<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NO. 1-8465
STERLING SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1873956
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 CRESCENT COURT, SUITE 1200
DALLAS, TEXAS 75201
(Address of principal executive offices)
(Zip Code)
(214) 981-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title Shares Outstanding as of May 9, 1997
Common Stock, $0.10 par value 38,524,833
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<PAGE>
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)................................ 3
Sterling Software, Inc. Consolidated Balance Sheets at March 31, 1997
and September 30, 1996................................................ 3
Sterling Software, Inc. Consolidated Statements of Operations for
the Three and Six Months Ended March 31, 1997 and 1996................ 4
Sterling Software, Inc. Consolidated Statements of Stockholders'
Equity for the Six Months Ended March 31, 1997 and 1996............... 5
Sterling Software, Inc. Consolidated Statements of Cash Flows for
the Six Months Ended March 31, 1997 and 1996.......................... 6
Sterling Software, Inc. Notes to Consolidated Financial Statements....... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 12
PART II- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................ 21
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
A S S E T S
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 571,501 $ 524,237
Marketable securities............................. 183,649 231,919
Accounts and notes receivable, net................ 117,730 133,383
Income tax receivable............................. 6,100 8,000
Prepaid expenses and other current assets......... 17,998 17,104
---------- ----------
Total current assets............................. 896,978 914,643
Property and equipment, net of accumulated
depreciation of $44,491 at March 31, 1997 and
$42,029 at September 30, 1996.................... 50,315 39,330
Computer software, net of accumulated amortization
of $92,052 at March 31, 1997 and $84,099
at September 30, 1996............................ 62,217 57,488
Excess cost over net assets acquired, net of
accumulated amortization of $28,876 at March 31,
1997 and $26,128 at September 30, 1996............ 66,621 69,504
Noncurrent deferred income taxes................... 2,986
Other assets....................................... 15,498 13,662
---------- ----------
$1,091,629 $1,097,613
========== ==========
L I A B I L I T I E S A N D S T O C K H O L D E R S E Q U I T Y
Current liabilities:
Current portion of long-term debt................. $ 1,352 $ 388
Accounts payable and accrued liabilities.......... 61,557 77,349
Amounts due to Sterling Commerce.................. 4,370 35,134
Deferred revenue.................................. 70,796 68,854
---------- ----------
Total current liabilities....................... 138,075 181,725
Noncurrent deferred revenue........................ 21,594 15,778
Other noncurrent liabilities....................... 23,732 20,619
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000
shares authorized, no shares issued or
outstanding......................................
Common stock, $.10 par value; 75,000,000 shares
authorized; 39,888,000 and 39,807,000 shares
issued at March 31, 1997 and September 30,
1996, respectively............................... 3,989 3,981
Additional paid-in capital........................ 805,640 804,451
Retained earnings................................. 157,365 130,156
Less treasury stock, at cost; 1,364,000 and
1,372,000 shares at March 31, 1997 and
September 30, 1996, respectively................. (58,766) (59,097)
---------- ----------
Total stockholders' equity...................... 908,228 879,491
---------- ----------
$1,091,629 $1,097,613
========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED MARCH 31
------------------ -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Products.............................. $ 47,579 $ 45,932 $ 84,135 $ 80,904
Product support....................... 29,179 31,121 59,515 62,315
Services.............................. 29,986 29,544 60,235 59,363
-------- -------- -------- --------
106,744 106,597 203,885 202,582
Costs and expenses:
Cost of sales:
Products and product support......... 18,966 18,062 35,520 33,216
Services............................. 26,056 26,520 52,364 52,596
-------- -------- -------- --------
45,022 44,582 87,884 85,812
Product development and enhancement... 5,011 5,197 9,817 11,269
Selling, general and administrative... 43,560 42,606 84,292 81,283
-------- -------- -------- --------
93,593 92,385 181,993 178,364
-------- -------- -------- --------
Income from continuing operations
before other income (expense) and
income taxes.......................... 13,151 14,212 21,892 24,218
Other income (expense):
Interest expense...................... (120) (946) (267) (2,785)
Investment income..................... 10,244 4,344 21,017 7,449
Other................................. 121 135 354 666
-------- -------- -------- --------
10,245 3,533 21,104 5,330
-------- -------- -------- --------
Income from continuing operations
before income taxes................... 23,396 17,745 42,996 29,548
Provision for income taxes............. 8,072 4,969 14,932 7,754
-------- -------- -------- --------
Income from continuing operations...... 15,324 12,776 28,064 21,794
Discontinued operations, net of
applicable income taxes:
Income from discontinued operations, net 12,078 24,367
Gain on the initial public offering of
subsidiary, net...................... 127,164 127,164
-------- -------- -------- --------
139,242 151,531
-------- -------- -------- --------
Net income............................. $ 15,324 $152,018 $ 28,064 $173,325
======== ======== ======== ========
Income per common share:
Income from continuing operations:
Primary.............................. $ .40 $ .40 $ .72 $ .72
======== ======== ======== ========
Fully diluted........................ $ .40 $ .39 $ .72 $ .68
======== ======== ======== ========
Net income:
Primary.............................. $ .40 $ 4.74 $ .72 $ 5.72
======== ======== ======== ========
Fully diluted........................ $ .40 $ 4.42 $ .72 $ 5.09
======== ======== ======== ========
Average common shares outstanding...... 38,466 29,450 38,448 28,032
======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
--------------------- ----------------
NUMBER ADDITIONAL NUMBER TOTAL
OF PAR PAID-IN RETAINED OF STOCKHOLDERS'
SHARES VALUE CAPITAL EARNINGS SHARES COST EQUITY
------ ----- ---------- -------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1995...................... 26,529 $2,653 $336,752 $ 9,515 56 $ (582) $348,338
Net income................ 173,325 173,325
Purchase of common stock
for treasury............. 1,336 (59,372) (59,372)
Issuance of common stock
pursuant to stock
options and warrants,
including a tax benefit
of $30,284............... 5,130 513 158,928 159,441
Issuance of common stock
pursuant to conversion
of 5.75% Debentures...... 4,056 406 111,970 112,376
Proceeds from subsidiary
initial public offering,
net of minority interest
of $7,382................ 32,736 32,736
Issuance of common stock
to retirement plan....... (55) (11) 466 411
Other..................... (39) (486) (447)
------ ------ -------- -------- ----- -------- --------
Balance at March 31, 1996.. 35,715 $3,572 $640,370 $182,354 1,381 $(59,488) $766,808
====== ====== ======== ======== ===== ======== ========
Balance at September 30,
1996...................... 39,807 $3,981 $804,451 $130,156 1,372 $(59,097) $879,491
Net income................ 28,064 28,064
Issuance of common stock
pursuant to stock
options and warrants..... 90 9 1,301 1,310
Issuance of common stock
to retirement plan....... (112) (8) 330 218
Other..................... (9) (1) (855) 1 (855)
------ ------ -------- -------- ----- -------- --------
Balance at March 31, 1997.. 39,888 $3,989 $805,640 $157,365 1,364 $(58,766) $908,228
====== ====== ======== ======== ===== ======== ========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net income........................................ $ 28,064 $ 173,325
Less: Income from discontinued operations......... (151,531)
--------- ---------
Income from continuing operations................. 28,064 21,794
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization................... 17,133 15,779
Provision for losses on accounts receivable..... 1,284 1,324
Provision for deferred income taxes............. 7,535 27,263
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Decrease in accounts and notes receivable.... 16,308 15,252
Increase in prepaid expenses and
other assets................................ (5,293) (120)
Decrease in accounts payable,
accrued liabilities and amounts
due to Sterling Commerce.................... (46,556) (31,532)
Increase in deferred revenue................. 1,471 227
Other........................................ 4,002 (3,697)
--------- ---------
Net cash provided by operating
activities................................. 23,948 46,290
Investing activities:
Purchases of property and equipment............... (18,094) (4,033)
Purchases and capitalized cost of
development of computer software................. (9,059) (7,471)
Business acquisitions, net of cash acquired....... (2,995) (7,186)
Purchases of investments.......................... (163,298) (281,498)
Proceeds from sales of investments................ 214,044 189,274
Other............................................. 398 845
--------- ---------
Net cash provided by (used in)
investing activities....................... 20,996 (110,069)
Financing activities:
Acquisition of common stock for treasury.......... (59,372)
Retirement and redemption of debt and
capital lease obligations........................ (6,567) (8,735)
Proceeds from issuance of debt.................... 7,522 4,066
Proceeds from subsidiary initial
public offering.................................. 267,458
Proceeds from issuance of common stock
pursuant to exercise of stock options
and warrants..................................... 1,310 129,157
Other............................................. 1,205 1,991
--------- ---------
Net cash provided by financing activities... 3,470 334,565
Cash flows provided by discontinued operations..... 17,819
Effect of foreign currency exchange
rate changes on cash.............................. (1,150) (174)
--------- ---------
Increase in cash and cash equivalents.............. 47,264 288,431
Cash and cash equivalents at beginning
of period......................................... 524,237 178,910
--------- ---------
Cash and cash equivalents at end of period......... $ 571,501 $ 467,341
========= =========
Supplemental cash flow information:
Interest paid..................................... $ 240 $ 3,633
========= =========
Income taxes paid................................. $ 5,160 $ 4,490
========= =========
Income tax refunds................................ $ 186 $ 470
========= =========
</TABLE>
See accompanying notes.
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<PAGE>
STERLING SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Sterling Software, Inc. ("Sterling Software" or the "Company") was
founded in 1981 and became a publicly owned corporation in 1983. Sterling
Software is a recognized worldwide supplier of software products and services
within three major markets classified as systems management, applications
management and federal systems. Sterling Software's international operations
are responsible for sales, marketing and first-level support of the Company's
products outside the United States and Canada. The Company's international
operations also sell, market and provide first-level support outside of the
United States, its territories and Canada for the interchange and communications
software products of Sterling Commerce, Inc. ("Sterling Commerce"), the results
of which are included in the business segment information presented herein under
"Corporate and other." See Notes 3 and 5. Consistent with Sterling Software's
decentralized operating structure, major markets are served by independently
operated business groups which consist of divisions that focus on specific
business niches within those markets. See Note 5. Sterling Software has
historically expanded its operations through internal growth and by business and
product acquisitions.
Basis of Presentation
The consolidated financial statements include the accounts of Sterling
Software and its wholly owned subsidiaries after elimination of all significant
intercompany balances and transactions. Certain amounts for periods ended prior
to March 31, 1997 have been reclassified to conform to the current year
presentation, including restatements to reflect the reclassification of Sterling
Commerce as a discontinued operation, giving effect to the spin-off of Sterling
Commerce on September 30, 1996. See Note 3. The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and the disclosure of contingencies. While
management has based their assumptions and estimates on the facts and
circumstances known at March 31, 1997, final amounts may differ from such
estimates.
