right to
be indemnified under this Agreement, shall give to the Company
notice in writing as soon as practicable of any Proceeding for
which indemnity will or should reasonably be expected to be
sought under this Agreement.
11. Notices. All notices, requests, consents and other
-------
communications hereunder to either party shall be deemed to be
sufficient if contained in a written instrument delivered in
person or duly sent by first class or certified mail, postage
prepaid addressed to such party at such party's address set forth
below or such other address as shall hereafter have been last
notified by the addressee to the addressor hereunder:
(i) if to the Company, to:
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, Massachusetts 02142
Attention: General Counsel;
(ii) if to the Indemnitee, to:
the name and address of the Indemnitee
as it appears on the personnel records
of the Company.
12. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of
Delaware.
3
<PAGE>
13. Successors and Assigns. This Agreement shall be
-----------------------
binding upon the Company and its successors and assigns and shall
inure to the benefit of the Indemnitee and the Indemnitee's
spouse, heirs, executors and administrators.
14. Entire Agreement. This Agreement contains the entire
----------------
agreement among the parties with respect to the subject matter
hereof and supersedes all prior agreements and other
communications between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, each of the parties caused this
Agreement to be executed on its or his behalf as of the date
first above written.
LOTUS DEVELOPMENT CORPORATION
By:___________________________
Thomas M. Lemberg
INDEMNITEE
______________________________
Print Name: _________________
4
EXHIBIT 5
ARTICLE NINTH OF THE
SECOND RESTATED CERTIFICATE OF INCORPORATION OF
LOTUS DEVELOPMENT CORPORATION
"NINTH. (a) The Corporation shall, to
the fullest extent permitted by the General
Corporation Law of the State of Delaware,
indemnify any and all persons whom it shall
have power to indemnify under said law from
and against any and all of the expenses,
liabilities or other matters permitted to be
indemnified from and against under said law
and the indemnification provided for herein
shall not be deemed exclusive of any other
rights to which those indemnified may be
entitled under any By-law, agreement, vote of
stockholders or disinterested directors or
otherwise, both as to action in his official
capacity and as to action in another capacity
while holding such office, and shall continue
as to a person who has ceased to be director,
officer, employee or agent and shall inure to
the benefit of the heirs, executors and
administrators of such a person.
(b) To the fullest extent permitted by
the General Corporation Law of the State of
Delaware, a director of this Corporation
shall not be liable to the Corporation or any
of its stockholders for monetary damages for
breach of fiduciary duty as a director."
EXHIBIT 6
ARTICLE VII OF THE
BY-LAWS
OF
LOTUS DEVELOPMENT CORPORATION
ARTICLE
VII. INDEMNIFICATION.
SECTION 1. Indemnification. (a) The Corporation shall indemnify, defend and
hold harmless (i) each director and officer of the Corporation, and (ii) each
other person designated in writing by the President or the Chief Financial
Officer from time to time, against all expenses, losses, claims, damages and
liabilities, including, without limitation, attorneys' fees, judgments, fines
and amounts paid in settlement (all such expenses, collectively, "Costs")
actually and reasonably incurred by him/her in connection with the
investigation, defense or appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which the director, officer or other person (collectively "persons") is a party
or threatened to be made a party (all such actions, collectively, "Proceedings")
(A) by reason of the fact that he/she is or was a director, officer, employee or
agent of the Company or of any other corporation, partnership, joint venture,
trust or other enterprise (collectively "Affiliates") of which he/she has been
or is serving at the request of, for the convenience of, or to represent the
interest of the Corporation or (B) by reason of anything done or not done by
him/her in any such capacity referred to in the immediately foregoing clause
(A). Pursuant to this Article VII, the Board of Directors may authorize the
execution and delivery by the Corporation of any agreement or undertaking with
or on behalf of any person not inconsistent with this Article VII or applicable
law with respect to the matters set forth herein.
SECTION 2. Culpable Action. (a) Notwithstanding the provisions of Section 1,
a person shall not be entitled to indemnification if (i) the Corporation is
prohibited from paying such indemnification under applicable law, (ii) the
person breached his/her duty of loyalty to the Corporation or its stockholders
or any Affiliate or its stockholders, (iii) the person's actions or omissions
were not in good faith or involved intentional misconduct or knowing violation
of law or (iv) the person derived an improper personal benefit from any
transaction which is a subject of the applicable Proceeding (any existence or
occurrence described in the foregoing clauses (i)-(iv), individually, a
"Culpable Action").