Revenue
Revenue from license fees, including leasing transactions, for
standard software products is recognized when the software is delivered,
provided no significant future vendor obligations exist and collection is
probable. Service revenue and revenue from products involving installation or
other services are recognized as the services are performed.
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<PAGE>
Product support contracts entitle the customer to telephone support,
bug fixing and the right to receive software updates if and when they are
released. Revenue from product support contracts, including product support
included in initial license fees, is recognized ratably over the contract
period. All significant costs and expenses associated with product support
contracts are expensed ratably over the contract period.
If software product transactions include the right to receive future
products, a portion of the software product revenue is deferred and recognized
as products are delivered. Contract accounting is applied for sales of software
products requiring significant modification or customization, such that revenue
is recognized only when the modification or customization is complete.
When products, product support and services are billed prior to the
time the related revenue is recognized, deferred revenue is recorded and related
costs paid in advance are deferred.
Revenue from professional services provided to the federal government
under multi-year contracts is recognized as the services are performed. Revenue
for services under other long-term contracts is recognized using the percentage-
of-completion method of accounting. Losses on long-term contracts are
recognized when the current estimate of total contract costs indicates a loss on
a contract is probable.
Cash Equivalents, Marketable Securities and Other Investments
Cash equivalents consist primarily of highly liquid investments in
investment-grade commercial paper of various issuers and repurchase agreements
backed by U.S. Treasury securities, with maturities of three months or less when
purchased. Cash equivalents are recorded at fair value.
The Company currently invests excess cash in a diversified portfolio
of marketable securities consisting of a variety of investment grade securities,
including commercial paper, medium-term notes, U.S. government obligations and
certificates of deposit. The fair values for marketable securities are based on
quoted market prices. All marketable securities and long-term investments are
classified as available-for-sale securities.
Recent Developments
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted for both
interim and annual financial statements for periods ending after December 15,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. This
change is expected to result in restated earnings per share as follows:
-8-
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31 Ended March 31
-------------- --------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income from continuing operations:
Primary $ .40 $ .43 $ .73 $ .78
Fully diluted $ .40 $ .39 $ .72 $ .71
Net income:
Primary $ .40 $5.16 $ .73 $6.18
Fully diluted $ .40 $4.49 $ .72 $5.26
</TABLE>
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial information contained herein is unaudited
but, in the opinion of management, includes all adjustments which are of a
normal recurring nature and are necessary for a fair presentation of the
financial position and results of operations for the periods presented. Results
of operations for the periods presented herein are not necessarily indicative of
results of operations for the entire fiscal year.
3. DISCONTINUED OPERATIONS
Sterling Commerce, previously a wholly owned subsidiary of Sterling
Software, completed its initial public offering (the "Offering") of 13,800,000
shares of common stock, par value $.01 per share ("Commerce Stock") on March 13,
1996. Pursuant to the Offering, Sterling Software sold to the public 12,000,000
of its 73,200,000 shares of Commerce Stock and Sterling Commerce sold 1,800,000
of previously unissued shares of Commerce Stock. On September 30, 1996, Sterling
Software completed the spin-off of Sterling Commerce with the pro rata
distribution of its remaining 81.6% ownership interest in Sterling Commerce to
Sterling Software's stockholders by means of a tax-free dividend. Holders of
record of the Company's $0.10 par value common stock ("Common Stock") as of the
close of business on September 30, 1996 received 1.59260 shares of Commerce
Stock for each share of Common Stock owned on such date.
Prior year financial statements have been restated to reflect the
discontinuation of Sterling Software's former electronic commerce business
segment, which is presently conducted by Sterling Commerce. The income from
discontinued operations reflected in the table below includes $1,157,000 of
minority interests held by stockholders other than Sterling Software for both
the three and six months ended March 31, 1996. Summary operating results of
discontinued operations for the three and six months ended March 31, 1996 are as
follows (in thousands):
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<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
March 31, 1996 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenue................................. $62,076 $118,226
Total costs and expenses................ $40,017 $ 75,476
Income before income taxes.............. $22,059 $ 42,540
Income taxes............................ $ 8,824 $ 17,016
Income from discontinued operations, net $13,235 $ 25,524
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain legal proceedings and claims that
arise in the ordinary conduct of its business. In the opinion of management,
the ultimate liability with respect to these actions, net of applicable
reserves, will not materially affect the financial condition or results of
operations of the Company.
5. SEGMENT INFORMATION
The Company acquires, develops, markets and supports a broad range of
computer software products and services in three major markets classified as
systems management, applications management and federal systems. Major markets
are represented through independently operated business segments. The systems
management business segment provides enterprise-wide systems management software
for large computing environments. The applications management business segment
provides products for developing new applications, revitalizing, integrating and
extending existing applications and facilitating enterprise information access.
The federal systems business segment provides highly technical professional
services to the federal government under several multi-year contracts primarily
in support of two major customers, the National Aeronautics and Space
Administration (NASA) and the Department of Defense. The Company's international
operations are responsible for sales, marketing and first-level support of the
Company's products outside of the United States and Canada. These international
operating results are included, as applicable, in the Company's systems
management and applications management segments in the business segment tables
contained herein. Under an agreement that expires in March 1999, the Company's
international operations also sell, market and provide first-level support
outside of the United States, its territories and Canada for Sterling Commerce's
interchange and communications software products, the results of which are
included in the business segment information presented herein under "Corporate
and other." International operating results of the Company's systems management
and applications management business segments and "Corporate and other" included
revenue of $39,571,000 and $41,786,000 and international operating profit
(exclusive of intercompany royalties) of $10,749,000 and $18,659,000 for the
three months ended March 31, 1997 and 1996, respectively. The international
operating profit of $18,659,000 for the quarter ended March 31, 1996 is before
consideration of $4,684,000 of intercompany royalties related to Sterling
Software's former electronic commerce business segment, which is presently
conducted by Sterling Commerce. International operating results of the
Company's systems
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<PAGE>
management and applications management business segments and "Corporate and
other" included revenue of $74,959,000 and $79,976,000 and international
operating profit (exclusive of intercompany royalties) of $20,727,000 and
$35,867,000 for the six months ended March 31, 1997 and 1996, respectively. The
international operating profit of $35,867,000 for the six months ended March 31,
1996 is before consideration of $8,167,000 of intercompany royalties related to
Sterling Software's former electronic commerce business segment, which is
presently conducted by Sterling Commerce.
Financial information concerning the Company's operations, by business
segment, for the three and six months ended March 31, 1997 and 1996, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31 Ended March 31
--------------- ---------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue:
Systems Management....... $ 43,916 $ 40,969 $ 80,866 $ 76,179
Federal Systems.......... 27,954 26,815 55,812 53,077
Applications Management.. 21,834 28,228 43,786 54,687
Corporate and other...... 13,040 10,585 23,421 18,639
-------- -------- -------- --------
Consolidated totals...... $106,744 $106,597 $203,885 $202,582
======== ======== ======== ========
Operating Profit (Loss):
Systems Management....... $ 17,099 $ 15,535 $ 29,988 $ 27,160
Federal Systems.......... 2,303 1,816 4,698 4,116
Applications Management.. 2,824 4,630 5,048 8,489
Corporate and other...... (9,075) (7,769) (17,842) (15,547)
-------- -------- -------- --------
Consolidated totals..... $ 13,151 $ 14,212 $ 21,892 $ 24,218
======== ======== ======== ========
</TABLE>
The amounts presented for "Corporate and other" include corporate
expense, inter-segment eliminations, the results of operations of the Company's
retail software division and the results of operations for the international
distribution of Sterling Commerce's interchange and communications software
products and related product support services.
6. SUBSEQUENT EVENT
On April 18, 1997, Sterling Software and Texas Instruments
Incorporated signed a definitive agreement for Sterling Software to purchase
Texas Instruments Incorporated's software business ("Texas Instruments
Software"). The $165 million cash transaction includes the purchase of
substantially all of Texas Instruments Software's assets, including the stock of
certain European subsidiaries, and the assumption of various liabilities related
to the business. Sterling Software expects to integrate this business with the
Company's existing applications management business segment upon completion of
the purchase, which is expected to occur in mid-June 1997.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITION OF TEXAS INSTRUMENTS SOFTWARE
On April 18, 1997, Sterling Software and Texas Instruments
Incorporated signed a definitive agreement for Sterling Software to purchase
Texas Instruments Incorporated's software business ("Texas Instruments
Software"). The $165 million cash transaction includes the purchase of
substantially all of Texas Instruments Software's assets, including the stock of
certain European subsidiaries, and the assumption of various liabilities related
to the business. Sterling Software expects to integrate this business with the
Company's existing applications management business segment upon completion of
the purchase, which is expected to occur in mid-June 1997.
SUBSIDIARY INITIAL PUBLIC OFFERING AND SPIN-OFF
Sterling Commerce, previously a wholly owned subsidiary of Sterling
Software, completed the Offering of 13,800,000 shares of Commerce Stock on March
13, 1996. Pursuant to the Offering, Sterling Software sold to the public
12,000,000 of its 73,200,000 shares of Commerce Stock and Sterling Commerce sold
1,800,000 of previously unissued shares of Commerce Stock. On September 30,
1996, Sterling Software completed the spin-off of Sterling Commerce with the
distribution of its remaining 81.6% ownership interest in Sterling Commerce to
Sterling Software stockholders by means of a tax-free dividend. Holders of
record of Common Stock as of the close of business on September 30, 1996
received 1.59260 shares of Commerce Stock for each share of Common Stock owned
as such date. Under the terms of Sterling Software's existing stock option
plans, options that were unexercised with respect to 81,681 shares of Common
Stock at the close of business on September 30, 1996 were adjusted to thereafter
be exerciseable with respect to 207,950 shares of Common Stock at exercise
prices ranging from $3.36 to $32.40 per share, to preserve the economic value of
such options.
RESULTS OF OPERATIONS
The results of Sterling Software's international operations (other
than those related to the sale of Sterling Commerce products) are included in
the systems management and applications management business segments for the
purpose of management's discussion and analysis of financial condition and
results of operations. Sterling Software's historical results of operations
reflect the reclassification of Sterling Commerce as a discontinued operation,
giving effect to the spin-off of Sterling Commerce on September 30, 1996. The
results of the Company's international operations related to selling, marketing
and providing first-level support outside of the United States, its territories
and Canada for Sterling Commerce's interchange and communications software
products are included in the business segment information presented herein under
"Corporate and other."
-12-
<PAGE>
Three Months Ended March 31, 1997 and 1996
Total revenue increased $147,000, or less than 1%, in the second
quarter of 1997 over the same period in 1996. Increases in the Company's
systems management and federal systems business segments, as well as increases
in revenue from the Company's international operations related to selling,
marketing and providing first-level support for certain of Sterling Commerce's
electronic commerce products, were offset by declines in revenue in the
applications management business segment due to the decline in products and
product support revenue of the Company's traditional Computer Aided Software
Engineering ("CASE") products and due to discontinued products. Excluding both
the effect of the decline in traditional CASE products and product support
revenue and the effect of discontinued products, the Company's total revenue
increased 6% in the second quarter of 1997 over the same period in 1996.
Revenue from the systems management business segment increased
$2,947,000, or 7%, in the second quarter of 1997 compared to the same period of
1996 primarily due to a 14% increase in products revenue. The increase in
products revenue was mainly attributable to strong product sales domestically in
the operations management product line. Product support revenue decreased 1%
due to slight decreases across all systems management business segment product
lines.
Revenue from the applications management business segment decreased
$6,394,000, or 23%, in the second quarter of 1997 over the same period of 1996
primarily due to a 21% decline in products revenue, a 22% decline in product
support revenue and a 35% decline in consulting and education services revenue.
The majority of the decline in products and product support revenue related to
traditional CASE products. As previously disclosed, the Company expects the
market for traditional CASE development tools to continue to rapidly decline.
The remainder of the decrease in products and product support revenue is
primarily attributable to a decline related to products marketed in the second
quarter of 1996 that were not marketed in the second quarter of 1997 either
because they are no longer owned or no longer actively marketed. Excluding the
effect of both the revenue decline in traditional CASE development tools and
discontinued products, applications management products revenue increased 3% and
product support revenue decreased 3%.
Revenue from the federal systems business segment increased
$1,139,000, or 4%, due to higher contract billings in both the Information
Technology Division and the Scientific Systems Division.
Total revenue generated from Sterling Software's international
operations was $39,571,000 in the second quarter of 1997 and $41,786,000 in the
second quarter of 1996, representing a decrease of $2,215,000, or 5%, primarily
due to declines in both the applications management (down 41%) and systems
management (down 5%) business segments, which were only partially offset by
increased revenue from sales of Sterling Commerce's interchange and
communications software products internationally. International applications
management revenue declined due to the decline in traditional CASE development
tool revenue, the negative impact of foreign currency exchange rates on revenue
resulting from a stronger U.S. dollar and, to a lesser extent, discontinued
products. International systems management revenue declined primarily due to
the negative impact of foreign currency exchange rates on revenue resulting
-13-
<PAGE>
from a stronger U.S. dollar. International operating results were adversely
impacted by foreign currency exchange rate fluctuations in the second quarter of
1997, as a result of a stronger U.S. dollar. The negative impact of these
fluctuations on the Company's international revenue for the second quarter of
1997 was approximately $1,581,000. The net negative impact of these fluctuations
on the Company's total international operating results in the second quarter of
1997, after giving effect to international expenses, was approximately $606,000.
Revenue for the Company's international operations represented 37% and 39% of
total revenue for the second quarter of 1997 and 1996, respectively. The Company
expects revenue from its international operations to continue to constitute a
significant percentage of its total revenue.
The Company's recurring revenue includes revenue from product support
agreements generally having terms ranging from one to three years, fixed-term
product lease and rental agreements generally having terms ranging from month-
to-month to year-to-year, and federal contracts generally having terms ranging
from one to five years. Like most federal contracts, Sterling Software's
federal contracts permit termination by the government for convenience or for
failure to obtain funding. Recurring revenue represented 54% of total revenue
in the second quarter of 1997 compared to 53% in the same period of the prior
year.
During the second quarter of 1997, 33% of total software revenue was
derived from platforms other than stand-alone mainframes, compared with 36% for
the same period of 1996. The decline in revenue from platforms other than
stand-alone mainframes is mainly due to the discontinued non-mainframe products
in the applications management business segment. Excluding the effect of these
discontinued non-mainframe products, the Company's total software revenue
derived from platforms other than stand-alone mainframe would have been 33% in
both the second quarter of 1996 and 1997.
Total costs and expenses increased $1,208,000, or 1%, in the second
quarter of 1997 compared to the same period of 1996. Cost of sales increased
$440,000, or 1%. Cost of sales represented 42% of revenue in both the second
quarter of 1997 and 1996. Product development expense for the second quarter of
1997 was $5,011,000, net of $4,729,000 of capitalized software costs, as
compared to the second quarter of 1996 product development expense of
$5,197,000, net of $4,040,000 of capitalized software costs. Gross product
development expense was 12% of non-federal revenue in both the second quarter of
1997 and 1996. Capitalized development costs represented 49% and 44% of gross
development costs in the second quarter of 1997 and 1996, respectively. Product
development expenses and the capitalization rate historically have, and may in
the future continue to, fluctuate from period to period depending in part upon
the number and status of software development projects which are in process.
Such was the case in the second quarter of 1997 compared to the same period of
1996. Selling, general and administrative expense represented 41% of revenue in
the second quarter of 1997 compared to 40% in the second quarter of 1996.
Interest expense decreased $826,000 in the second quarter of 1997
compared to the second quarter of 1996 primarily due to the redemption in the
second quarter of 1996 of the Company's 5.75% Convertible Subordinated
Debentures. Investment income in the second quarter of 1997 increased
$5,900,000 over the second quarter of 1996 as a result of substantially higher
average balances of cash and cash equivalents and marketable securities.
-14-
<PAGE>
Income from continuing operations before income taxes in the second
quarter of 1997 was $23,396,000 compared to $17,745,000 in the second quarter of
1996. The increase was primarily attributable to increases in investment income
as well as declines in interest expense. The Company's effective tax rate for
the quarter ended March 31, 1997 was 35% compared to 28% for the same period of
1996. The effective tax rate for 1996 was favorably impacted by the conclusion
of an audit by the Internal Revenue Service. Income from continuing operations
in the second quarter of 1997 increased $2,548,000, or 20%, when compared to the
second quarter of 1996. Income from discontinued operations, net, for 1996
represents the restatement of Sterling Commerce as a discontinued operation,
giving effect to the spin-off of Sterling Commerce on September 30, 1996. See
Note 3 to the Consolidated Financial Statements.
Six Months Ended March 31, 1997 and 1996
Total revenue increased $1,303,000, or 1%, in the first six months of 1997
over the same period of 1996 due to increases in the Company's systems
management and federal systems business segments as well as increases in revenue
from the Company's international operations related to selling, marketing and
providing first-level support for certain of Sterling Commerce's electronic
commerce products. Theses increases in revenue were offset by declines in
revenue in the applications management business segment due to the decline in
products and product support revenue of the Company's traditional CASE products
and due to discontinued products. Excluding both the effect of the decline in
traditional CASE products and product support revenue and the effect of
discontinued products, the Company's total revenue increased 7% for the six
months ended March 31, 1997 compared with the six months ended March 31, 1996.
Revenue from the systems management business segment increased $4,687,000,
or 6%, in the six months ended March 31, 1997 compared with the six months ended
March 31, 1996, primarily due to a 12% increase in products revenue. The
increase in products revenue was mainly attributable to strong product sales
domestically in the storage management and the operations management product
lines. Product support revenue increased $240,000, or 1%, primarily due to an
increase in product support revenue in the storage management product line
offset by declines in the operations management product line and relatively flat
product support revenue in the VM product line.
Revenue from the applications management business segment decreased
$10,901,000, or 20%, in the six months ended March 31, 1997 compared with the
six months ended March 31, 1996 primarily due to a 17% decline in products
revenue, a 20% decline in product support revenue and a 32% decline in
consulting and education services revenue. The majority of the decline in
products and product support revenue related to traditional CASE products. As
previously disclosed, the Company expects the market for traditional CASE
development tools to continue to rapidly decline. The remainder of the decrease
in products and product support revenue is attributable to a decline related to
products marketed in the first six months of 1996 that were not marketed in the
first six months of 1997 either because they are no longer owned or no longer
actively marketed. Excluding the effect of both the revenue decline in
traditional CASE development tools and discontinued products, applications
management products revenue increased 7% and product support revenue increased
3%.
-15-
<PAGE>
Revenue from the federal systems business segment increased $2,735,000, or
5%, in the first six months of 1997 compared with the first six months of 1996
due to higher contract billings in both the Information Technology Division and
the Scientific Systems Division.
Total revenue generated from Sterling Software's international operations
was $74,959,000 for the first six months of 1997 compared with $79,976,000 for
the first six months of 1996, representing a decrease of $5,017,000, or 6%,
primarily due to declines in both the applications management (down 38%) and the
systems management (down 6%) business segments, which were only partially offset
by increased revenue from sales of Sterling Commerce's interchange and
communications software products internationally. International applications
management revenue declined due to the decline in traditional CASE development
tool revenue, the negative impact of foreign currency exchange rates on revenue
resulting from a stronger U.S. dollar and, to a lesser extent, discontinued
products. International systems management revenue declined primarily due to
the negative impact of foreign currency exchange rates on revenue resulting from
a stronger U.S. dollar. International operating results were adversely impacted
by foreign currency exchange rate fluctuations during the six months ended March
31, 1997, as a result of a stronger U.S. dollar. The negative impact of these
fluctuations on the Company's international revenue for the six months ended
March 31, 1997 was approximately $1,829,000. The net negative impact of these
fluctuations on the Company's international operating results for the six months
ended March 31, 1997, after giving effect to international expenses, was
approximately $986,000. Revenue for the Company's international operations
represented 37% and 39% of total revenue for the six months ended March 31, 1997
and 1996, respectively. The Company expects revenue from its international
operations to continue to constitute a significant percentage of its total
revenue.
The Company's recurring revenue includes revenue from product support
agreements generally having terms ranging from one to three years, fixed-term
product lease and rental agreements generally having terms ranging from month-
to-month to year-to-year, and federal contracts generally having terms ranging
from one to five years. Like most federal contracts, Sterling Software's
federal contracts permit termination by the government for convenience or for
failure to obtain funding. Recurring revenue represented 57% of total revenue
for both the six months ended March 31, 1997 and the six months ended March 31,
1996.
During the six months ended March 31, 1997, 33% of total software revenue
was derived from platforms other than stand-alone mainframes, compared with 35%
for the same period in 1996. The decline in revenue from platforms other than
stand-alone mainframes in mainly due to the discontinued non-mainframe products
in the applications management business segment. Excluding the effect of these
discontinued non-mainframe products, the Company's total software revenue
derived from platforms other than stand-alone mainframes would have increased
from 32% for the six months ended March 31, 1996 to 33% for the six months ended
March 31, 1997.
Total costs and expenses increased $3,629,000, or 2%, in the six months
ended March 31, 1997 compared with the six months ended March 31, 1996. Cost of
sales increased $2,072,000, or 2%. Cost of sales represented 43% of revenue for
the first six months of 1997 compared with 42% for the same period in 1996.