(b) The existence or occurrence of a Culpable Action shall be conclusively
determined by (i) a non-appealable, final decision of the court having
jurisdiction over the applicable Proceeding or (ii) a non-appealable, final
decision of the Court of Chancery of the State of Delaware (or if such a
decision is appealable, by the court in such State which has jurisdiction to
render a non-appealable, final decision).
(c) The existence or occurrence of a Culpable Action may also be determined
by (i) the Board of Directors, by a majority vote of a quorum consisting of
directors who were not parties to the applicable Proceeding (the "Disinterested
Directors"), (ii) the stockholders of the Corporation, by a majority vote of a
quorum consisting of stockholders who were not parties to the applicable
Proceeding (the "Disinterested Stockholders"), or (iii) any other entity to
which the Disinterested Directors or the Disinterested Stockholders shall have
delegated the authority to make such a determination: provided, however, that
such determination shall not have been made or shall not be subsequently made
pursuant to subsection (b) above.
(d) If a Proceeding involves more than one claim, issue or matter, the
determination as to whether there exists or has occurred a Culpable Action shall
be severable as to each and every claim, issue and matter.
<PAGE>
(e) The termination of any proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, does not change
the presumption of Section 1 that a person is entitled to indemnification
hereunder and does not create a presumption that there exists a Culpable Action.
SECTION 3. Payment of Costs. The Costs incurred by a person in connection
with any Proceeding, including any Proceeding brought pursuant to Section 2(b),
shall be paid by the Corporation on an "as incurred" basis; provided, however,
that if it shall ultimately be determined that there exists or has occurred a
Culpable Action with respect to such Proceeding, the person shall repay the
Corporation the amount (or the appropriate portion thereof as contemplated by
Section 2(d)) so advanced, including the costs of obtaining a determination
pursuant to Section 2(b).
EXHIBIT 7
AMENDMENT TO RIGHTS AGREEMENT
THIS AMENDMENT, dated as of June 11, 1995, is between LOTUS DEVELOPMENT
CORPORATION, a Delaware corporation (the "Company"), and THE FIRST NATIONAL BANK
OF BOSTON, a national banking association (the "Rights Agent").
RECITALS
A. The Company and the Rights Agent are parties to a Rights Agreement dated
as of November 7, 1988, as amended as of April 5, 1990, and as of September 16,
1991 (the "Rights Agreement").
B. International Business Machines Corporation, a New York corporation
("IBM"), White Acquisition Corp., a New York corporation ("Sub"), and the
Company have entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Sub will amend its existing offer to purchase all
outstanding shares of common stock of the Company and, following consummation of
the amended offer, Sub will merge with and into the Company (the "Merger"). The
Board of Directors of the Company has approved the Merger Agreement, the amended
offer and the Merger.
C. Pursuant to Section 27 of the Rights Agreement, the Board of Directors of
the Company has determined that an amendment to the Rights Agreement as set
forth herein is necessary and desirable to reflect the foregoing and the Company
and the Rights Agent desire to evidence such amendment in writing.
Accordingly, the parties agree as follows:
1. Amendment of Section 1(a). Section 1(a) of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary,
neither IBM nor Sub shall be deemed to be an Acquiring Person solely by
virtue of (i) the announcement or making of the Existing Offer or the
Offer (as such terms are defined in the Merger Agreement), (ii) the
acquisition of Common Shares pursuant to the Offer and the Merger (as
defined in the Merger Agreement), (iii) the execution of the Merger
Agreement or (iv) the consummation of the other transactions contemplated
in the Merger Agreement."
2. Amendment of Section 1(g). Section 1(g) of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary, a
Distribution Date shall not be deemed to have occurred solely as the
result of (i) the announcement or making of the Existing Offer or the
Offer, (ii) the acquisition of Common Shares pursuant to the Offer and
the Merger, (iii) the execution of the Merger Agreement or (iv) the other
transactions contemplated in the Merger Agreement."
3. Amendment of Section 1(j). Section 1(j) of the Rights Agreement is
amended and restated to read as follows:
"(j)(i) 'Final Expiration Date' shall have the meaning set forth in
Section 7 hereof.