Product development expense for the six months ended March 31, 1997 was
$9,817,000, net of $9,009,000 of capitalized software costs, as compared to
-16-
<PAGE>
the six months ended March 31, 1996 product development expense of $11,269,000,
net of $7,172,000 of capitalized software costs. Gross product development
expense was 13% of non-federal revenue in the six months ended March 31, 1997
versus 12% for the six months ended March 31, 1996. Capitalized development
costs represented 48% and 39% of gross development costs in the six months ended
March 31, 1997 and March 31, 1996, respectively. Product development expenses
and the capitalization rate historically have, and may in the future continue
to, fluctuate from period to period depending in part upon the number and status
of software development projects which are in process. Such was the case in the
first six months of 1997 compared to the same period in 1996. Selling, general
and administrative expense represented 41% of revenue in the six months ended
March 31, 1997 compared to 40% in the six months ended March 31, 1996.
Interest expense decreased $2,518,000 in the first six months of 1997
compared to the first six months of 1996 primarily due to the redemption in the
second quarter of 1996 of the Company's 5.75% Convertible Subordinated
Debentures. Investment income for the six months ended March 31, 1997 increased
$13,568,000 over the six months ended March 31, 1996 as a result of
substantially higher average balances of cash and cash equivalents and
marketable securities.
Income from continuing operations before income taxes for the six months
ended March 31, 1997 was $42,996,000 compared to $29,548,000 for the six months
ended March 31, 1996. The increase was primarily attributable to increases in
investment income as well as declines in interest expense. The Company's
effective tax rate for the six months ended March 31, 1997 was 35% compared to
26% for the same period of 1996. The effective tax rate for 1996 was favorably
impacted by the conclusion of an audit conducted by the Internal Revenue
Service. Income from continuing operations in the first six months of 1997
increased $6,270,000, or 29%, when compared to the first six months of 1996.
Income from discontinued operations, net, for 1996 represents the restatement of
Sterling Commerce as a discontinued operation, giving effect to the spin-off of
Sterling Commerce on September 30, 1996. See Note 3 to the Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a strong liquidity and financial position with
$758,903,000 of working capital at March 31, 1997, which includes $571,501,000
of cash and cash equivalents and $183,649,000 of marketable securities. Net
cash flows from operations was $23,948,000 in the six months ended March 31,
1997 as compared to $46,290,000 in the same period in 1996. Cash flows from
operations for the six months ended March 31, 1997 were negatively impacted by
payments made to Sterling Commerce during this period, reducing the outstanding
amount owed by Sterling Software to Sterling Commerce by approximately
$31,000,000 from September 30, 1996 to March 31, 1997. Days sales outstanding
was 99 at March 31, 1997, measured on a quarterly basis, versus 100 at March 31,
1996, and 95 at September 30, 1996. Cash flows from operations and available
cash balances were used to fund operations, marketable securities purchases and
capital expenditures.
At March 31, 1997, after the utilization of $1,280,000 for standby
letters of credit, $33,720,000 was available for borrowing on the Company's $35
million revolving credit and
-17-
<PAGE>
term loan agreement. Certain of the Company's foreign subsidiaries have separate
lines of credit available for foreign exchange exposure management and working
capital requirements. These lines of credit are guaranteed by Sterling Software,
Inc. In the aggregate, at March 31, 1997, $1,293,000 was outstanding pursuant to
foreign lines of credit and $20,012,000 was available for borrowing thereunder.
At March 31, 1997, the Company's capital commitments consisted
primarily of acquisition costs associated with the purchase of Texas Instruments
Software (see Note 6 to the Consolidated Financial Statements) and commitments
under lease arrangements for office space and equipment. The Company intends to
fund the purchase of Texas Instruments Software from available cash and to meet
such other obligations primarily from cash flow from operations. The Company
believes available cash balances, cash equivalents and short-term investments
combined with cash flows from operations and amounts available under existing
loan agreements are sufficient to meet the Company's cash requirements for the
foreseeable future.
OTHER MATTERS
Demand for many of the Company's products tends to increase with
increases in the rate of inflation as customers strive to improve employee
productivity and reduce costs. However, the effect of inflation on the
Company's relatively labor intensive cost structure could adversely affect its
results of operations to the extent the Company is unable to recover increased
operating costs through increased prices for products and services.
The assets and liabilities of the Company's non-U.S. operations are
translated into U.S. dollars at exchange rates in effect as of the respective
balance sheet dates, and revenue and expense accounts of these operations are
translated at average exchange rates during the month the transactions occur.
Unrealized translation gains and losses are included as an adjustment to
retained earnings. The Company has mitigated a portion of its currency exposure
through decentralized sales, marketing and support operations and through
international development facilities, in which all costs are local-currency
based. The Company has entered, and may in the future enter into, hedging
transactions in an effort to reduce its exposure to currency exchange risks.
The Company maintains a strategy of seeking to acquire businesses and
products to fill strategic market niches. This acquisition strategy has
contributed in part to the Company's growth in revenue and operating profit
before restructuring charges. The impact of future acquisitions on continued
growth in revenue and operating profit cannot presently be determined.
FORWARD-LOOKING INFORMATION
This report and other reports and statements filed by the Company from
time to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward-looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions, as they relate to Sterling Software or Sterling Software's
management, identify forward-looking
-18-
<PAGE>
statements. Such statements reflect the current views of Sterling Software with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to Sterling Software's operations and results of
operations, competitive factors and pricing pressures, shifts in market demand,
the performance and needs of the industries served by Sterling Software, the
costs of product development and other risks and uncertainties, including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, suppliers, business partners,
competitors and legislative, regulatory, judicial and other governmental
authorities and officials. Should one or more of these risks or uncertainties
materialize, or should the underlying estimates or assumptions prove incorrect,
actual results may vary significantly from those anticipated, believed,
estimated, expected, intended or planned.
-19-
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on February 26,
1997, at which the stockholders of the Company elected three Class A directors
of the Company for terms expiring in 2000.
The vote in the election of directors was as follows:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- --- --------
<S> <C> <C>
Robert J. Donachie 32,245,020 1,605,702
Alan W. Steelman 32,059,979 1,790,743
Evan A. Wyly 32,244,161 1,606,561
</TABLE>
-20-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
2.1 - Asset Purchase Agreement dated April 18, 1997 (the "Agreement")
between Texas Instruments Incorporated and the Company (In
accordance with Item 601 of Regulation S-K, the copy of the
Agreement filed with the Securities and Exchange Commission
("SEC") does not include the schedules or exhibits thereto, which
schedules and exhibits are listed in the table of contents to the
Agreement. The Company agrees to furnish supplementally to the
SEC a copy of such schedules and exhibits upon request.) (3)
3.1 - Certificate of Incorporation, as amended, of the Company (2)
3.2 - Restated Bylaws of the Company (1)
11.1 - Computation of Earnings Per Share, Three Months Ended March 31,
1997 (3)
11.2 - Computation of Earnings Per Share, Three Months Ended March 31,
1996 (3)
11.3 - Computation of Earnings Per Share, Six Months Ended March 31,
1997 (3)
11.4 - Computation of Earnings Per Share, Six Months Ended March 31,
1996 (3)
27 - Financial Data Schedule (3)
- ------------------
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-47131 on Form S-8 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 and incorporated herein by
reference.
(3) Filed herewith.
(b) Reports on Form 8-K.
None.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING SOFTWARE, INC.
Date: May 14, 1997 /s/ Sterling L. Williams
---------------------------------------
Sterling L. Williams
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: May 14, 1997 /s/ Jeannette P. Meier
---------------------------------------
Jeannette P. Meier
Executive Vice President,
Chief Financial Officer, General
Counsel and Secretary
(Principal Financial and
Accounting Officer)
-22-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- ----------------------------------------------------------------
2.1 - Asset Purchase Agreement dated April 18, 1997 (the "Agreement")
between Texas Instruments Incorporated and the Company (In
accordance with Item 601 of Regulation S-K, the copy of the
Agreement filed with the Securities and Exchange Commission
("SEC") does not include the schedules or exhibits thereto, which
schedules and exhibits are listed in the table of contents to the
Agreement. The Company agrees to furnish supplementally to the
SEC a copy of such schedules and exhibits upon request.) (3)
3.1 - Certificate of Incorporation, as amended, of the Company (2)
3.2 - Restated Bylaws of the Company (1)
11.1 - Computation of Earnings Per Share, Three Months Ended March 31,
1997 (3)
11.2 - Computation of Earnings Per Share, Three Months Ended March 31,
1996 (3)
11.3 - Computation of Earnings Per Share, Six Months Ended March 31,
1997 (3)
11.4 - Computation of Earnings Per Share, Six Months Ended March 31,
1996 (3)
27 - Financial Data Schedule (3)
- -------------------
(1) Previously filed as an exhibit to the Company's Registration Statement No.
33-47131 on Form S-8 and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1996 and incorporated herein by
reference.
(3) Filed herewith.
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
CONCERNING THE TEXAS INSTRUMENTS SOFTWARE BUSINESS OF
TEXAS INSTRUMENTS INCORPORATED
BETWEEN
TEXAS INSTRUMENTS INCORPORATED
AND
STERLING SOFTWARE, INC.
APRIL 18, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
SALE AND PURCHASE OF ASSETS
Section 1.1 Sale and Purchase of Assets.......................... -1-
Section 1.2 Excluded Assets...................................... -4-
Section 1.3 Nonassignable Contracts and Permits.................. -5-
Section 1.4 Covenant Not to Sue.................................. -6-
Section 1.5 License to Retained Intellectual Property............ -6-
Section 1.6 License by Buyer..................................... -6-
ARTICLE II.
PURCHASE PRICE
Section 2.1 Purchase Price.................................... -6-
Section 2.2 Allocation of Purchase Price for Tax Purposes..... -7-
Section 2.3 Transfer Taxes and Similar Charges................ -7-
ARTICLE III.
ASSUMPTION OF LIABILITIES
Section 3.1 Assumed Liabilities................................. -7-
Section 3.2 Retained Liabilities................................ -8-
ARTICLE IV.
CLOSING
Section 4.1 Closing........................................... -8-
Section 4.2 Deliveries at Closing............................. -9-
Section 4.3 Delivery of Purchased Assets...................... -11-
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 5.1 Existence and Authority of Seller................ -11-
Section 5.2 Existence of Subsidiaries........................ -11-
Section 5.3 Capitalization of the Transferred Subsidiaries... -12-
Section 5.4 Consents and Approvals; Absence of Violations.... -12-
Section 5.5 Contracts........................................ -13-
Section 5.6 Intellectual Property Rights..................... -14-
Section 5.7 Software......................................... -14-
Section 5.8 Title to and Sufficiency of Purchased Assets..... -15-
(i)
<PAGE>
Section 5.9 Tangible Personal Property....................... -15-
Section 5.10 Inventory........................................ -16-
Section 5.11 Accounts Receivable.............................. -16-
Section 5.12 Taxes............................................ -16-
Section 5.13 Litigation....................................... -17-
Section 5.14 Compliance with Law; Permits..................... -17-
Section 5.15 Historical Financial Information................. -18-
Section 5.16 Reserved......................................... -18-
Section 5.17 Brokers.......................................... -18-
Section 5.18 Knowledge........................................ -18-
Section 5.19 Employee Benefit Plans........................... -18-
Section 5.20 Books and Records of Subsidiaries................ -19-
Section 5.21 Environmental.................................... -20-
Section 5.22 Reliance......................................... -20-
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 6.1 Existence and Authority of Buyer.................. -20-
Section 6.2 Consents and Approvals; Absence of Violations..... -21-
Section 6.3 Brokers........................................... -21-
Section 6.4 Cash Consideration................................ -21-
Section 6.5 Reliance.......................................... -21-
ARTICLE VII.