(j)(ii) 'IBM' shall mean International Business Machines Corporation,
a New York corporation.
(j)(iii) 'Merger Agreement' shall mean the Agreement and Plan of
Merger dated as of June 11, 1995, among IBM, Sub and the Company, as
amended from time to time."
<PAGE>
4. Amendment of Section 1(r). Section 1(r) of the Rights Agreement is
amended and restated to read as follows:
"(r)(i) 'Shares Acquisition Date' shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(r)(ii) 'Sub' shall mean White Acquisition Corp., a New York
corporation, which is a wholly owned subsidiary of IBM, or any other
subsidiary of IBM that is substituted for Sub pursuant to the Merger
Agreement."
5. Amendment of Section 13. Section 13 of the Rights Agreement is
amended to add the following sentence at the end thereof:
"Notwithstanding anything in this Rights Agreement to the contrary,
(i) the announcement or making of the Existing Offer or the Offer, (ii)
the acquisition of Common Shares pursuant to the Offer and the Merger,
(iii) the execution of the Merger Agreement or (iv) the consummation of
the other transactions contemplated in the Merger Agreement shall not be
deemed to be a Section 13 Event and shall not cause the Rights to be
adjusted or exercisable in accordance with Section 13."
6. Effectiveness. This Amendment shall be deemed effective as of June
11, 1995 as if executed on such date. Except as amended hereby, the Rights
Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
7. Miscellaneous. This Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such state
applicable to contracts to be made and performed entirely within such state.
This Amendment may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
If any provision, covenant or restriction of this Amendment is held by a
court of competent jurisdiction or other authority to be invalid, illegal or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and
shall in no way be effected, impaired or invalidated.
EXECUTED as of the date set forth above.
Attest: LOTUS DEVELOPMENT CORPORATION
................................. .................................
Name: Name:
Title: Title:
Attest: THE FIRST NATIONAL BANK OF BOSTON
................................. .................................
Name: Name:
Title: Title:
2
LAZARD FRERES & CO. LLC
ONE ROCKEFELLER PLAZA
NEW YORK, N.Y. 20020
_____________
TELEPHONE (212) 632-6000 NEW YORK
FACSIMILE (212) 632-6060
June 11, 1995
The Board of Directors
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, MA 02142
Dear Members of the Board:
We understand that Lotus Development Corporation (the "Company"),
International Business Machines Corporation ("IBM") and White Acquisition
Corporation ("White") have entered into an agreement and plan of merger dated as
of June 11, 1995 (the "Agreement") pursuant to which IBM, through White, will
make a tender offer for all of the common stock, par value $.01 per share (the
"Common Stock"), of the Company for a price in cash equal to $64.00 per share of
Common Stock (the "Offer") and, following consummation of the Offer, White will
be merged with the Company (the "Merger" and, together with the Offer, the
"Acquisition") and each remaining share of Common Stock will be converted into
the right to receive $64.00 in cash.
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of the Company of the consideration to be paid in
the Acquisition. In connection with this opinion, we have:
(i) Analyzed certain historical business and financial information
relating to the Company and IBM;
(ii) Reviewed various financial forecasts and other data provided to us
by the Company relating to its business;
(iii) Held discussions with members of the senior management of the
Company with respect to the business and prospects of the Company
and its strategic objectives;
(iv) Reviewed public information with respect to certain other companies
in lines of businesses we believe to be generally comparable to the
business of the Company;
(v) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be
generally comparable to those of the Company, and in other
industries generally;
(vi) Considered the financial terms of the Agreement;
(vii) Reviewed the historical stock prices and trading volumes of the
Company's common stock; and
<PAGE>
LAZARD FRERES & CO. LLC
(viii) Conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information provided by the Company, and have not assumed any
responsibility for any independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company. With respect to financial forecasts, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of the Company as to the future financial
performance of the Company. We assume no responsibility for and express no view
as to such forecasts or the assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. In rendering our opinion, we have assumed that the
Acquisition will be consummated on the terms described in the Agreement, without
any waiver of any material terms or conditions by the Company.
Lazard Freres & Co. LLC is acting as financial advisor to the Company in
connection with the Acquisition and will receive a fee for our services, a
substantial portion of which is payable upon acquisition of beneficial ownership
of more than 50% of the Common Stock.