COVENANTS OF SELLER
Section 7.1 Conduct of Business and Compliance................ -22-
Section 7.2 Pre-Closing Access................................ -24-
Section 7.3 Update to Disclosure.............................. -24-
Section 7.4 Compliance........................................ -25-
Section 7.5 Intercompany Obligations.......................... -25-
ARTICLE VIII.
COVENANTS OF BUYER
Section 8.1 Compliance......................................... -25-
ARTICLE IX.
ADDITIONAL COVENANTS
Section 9.1 Names, Trademarks, Etc........................... -25-
Section 9.2 Government Approvals............................. -26-
(ii)
<PAGE>
Section 9.3 Satisfaction of Conditions....................... -26-
Section 9.4 Employee Matters................................. -26-
Section 9.5 Certain Tax Matters.............................. -30-
Section 9.6 Non-Solicitation or Hire of Employees and Contract
Workers.......................................... -31-
Section 9.7 Labor............................................ -31-
Section 9.8 Severance Pay and Benefits....................... -32-
Section 9.9 Confidentiality.................................. -32-
Section 9.10 Limitation on Competition........................ -32-
Section 9.11 Audited Financial Statements..................... -33-
Section 9.12 Insurance........................................ -33-
Section 9.13 Novation of Government Contracts................. -34-
Section 9.14 Notice........................................... -35-
Section 9.15 Transition Matters............................... -36-
ARTICLE X.
CONDITIONS TO OBLIGATIONS OF BUYER
Section 10.1 Truth of Representations and Warranties;
Compliance with Covenants........................ -36-
Section 10.2 No Adverse Proceedings........................... -36-
Section 10.3 HSR Act.......................................... -36-
Section 10.4 Third-Party Consents............................. -37-
ARTICLE XI.
CONDITIONS TO OBLIGATIONS OF SELLER
Section 11.1 Truth of Representations and Warranties;
Compliance with Covenants........................ -37-
Section 11.2 No Adverse Proceedings........................... -37-
Section 11.3 HSR Act.......................................... -37-
ARTICLE XII.
TERMINATION PRIOR TO CLOSING
Section 12.1 Termination........................................ -37-
Section 12.2 Procedure and Effect of Termination................ -38-
ARTICLE XIII.
INDEMNIFICATION
Section 13.1 Indemnification by Seller........................ -39-
Section 13.1A Additional Indemnification by Seller............. -39-
(iii)
<PAGE>
Section 13.2 Indemnification by Buyer.......................... -39-
Section 13.3 Limitations on Indemnification.................... -40-
Section 13.4 Notice and Defense Procedures..................... -41-
Section 13.5 Insurance......................................... -42-
Section 13.6 Adjustment to Purchase Price...................... -43-
Section 13.7 Exclusive Remedy.................................. -43-
ARTICLE XIV.
MISCELLANEOUS
Section 14.1 Certain Definitions............................... -43-
Section 14.2 Entire Agreement, Schedules and Exhibits.......... -45-
Section 14.3 Successors and Assigns............................ -45-
Section 14.4 Counterparts...................................... -46-
Section 14.5 Headings.......................................... -46-
Section 14.6 Notice............................................ -46-
Section 14.7 Choice of Law..................................... -47-
Section 14.8 Invalid Provisions................................ -47-
Section 14.9 Expenses.......................................... -47-
Section 14.10 Third Parties..................................... -47-
Section 14.11 Further Assurances................................ -47-
Section 14.12 Publicity......................................... -47-
Section 14.13 Assignment........................................ -48-
Section 14.14 Waiver and Remedies............................... -48-
Section 14.15 Certain Interpretive Matters and Definitions...... -48-
EXHIBIT A - Customer License Agreement
EXHIBIT B - Trademark License Agreement
(iv)
<PAGE>
SCHEDULES
---------
Schedule 1.1(a) - Tangible Personal Property
Schedule 1.1(g) - Software
Schedule 1.1(h) - Contracts
Schedule 1.1(i) - Intellectual Property
Schedule 1.1(j) - Stock of Subsidiaries
Schedule 1.1(k) - Permits
Schedule 5.3 - Capitalization of Subsidiaries
Schedule 5.4(a) - Seller's Governmental Consents
Schedule 5.4(b) - Seller's Violations
Schedule 5.5 - Significant Contracts
Schedule 5.6(a) - Intellectual Property
Schedule 5.6(b) - Infringement
Schedule 5.7(a) - Software
Schedule 5.7(b) - Software Fixes in Progress
Schedule 5.7(c) - Software Licenses and Restrictions
Schedule 5.11 - Accounts Receivable
Schedule 5.12(a) - Tax Matters
Schedule 5.13 - Certain Litigation
Schedule 5.15(a) - Financial Information
Schedule 5.15(b) - Liabilities
Schedule 5.17 - Seller's Brokers
Schedule 5.18 - Persons with Seller's Knowledge
Schedule 5.19 - Employee Benefit Plans
Schedule 5.21(b) - Environmental Matters
Schedule 6.2(a) - Buyer's Governmental Consents
Schedule 6.2(b) - Buyer's Violations
Schedule 6.3 - Buyer's Brokers
Schedule 9.4(m) - Unvested Stock Options
Schedule 9.8 - Severance Pay and Benefits
Schedule 10.4 - Third-Party Consents
Schedule 13.1A - Certain Patents
Schedule 13.4(d) - Certain U.S. Patent Applications
Schedule 14.1(a) - Assigning Subsidiaries
Schedule 14.1(b) - Licensed Software
(v)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made and entered into
this 18th day of April, 1997, by and between Texas Instruments Incorporated, a
Delaware corporation with its principal offices in Dallas, Texas ("Seller"), and
Sterling Software, Inc., a Delaware corporation with its principal offices in
Dallas, Texas ("Buyer").
WHEREAS, Seller, through its Texas Instruments Software Division and
through its Subsidiaries (as defined in Section 14.1) presently conducts the
business of designing, developing, marketing, selling, delivering, licensing,
supporting, maintaining or otherwise providing applications development
software, including the Software (as defined in Section 1.1(g)), and providing
related consulting services (the "Business");
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, Seller desires to sell, transfer, and assign to Buyer, or, as
applicable, cause the Assigning Subsidiaries (as defined in Section 14.1) to
sell, transfer, and assign to Buyer, and Buyer desires to purchase and acquire
from Seller or, as applicable, from the Assigning Subsidiaries, all of the
Purchased Assets (as defined in Section 1.1); and
WHEREAS, on the terms and subject to the conditions contained in this
Agreement, Seller wishes to assign to Buyer or, as applicable, cause the
Assigning Subsidiaries to assign to Buyer, and Buyer is willing to assume, the
Assumed Liabilities (as defined in Section 3.1);
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, promises and covenants herein contained, and
intending to be legally bound hereby, it is hereby agreed by Seller and Buyer as
follows:
ARTICLE I.
SALE AND PURCHASE OF ASSETS
---------------------------
Section 1.1 Sale and Purchase of Assets. On the terms and subject to the
---------------------------
conditions hereof (including the provisions of Sections 1.2 and 1.3), at the
Closing (as defined in Section 4.1) Seller shall sell, transfer and assign to
Buyer, or, as applicable, cause the Assigning Subsidiaries to sell, transfer and
assign to Buyer, and Buyer shall purchase and acquire, all of Seller's or, as
applicable, the Assigning Subsidiaries', right, title and interest in, to and
under all of the rights, properties and assets of every kind, character and
description, wherever located and whether tangible or intangible, real or
personal or fixed or contingent, owned, held, used, conceived, developed or
offered for sale or license by Seller or any of the Subsidiaries primarily in
connection with the
<PAGE>
conduct of the Business or otherwise arising out of the conduct of the Business
(collectively, the "Purchased Assets"), including the following:
(a) Tangible Personal Property. The capital equipment listed on Schedule
-------------------------- --------
1.1(a), together with all other machinery, equipment, vehicles, leasehold
- ------
improvements, furniture and fixtures, office equipment and supplies and other
tangible personal property owned, held or used by Seller or any Subsidiary
primarily in connection with the conduct of the Business (collectively, the
"Tangible Personal Property");
(b) Expensed Assets. The expensed assets relating primarily to the
---------------
Business (the "Expensed Assets");
(c) Capitalized Software. The capitalized software reflected on the
--------------------
December 31 Balance Sheet (as defined in Section 3.1) or which would be
reflected on a balance sheet of the Business as of the Closing (a "Closing
Balance Sheet") prepared using the same accounting principles, practices and
procedures used in preparing the December 31 Balance Sheet (the "Capitalized
Software");
(d) Prepaid Items. All prepaid items, deposits, costs and fees reflected
-------------
on the December 31 Balance Sheet or which would be reflected on a Closing
Balance Sheet (the "Prepaid Items");
(e) Inventory. All raw materials, components, work-in-process, finished
---------
goods and packaging materials and supplies held or used by Seller or any
Subsidiary primarily in connection with the conduct of the Business
(collectively, the "Inventory");
(f) Accounts Receivable. All accounts receivable of, and any other amounts
-------------------
due to, Seller or any Subsidiary arising out of the conduct of the Business
prior to the Closing Date, other than the accounts receivable and other amounts
described in Section 1.2(b) (collectively, the "Accounts Receivable");
(g) Software. The computer software listed or described on Schedule
-------- --------
1.1(g) (excluding any Third-Party Software contained therein) and any computer
- ------
software in the process of development by Seller or any Subsidiary in connection
with the conduct of the Business, in each case together with the related object
and source codes, documentation and installation and user manuals (in each case
whether in written form or in magnetic, electronic or other machine readable
form) (collectively, the "Software");
(h) Contracts. All contracts (including consulting agreements and contract
---------
worker agency agreements), leases, licenses (including software licenses and
software user agreements, as licensor or licensee), purchase orders (as vendor
or purchaser) and
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<PAGE>
other agreements of Seller or any Subsidiary relating primarily to the Business,
including those listed on Schedule 1.1(h) (collectively, the "Contracts");
---------------
(i) Intellectual Property. All of the United States and foreign patents,
---------------------
patent applications and invention disclosures conceived or developed by Seller
or any of the Subsidiaries in connection with the conduct of the Business,
including those listed on Schedule 1.1(i) (the "Patents"), all of the
---------------
copyrights, brand names, trademarks, service marks and trade names conceived or
developed by Seller or any Subsidiary in connection with the conduct of the
Business or owned, held or used by Seller or any Subsidiary (otherwise than as a
licensee under a license) exclusively in connection with the conduct of the
Business, including any associated goodwill, including those listed on Schedule
--------
1.1(i) (the "Copyrights and Marks"), all technologies, trade secrets, processes,
- ------
formulae, software (including all related documentation), designs, know-how and
other intellectual property rights, in each case conceived or developed by
Seller or any Subsidiary in connection with the conduct of the Business or
owned, held or used by Seller or any Subsidiary (otherwise than as a licensee
under a license) exclusively in connection with the conduct of the Business (the
"Other Intellectual Property Rights") and all copyrights, inventions, trade
secrets, and know-how contained in the Software that were conceived or developed
by Seller or any Subsidiary in connection with the conduct of the Business or
owned, held or used by Seller or any Subsidiary (otherwise than as a licensee
under a license) exclusively in connection with the conduct of the Business (the
"Software-Related Rights" and, together with the Patents, the Copyrights and
Marks and the Other Intellectual Property Rights, the "Intellectual Property");
(j) Stock of Subsidiaries. All of the issued and outstanding shares of
---------------------
capital stock (the "Transferred Subsidiary Shares") of the direct or indirect
subsidiaries of Seller listed on Schedule 1.1(j) (the "Transferred
---------------
Subsidiaries");
(k) Permits. All licenses, permits, authorizations and approvals issued by
-------
any Governmental Authority (as defined in Section 14.1) to Seller and any
Subsidiary relating primarily to the Purchased Assets or the Business, including
those set forth on Schedule 1.1(k);
---------------
(l) Books and Records. All financial, accounting and operating data,
-----------------
including customer lists and files, sales and promotional data, advertising
materials, credit information, cost and pricing information, vendor and
distributor lists and files, payroll and personnel records, and other books,
records and information of Seller or any Subsidiary relating primarily to the
Purchased Assets or the Business (subject to redaction of any information
relating primarily to businesses of Seller or any Assigning Subsidiary other
than the Business);
(m) Securities. All stock, warrants and promissory notes of PeerLogic
----------
owned by Seller or any Assigning Subsidiary; and
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<PAGE>
(n) Goodwill. The goodwill reflected on the December 31 Balance Sheet or
--------
which would be reflected on a Closing Balance Sheet.