Our engagement and the opinion expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, IBM, White, any stockholders of the
Company or IBM or any other person. It is understood that this letter may not be
disclosed or otherwise referred to without our prior consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid in the Acquisition, taken as a whole, is fair to the
shareholders of the Company (other than IBM and its affiliates) from a financial
point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Gerald Rosenfeld
----------------------
Managing Director
EXHIBIT 9
FOR IMMEDIATE RELEASE
Contact:
Bryan Simmons Rob Wilson
Lotus Development Corp. IBM Corp.
(617) 693-1697 (212) 745-4736
IBM, LOTUS ANNOUNCE AGREEMENT ON IBM TENDER OFFER AT $64 PER LOTUS
SHARE IN CASH
ARMONK, N.Y., and CAMBRIDGE, Mass., June 11, 1995 . . . IBM and Lotus
Development Corp. today announced a definitive merger agreement under which IBM
will pay $64 per Lotus share in cash for all of Lotus' outstanding shares and
preferred share purchase rights. The transaction has a total equity value of
approximately $3.5 billion.
"We're delighted that Lotus and IBM have been able to reach an agreement so
quickly," said IBM Chairman and Chief Executive Officer Louis V. Gerstner, Jr.
"This means we can begin moving ahead rapidly to bring our shared vision of team
computing--and its many powerful benefits--to reality for our customers. I know
I speak on behalf of all IBM employees when I say that we eagerly look forward
to working with our future colleagues at Lotus and its industry partners. We
have much to do, and we are anxious to get started."
"We are excited about this opportunity to partner with IBM," said Jim Manzi,
who will continue in his role as chairman and CEO of Lotus, reporting to Mr.
Gerstner. "We intend to utilize our combined resources to expand our leadership
position in communications software and advance our desktop software business.
After careful consideration, Lotus' Board of Directors believes it has acted in
the best interests of the company's employees, shareholders and customers. We
now look forward to working with IBM to grow our customer base and set our
collective sights on the market opportunities before us."
Mr. Manzi will be named a senior vice president of IBM and will work hand in
hand with John M. Thompson, senior vice president, IBM Software Group, to manage
the transition and day-to-day interface between Lotus and IBM.
Completion of the tender offer is conditioned on the tender of a majority of
the outstanding Lotus shares and expiration of the Hart-Scott-Rodino waiting
periods.
Additional details on today's announcement will be available on the IBM and
Lotus Internet home pages (IBM: http//www.ibm.com. Lotus: http//www.lotus.com).
# # #
061195
EXHIBIT 10
[LOTUS DEVELOPMENT CORPORATION LETTERHEAD]
June 12, 1995
Dear Stockholder:
I am pleased to report that on June 11, 1995, Lotus Development Corporation
("Lotus") entered into a merger agreement with International Business Machines
Corporation ("IBM") and one of its subsidiaries that provides for the
acquisition of Lotus by IBM at a price of $64 per share. Under the terms of the
proposed transaction, an IBM subsidiary has commenced a tender offer for all
outstanding shares of Lotus common stock at $64 per share.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE IBM OFFER AND
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF LOTUS STOCKHOLDERS (OTHER THAN IBM AND ITS SUBSIDIARIES).
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL LOTUS
STOCKHOLDERS ACCEPT THE IBM OFFER AND TENDER THEIR SHARES TO IBM.
Following the successful completion of the tender offer, upon approval by
stockholder vote, if required, the IBM subsidiary will be merged with Lotus, and
all shares not purchased in the tender offer will be converted into the right to
receive $64 per share in cash in the merger without interest.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors. These factors included the opinion of
Lazard Freres & Co. LLC, financial advisor to Lotus, that the consideration of
$64 per share to be received by the stockholders pursuant to the IBM offer and
the merger is fair to Lotus stockholders (other than IBM and its subsidiaries)
from a financial point of view.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9. Also enclosed is IBM's
Offer to Purchase, a supplement to the Offer to Purchase and related materials,
including a Letter of Transmittal for use in tendering shares. We urge you to
read the enclosed materials carefully. The management and directors of Lotus
thank you for the support you have given the Company.
On behalf of the Board of Directors,
Sincerely,
/s/ Jim P. Manzi
......................................
Chairman of the Board and President