Section 1.2 Excluded Assets. Notwithstanding anything to the contrary
---------------
contained herein, the Purchased Assets shall in no event include the following:
(a) Any Tangible Personal Property, Expensed Assets, Capitalized Software,
Prepaid Items or Inventory that are sold, consumed, amortized or otherwise
disposed of by Seller or any Subsidiary prior to the Closing or any portion of
any account receivable or other amount due to Seller or any Subsidiary that is
collected by Seller or such Subsidiary prior to the Closing, in each case in the
ordinary course of the conduct of the Business consistent with past practice and
the provisions of Section 7.1;
(b) All accounts receivable of Seller or any Subsidiary arising out of the
conduct of the Business in respect of which the obligor is Seller or any of its
affiliates (other than any of the Transferred Subsidiaries), except for accounts
receivable arising out of transactions or arrangements in respect of which there
shall exist as of the Closing Date any liabilities or obligations that are
Assumed Liabilities;
(c) Subject to Section 9.1, the words and names "Texas Instruments
Incorporated" and "TI," and all monograms, logos, trademarks and trade names
consisting of or incorporating either or both of such words or names, or any
variations thereof;
(d) Cash and cash equivalents existing as of the Closing Date (other than
the Prepaid Items and any amounts required to be transferred pursuant to
Sections 9.4(f), 9.4(l) and 9.4(m));
(e) Subject to Section 9.12, all contracts of insurance;
(f) Seller's or any Assigning Subsidiary's corporate seal, minute books,
charter documents, corporate stock records and such other books and records as
pertain to the organization, existence or share capitalization of Seller or any
Assigning Subsidiary, duplicate copies of such records included in the Purchased
Assets as are necessary to enable Seller or any Assigning Subsidiary to file its
tax returns and reports, and any other records or materials relating to Seller
or any Assigning Subsidiary generally and not involving or relating to the
Purchased Assets or the Business;
(g) The promissory note of Implicit payable to Seller in the aggregate
principal amount of $3,000,000; and
(h) All rights, properties and assets of Seller or any of the Assigning
Subsidiaries of every kind, character and description (including intellectual
property),
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<PAGE>
wherever located and whether real or personal or fixed or contingent, not
included in the definition of Purchased Assets.
Section 1.3 Nonassignable Contracts and Permits.
-----------------------------------
(a) Nonassignability. To the extent that any Contract to be assigned
----------------
pursuant to the terms of Section 1.1(h) or any license, permit, authorization or
approval to be assigned pursuant to the terms of Section 1.1(k) is not capable
of being assigned without the consent, approval or waiver of a third person or
entity (including a Governmental Authority), or if such assignment or attempted
assignment would constitute a breach thereof or a violation of any law (each, a
"Nonassignable Contract"), nothing in this Agreement shall constitute an
assignment or require the assignment thereof prior to the time at which all
consents, approvals and waivers necessary for such assignment shall have been
obtained.
(b) Seller to Use Commercially Reasonable Efforts. Notwithstanding
---------------------------------------------
anything to the contrary contained herein, Seller shall not be obligated or
entitled to assign to Buyer, or cause any Assigning Subsidiary to assign to
Buyer, any rights or obligations in, to or under any Nonassignable Contract
without first having obtained all consents, approvals and waivers necessary for
such assignment; provided, however, that Seller shall use commercially
reasonable efforts to obtain all such consents, approvals and waivers prior to
the Closing and, if the Closing occurs first, shall use commercially reasonable
efforts after the Closing Date to obtain all such consents, approvals and
waivers. Buyer shall cooperate with Seller in Seller's efforts to obtain all
required consents, approvals and waivers; provided, however, that neither Buyer
nor Seller shall be required to incur any liability or pay any consideration in
connection therewith (provided that, with respect to any particular
Nonassignable Contract following the Closing, Seller is providing to Buyer the
financial and business benefits thereof in accordance with Section 1.3(c)).
(c) If Waivers or Consents Cannot Be Obtained. To the extent and for so
-----------------------------------------
long as all consents, approvals and waivers required for the assignment of any
Nonassignable Contract shall not have been obtained by Seller after the Closing,
Seller shall use commercially reasonable efforts to (i) provide to Buyer the
financial and business benefits of such Nonassignable Contract and (ii) enforce,
at the request of Buyer, for the account of Buyer, any rights of Seller or any
Assigning Subsidiary arising from any such Nonassignable Contract (including the
right to elect to terminate in accordance with the terms thereof upon the advice
of Buyer). Buyer shall use commercially reasonable efforts to perform any
portion of a Nonassignable Contract the financial and business benefits of which
are being provided to Buyer in accordance with clause (i) of the preceding
sentence to the same extent required of Seller or any Assigning Subsidiary under
the terms of such Contract (i.e., in the same (or as similar as practicable)
manner and time, and with the same quality, so required of Seller or any
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<PAGE>
Assigning Subsidiary). Following the Closing, Seller shall not terminate,
modify or amend any Nonassignable Contract without Buyer's prior written
consent.
(d) The provisions of this Section 1.3 shall not affect any representation
or warranty of Seller contained herein or any obligation of Seller with respect
to any breach thereof, or any condition to the obligations of Buyer to
consummate the transactions contemplated hereby to be consummated at the
Closing.
Section 1.4 Covenant Not to Sue. Buyer agrees not to assert the United
-------------------
States and foreign patents, patent applications and invention disclosures, as
well as any extensions, divisions, continuations and continuation-in-parts
thereof, and any applications or patents that claim priority from such patents
and applications listed on Schedule 1.1(i), against Seller, Seller's affiliates
---------------
or, with respect to products purchased from Seller, the primary use or function
of which is not for the development of software applications as customarily
created by the users of the Software, against the purchaser of such products.
Section 1.5 License to Retained Intellectual Property. Seller hereby
-----------------------------------------
grants to Buyer and its affiliates an irrevocable, perpetual, sublicenseable,
fully paid-up, royalty-free, worldwide right and license to use, practice and
otherwise exploit, patents, copyrights, trade secrets, non-patented technology
and techniques and research and development information that constitute Retained
Intellectual Property and are owned, held, or used by Seller or any Subsidiary
(otherwise than as a licensee under a license) to any degree in connection with
the conduct of the Business (the "Licensed Intellectual Property"), in the
business, conduct or activity of designing, developing, marketing, selling,
licensing, supporting or maintaining applications development software in
connection with the conduct of the Business as it is currently conducted, with
reasonable extensions thereof. Buyer agrees to protect any trade secrets
included in the Licensed Intellectual Property against unauthorized disclosure
or misuse with the same degree of care that it uses with respect to its own
trade secrets of like importance.
Section 1.6 License by Buyer. With respect to the Licensed Software (as
----------------
defined in Section 14.1), Buyer hereby grants Seller and its affiliates an
irrevocable, perpetual, fully paid-up, royalty-free, nontransferable license, on
the terms and subject to the conditions set forth in the form of license
agreement attached hereto as Exhibit A (the "Customer License Agreement"), to
---------
use, copy, reproduce and modify the Licensed Software.
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<PAGE>
ARTICLE II.
PURCHASE PRICE
--------------
Section 2.1 Purchase Price. At the Closing, in consideration of the
--------------
conveyance to Buyer of the Purchased Assets, Buyer shall deliver to Seller and
the Assigning Subsidiaries an aggregate cash amount equal to U.S. $165,000,000
(the "Purchase Price"), by wire transfer of immediately available funds to such
account as shall have been designated by Seller to Buyer prior to the Closing,
and shall assume the Assumed Liabilities. In so designating such account,
Seller shall be acting as agent for each of the Assigning Subsidiaries and shall
have exclusive responsibility for the delivery to each Assigning Subsidiary of
such portion of the Purchase Price to which it may be entitled.
Section 2.2 Allocation of Purchase Price for Tax Purposes. Buyer and
---------------------------------------------
Seller shall consult with each other with respect to the allocation of the
Purchase Price and the amount of the Assumed Liabilities to the Purchased
Assets; provided, however, that nothing in this Section 2.2 shall be deemed to
obligate either Buyer or Seller to agree on such allocation.
Section 2.3 Transfer Taxes and Similar Charges. All recordation,
----------------------------------
transfer, documentary, excise, sales, value added, use, stamp, conveyance or
other similar taxes, duties or governmental charges, and all recording or filing
fees or similar costs, imposed or levied by reason of, in connection with or
attributable to this Agreement and the transactions contemplated hereby,
including the transfer of the Purchased Assets or the Transferred Subsidiary
Shares, shall be borne by Buyer.
ARTICLE III.
ASSUMPTION OF LIABILITIES
-------------------------
Section 3.1 Assumed Liabilities. At the Closing, Buyer shall assume and
-------------------
thereafter pay, perform or otherwise discharge, as and when the same shall
become due and payable, the following obligations and liabilities (the "Assumed
Liabilities"):
(a) all liabilities and obligations of Seller or any Assigning Subsidiary
in respect of the Business accrued or specifically reserved on the balance sheet
for the Business as of December 31, 1996 (the "December 31 Balance Sheet")
included in the Financial Statements (as defined in Section 5.15(a)), together
with those not so accrued or reserved if, in accordance with GAAP (as defined in
Section 14.1), as applicable to the Business, they need not be so accrued or
reserved on the December 31 Balance Sheet, and those that are specifically
identified on Schedule 5.15(b), in each case to the extent the same remain
----------------
unpaid and undischarged as of the Closing;
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<PAGE>
(b) all liabilities and obligations of Seller or any Assigning Subsidiary
in respect of the Business and arising in the ordinary course of the conduct of
the Business consistent with past practice and, to the extent applicable, the
provisions of Section 7.1 between the date of the December 31 Balance Sheet and
the Closing, in each case to the extent that the same remain unpaid and
undischarged as of the Closing;
(c) all liabilities and obligations of Seller or any Assigning Subsidiary
arising from product liability and product warranty claims in respect of sales
of products in the conduct of the Business prior to the Closing;
(d) subject to Section 1.3, all liabilities and obligations of Seller or
any Assigning Subsidiary under the Contracts, other than payment and performance
of obligations payable or dischargeable prior to the Closing; and
(e) all liabilities and obligations that are treated as Assumed Liabilities
under Section 9.4.
Buyer's obligations in respect of the Assumed Liabilities shall not extend
beyond the extent to which Seller and/or any Assigning Subsidiary was obligated
in respect thereof and shall be subject to Buyer's right to contest in good
faith the nature and extent of any liability or obligation to any person or
entity other than Seller and/or any Assigning Subsidiary. Except as provided in
this Section 3.1, Buyer shall not assume or be responsible for the payment,
performance or discharge of any liability or obligation of Seller or any
Assigning Subsidiary.
Section 3.2 Retained Liabilities. All liabilities and obligations of
--------------------
Seller or any Assigning Subsidiary, including liabilities and obligations
attributable to the conduct of the Business prior to the Closing, that are not
Assumed Liabilities shall continue after the Closing to be liabilities and
obligations of Seller or such Assigning Subsidiary and shall be "Retained
Liabilities" for purposes of this Agreement. Notwithstanding anything to the
contrary contained herein, all liabilities and obligations of Seller and the
Assigning Subsidiaries arising out of or relating to (a) any Excluded Asset, (b)
this Agreement or the transactions contemplated hereby (including any prior
efforts to sell or otherwise dispose of the Purchased Assets or the Business or
any substantial portion of either thereof), except to the extent otherwise
expressly provided herein, (c) any Taxes (as defined in Section 14.1)
attributable to taxable periods ending on or prior to the Closing Date or to the
pre-Closing portion of any taxable period that includes but does not end on the
Closing Date, (d) any reductions in workforce occurring prior to the Closing,
and (e) any Employee Plans (as defined in Section 5.19), collective bargaining
agreements, programs and practices, or other employment agreements, employment
offer letters or similar agreements with employees or former employees, except
for the liabilities and obligations in respect of the foregoing that are treated
as Assumed Liabilities under Section 9.4 shall be "Retained Liabilities" for
purposes of this Agreement.
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<PAGE>
ARTICLE IV.
CLOSING
-------
Section 4.1 Closing. The consummation of the transactions contemplated
-------
hereby (the "Closing") shall take place at the offices of Seller, 13500 North
Central Expressway, Dallas, Texas (or at such other place as the parties may
designate), at 9:00 a.m. (Dallas, Texas time) on or before June 14, 1997 or such
later date as the conditions specified in Articles X and XI are fulfilled (or
waived by the party entitled to waive any unfulfilled condition). The date on
which the Closing is effected is referred to in this Agreement as the "Closing
Date."
Section 4.2 Deliveries at Closing. At the Closing:
---------------------
(a) Seller shall deliver to Buyer the items described in clauses (i)
through (xi) below:
(i) one or more Bills of Sale, in form and substance
reasonably satisfactory to Buyer and Seller (the "Bill of Sale"), executed
by Seller or, as applicable, by the Assigning Subsidiaries;
(ii) one or more Assignment and Assumption Agreements, in form
and substance reasonably satisfactory to Buyer and Seller (the "Assignment
Agreement"), executed by Seller or, as applicable, by any Assigning
Subsidiary;
(iii) the Customer License Agreement, executed by Seller or, as
applicable, by any Assigning Subsidiary;
(iv) a Transition Services Agreement, in form and substance
reasonably satisfactory to Buyer and Seller (the "Transition Services
Agreement") and providing for the provision by Seller to Buyer and the
Transferred Subsidiaries of data processing and information and accounting
services, at Seller's unit cost charge rates (with no markup) for the first
three months after Closing and at Seller's unit cost charge rates plus any
additional costs associated therewith for a period of six additional months
thereafter, executed by Seller;
(v) agreements in form and substance reasonably satisfactory
to Buyer and Seller (the "Real Estate Documents"), providing for the
subleasing by Seller to Buyer of the space currently occupied by personnel
primarily engaged in the conduct of the Business at Seller's Spring Creek
site and, except as Buyer and Seller may otherwise reasonably agree, the
sharing of space at the other facilities of Seller or any Subsidiary
constituting Purchased Assets or Excluded Assets, as the case may be, that
are currently shared by personnel primarily engaged in the conduct of the
Business, on the one hand, and personnel primarily engaged in the
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<PAGE>
conduct of other businesses of Seller, on the other hand, in each case for
a period of three years (with the party to whom space is provided (A) being
obligated to bear a proportionate share of the actual occupancy cost of the
party providing such space, without markup, and (B) having the right to
terminate its occupancy of space in whole or in part upon reasonable notice
and other reasonable terms);
(vi) an Assignment of Trademarks and Service Marks to Buyer, in
recordable form and in form and substance reasonably satisfactory to Buyer
and Seller (the "Trademark Assignment"), executed by Seller or, as
applicable, any Assigning Subsidiary;
(vii) an Assignment of Patents to Buyer, in recordable form and
in form and substance reasonably satisfactory to Buyer and Seller (the
"Patent Assignment"), executed by Seller or, as applicable, any Assigning
Subsidiary;
(viii) stock certificates evidencing the Transferred Subsidiary
Shares, accompanied by duly executed stock powers or other appropriate
instruments of transfer, in form and substance reasonably satisfactory to
Buyer;
(ix) a Certificate (the "Seller Closing Certificate"), dated
the Closing Date, in the form described in Section 10.1, executed by
Seller;
(x) evidence that the party signing this Agreement on behalf
of Seller is authorized to do so; and
(xi) all other documents, certificates, instruments or writings
reasonably requested by Buyer in connection herewith.
(b) Buyer shall deliver to Seller the items described in clauses (i)
through (viii) below:
(i) the Purchase Price described in Section 2.1 above;
(ii) the Assignment Agreement, executed by Buyer;
(iii) the Customer License Agreement, executed by Buyer;
(iv) the Transition Services Agreement, executed by Buyer;
(v) the Real Estate Documents, executed by Buyer;
(vi) a Certificate, dated the Closing Date, in the form
described in Section 11.1, executed by Buyer (the "Buyer Closing
Certificate");
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<PAGE>
(vii) evidence that the party signing this Agreement on behalf
of Buyer is authorized to do so; and
(viii) all other documents, certificates, instruments or writings
reasonably requested by Seller in connection herewith.
(c) The Bill of Sale, Assignment Agreement, Customer License Agreement,
Transition Services Agreement, Real Estate Documents, Trademark Assignment and
Patent Assignment shall constitute, collectively, the "Collateral Agreements."
Section 4.3 Delivery of Purchased Assets. Title to the Purchased Assets
----------------------------
shall pass to Buyer as of the Closing at the applicable place of business of
Seller. Concurrently with the Closing, Seller shall deliver, and shall cause
the Assigning Subsidiaries to deliver, to Buyer full possession and control of
the Purchased Assets (it being understood that title to the Purchased Assets
shall pass to Buyer, but unless Buyer directs otherwise after the Closing, any
Purchased Assets held by suppliers or contractors shall not be required to be
delivered to Buyer concurrently with the Closing). All tangible assets
constituting a part of the Purchased Assets located at Seller's or any Assigning
Subsidiary's place of business shall, unless Seller and Buyer otherwise agree,
be delivered to one of Buyer's places of business by means of delivery jointly
determined by Seller and Buyer, and Buyer shall bear the cost of such delivery.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer as of the date hereof and as
of the Closing Date as follows:
Section 5.1 Existence and Authority of Seller. Seller is a corporation
---------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Seller has the full corporate power and authority to conduct
the Business as it is now conducted, to enter into this Agreement and the
Collateral Agreements, and to perform its obligations hereunder and thereunder.
Seller is duly qualified to conduct business as a foreign corporation in the
State of Texas and in each other jurisdiction in which its ownership or lease of
the Purchased Assets or its conduct of the Business requires such qualification
under applicable law, except where the failure to be so qualified would not have
a Material Adverse Effect (as defined in Section 14.1). The execution, delivery
and performance of this Agreement and the Collateral Agreements by Seller and,
as applicable, the Assigning Subsidiaries have been duly and validly authorized
by all necessary corporate proceedings on the part of Seller and such Assigning
Subsidiaries. This Agreement constitutes and, when executed and delivered, the
Collateral Agreements will constitute, the legal, valid and binding obligations
of
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<PAGE>
Seller and, as applicable, the Assigning Subsidiaries, enforceable against it or
them in accordance with their respective terms, subject, as to enforceability,
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and general principles
of equity (regardless of whether enforcement is sought in a proceeding at law or
in equity).
Section 5.2 Existence of Subsidiaries. Each of the Subsidiaries is a
-------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation set forth on Schedule 1.1(j) (in the
---------------
case of the Transferred Subsidiaries) or Schedule 14.1 (in the case of the
-------------
Assigning Subsidiaries), and each of the Subsidiaries has full corporate power
and authority to conduct its business as it is now conducted. Each of the
Transferred Subsidiaries is duly qualified to conduct business as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
assets or the conduct of its business activities requires such qualification
under applicable law, except where the failure to be so qualified would not have
a Material Adverse Effect.
Section 5.3 Capitalization of the Transferred Subsidiaries. Schedule 5.3
---------------------------------------------- ------------
contains a description of the authorized, issued and outstanding capital stock
of each of the Transferred Subsidiaries, together with the name of each person
or entity who or which is the record owner of any Transferred Subsidiary Shares
and the number of Transferred Subsidiary Shares owned by each such person or
entity. All of the Transferred Subsidiary Shares are owned of record and
beneficially by Seller or an Assigning Subsidiary, in each case as indicated on
Schedule 5.3, free and clear of all Liens (as defined in Section 14.1). The
- ------------
delivery to Buyer at the Closing of the documents specified in Section 4.2(a)
will vest in Buyer good, marketable and exclusive title to the Transferred
Subsidiary Shares, free and clear of all Liens (other than any Liens that may be
placed on the Transferred Subsidiary Shares by Buyer at the Closing). All of
the Transferred Subsidiary Shares have been duly and validly authorized and
issued and are fully paid and nonassessable, with no personal liability
attaching thereto. Except for this Agreement and to the extent specified on
Schedule 5.3, there are no outstanding or existing (a) proxies, voting trusts or
- ------------
other agreements or understandings with respect to the voting of any of the
Transferred Subsidiary Shares, (b) securities convertible into or exchangeable
for capital stock of any of the Transferred Subsidiaries, (c) options, warrants
or other rights to purchase or subscribe for any capital stock of any of the
Transferred Subsidiaries, (d) rights to participate in the equity, income or
election of directors or officers of any of the Transferred Subsidiaries, or (e)
agreements of any kind relating to the issuance of capital stock of any of the
Transferred Subsidiaries or securities convertible into or exchangeable for any
such capital stock.
Section 5.4 Consents and Approvals; Absence of Violations. (a) Except to
---------------------------------------------
the extent specified on Schedule 5.4(a), no notification, authorization, consent
---------------
or approval of, or notice to, or filing or registration with, any Governmental
Authority is required to be obtained or given, and no waiting period is required
to expire, in connection with Seller's
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<PAGE>
or, as applicable, the Assigning Subsidiaries', execution and delivery of this
Agreement or the Collateral Agreements and the performance of its or their
respective obligations hereunder or thereunder except for (i) filings with the
FTC (as defined in Section 14.1) and the DOJ (as defined in Section 14.1)
pursuant to the HSR Act (as defined in Section 14.1), (ii) notifications,
authorizations, consents, approvals, notices, filings or registrations that the
failure to make or obtain, in the aggregate, would not have a Material Adverse
Effect, and (iii) notifications, authorizations, consents or approvals of, or
notices to, any Governmental Authority pursuant to any Contract relating to the
Business to which any such Governmental Authority and the Seller or any
Subsidiary is a party.
(b) Neither Seller's nor, as applicable, any Assigning Subsidiary's,
execution and delivery of this Agreement or of the Collateral Agreements, and
neither Seller's nor, as applicable, any Assigning Subsidiary's, performance of
its obligations hereunder or thereunder, will (i) except to the extent specified
on Schedule 5.4(b), conflict with, violate any provision of, result in the
---------------
breach of, constitute a default under, give rise to the acceleration of, or
entitle any party to accelerate (whether after the giving of notice or lapse of
time or both), any obligation under, permit any person to terminate, modify or
cancel the rights of Seller or any Subsidiary under, or result in the creation
or imposition of any Lien upon any Purchased Assets under, any provision of any
Significant Contract or any Permit, (ii) violate any provision of the
certificate of incorporation or by-laws of Seller or any Subsidiary, or (iii)
violate any Laws (as defined in Section 14.1) or any judgment, order or decree
of any Governmental Authority to which Seller or any Subsidiary is subject,
except in the case of clause (iii) above for such conflicts, violations,
breaches, defaults, accelerations, terminations, modifications, cancellations or
Liens that would not, individually or in the aggregate, (x) have a Material
Adverse Effect, (y) materially impair the ability of Seller to perform its
obligations hereunder or under any of the Collateral Agreements, or (z) prevent
or materially delay the consummation of the purchase and sale of the Purchased
Assets contemplated hereby.
Section 5.5 Contracts. Each of the Contracts is a legal, valid and
---------
binding obligation of Seller and/or each Subsidiary that is a party thereto and,
to the knowledge of Seller, of each other party thereto, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). Except to the extent specified on Schedule
--------
5.5, and except for breaches or defaults that in the aggregate would not have a
Material Adverse Effect, neither Seller nor any Subsidiary or, to the knowledge
of Seller, any other party to any Contract is in breach or default (with or
without the giving of notice or lapse of time or both) thereunder. All
Significant Contracts in effect or treated by Seller as being in effect as of
the date hereof are set forth on Schedule 5.5 hereto. For purposes of this
------------
Agreement, the term "Significant Contract" means any unexpired (except in the
case of any strategic alliance agreement
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<PAGE>
that shall have expired within the past 12 months) Contract (a) under which
Seller or any Subsidiary is or was required to pay or entitled to receive more
than $500,000 (or, in the case of Contracts to which foreign Subsidiaries are a
party, $1,000,000 (other than a real estate lease covered in clause (d) below),
(b) that is a license or other agreement relating to rights of Seller or any
Subsidiary with respect to Third-Party Software, (c) that is a distribution
agreement or that provides for strategic alliances relating to the development
and/or marketing of software or services, (d) that is a real estate lease
relating to the Business, or (e) that is otherwise listed on Schedule 5.5.
------------
Except to the extent specified on Schedule 5.5, Seller heretofore has provided
------------
or made available to Buyer true, complete and correct copies of all of the
Significant Contracts (including all amendments thereto) that are written, and
true, complete and correct written summaries of all of the Significant Contracts
that are oral.
Section 5.6 Intellectual Property Rights.
----------------------------
(a) Ownership. The Intellectual Property, together with the Licensed
---------
Intellectual Property, includes all of the intellectual property rights owned or
licensed by Seller and the Subsidiaries reasonably necessary to conduct the
Business as it is now conducted, or as currently proposed to be conducted by
Seller, and includes all of the intellectual property rights owned or licensed
by Seller and the Subsidiaries used in the development, marketing, licensing or
support of the Software. Except to the extent specified on Schedule 5.6(a), (i)
---------------
Seller, directly or through the Subsidiaries, has good, marketable and exclusive
title to, and the valid and enforceable power and unqualified right to use, the
Intellectual Property and the Licensed Intellectual Property, free and clear of
all Liens, and, except for the Intellectual Property owned or held by the
Transferred Subsidiaries, to transfer (or, as applicable, license) the same to
Buyer, and (ii) no person or entity other than Seller and the Subsidiaries has
any right or interest of any kind or nature in or with respect to the
Intellectual Property or the Licensed Intellectual Property or any portion
thereof or any rights to use, market or exploit the Intellectual Property or the
Licensed Intellectual Property or any portion thereof. Except to the extent
specified on Schedule 5.6(a), good, marketable and exclusive title in, to and
---------------
under the Intellectual Property will vest in Buyer (or, to the extent
applicable, will be vested in one or more of the Transferred Subsidiaries) at
the Closing, free and clear of all Liens.
(b) No Infringement. Except to the extent specified on Schedule 5.6(b),
--------------- ---------------
the conduct of the Business as it is now conducted, or as currently proposed to
be conducted by Seller, and the use of the Intellectual Property and the
Licensed Intellectual Property in connection therewith, does not conflict with
or infringe, and neither Seller nor any Subsidiary has received notice of any
allegation that such conduct or use conflicts with or infringes, any copyright,
trademark, trade secret or, to the knowledge of Seller, patent owned, possessed
or used by any third party. There are no claims, disputes, actions,
proceedings, suits or appeals pending against Seller or any Subsidiary with
respect to any
-14-
<PAGE>
of the Intellectual Property or the Licensed Intellectual Property (other than
those, if any, with respect to which service of process or similar notice may
not yet have been made on Seller or any such Subsidiary), and, to the knowledge
of Seller, none has been threatened against Seller or any Subsidiary.
Section 5.7 Software. (a) Except to the extent specified on Schedule
-------- --------
5.7(a), Seller has good and marketable right, title and interest in and to all
- ------
versions or releases of the Software, free and clear of all Liens. Except to
the extent specified on Schedule 5.7(a), the Seller is in actual possession of
---------------
the source code and object code for the Software, and Seller is in possession of
all other documentation necessary for the effective use of the Software.
Schedule 5.7(a) also lists, by program, all third parties that have been
- ---------------
provided with the source code for any of the computer software included in the
Software, or have the right to license the source code, and all source code
escrow agreements relating to any of the computer software included in the
Software (setting forth as to any such escrow agreement the source code subject
thereto and the names of the escrow agent and all third parties who are actual
or potential beneficiaries of such escrow agreement). Except to the extent
specified on Schedule 5.7(a), at the Closing, good, marketable and exclusive
---------------
title in the Software will vest in Buyer, free and clear of all Liens.
(b) There are no defects in the most recent generally distributed
commercial versions of the Software (excluding any computer software in the
process of development and any versions distributed as beta, test or evaluation
releases) (the "Commercial Software") that would prevent the Commercial Software
from substantially performing the functions in the documentation accompanying
such Commercial Software as updated (the "Documentation") when such Commercial
Software is used in its unmodified form, from undamaged media, and in accordance
with the instructions and specifications stated in the Documentation. Schedule
--------
5.7(b) contains a true, complete and correct list of all material bugs that, to
- ------
Seller's knowledge, exist in or with respect to the Commercial Software.
(c) Neither the existence nor the sale, marketing, licensing, distribution,
exploitation or use of the Software in the conduct of the Business as it is now
conducted, or as currently proposed to be conducted by Seller, (i) except as set
forth on Schedule 5.6(b), conflicts with or infringes any trademark, copyright,
or, to the knowledge of Seller, patent, (ii) constitutes a misuse or
misappropriation of any trade secret, know-how, process or proprietary
information, or (iii) except to the extent specified on Schedule 5.7(c),
---------------
entitles any third party to any interest in, or right to compensation from
Seller by reason of, the sale, marketing, licensing, distribution, exploitation
or use of the Software. Except to the extent specified on Schedule 5.7(c),
---------------
there are no restrictions on the ability of Seller, or any successor or assign
of Seller, to sell, market, license, distribute, exploit or use the Software.
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<PAGE>
Section 5.8 Title to and Sufficiency of Purchased Assets. (a) No
--------------------------------------------
affiliates of Seller other than the Subsidiaries are engaged in the conduct of
the Business as now conducted.
(b) The Purchased Assets constitute all of the rights, properties and
assets of every kind, character and description, wherever located and whether
tangible or intangible, real or personal or fixed or contingent, that are owned,
held, used, conceived, developed or offered for sale or license by Seller or any
of the Subsidiaries primarily (or, to the extent so characterized in Section
1.1(i), exclusively) in connection with the conduct of the Business or otherwise
arising out of the conduct of the Business.
Section 5.9 Tangible Personal Property. The Tangible Personal Property
--------------------------
listed on Schedule 1.1(a) is in good operating condition and repair, subject to
---------------
normal wear and tear, and is adequate and sufficient for the conduct of the
Business as now conducted. At the Closing, title to all of the Tangible
Personal Property will be transferred to Buyer free and clear of all Liens other
than Permitted Liens (as defined in Section 14.1).
Section 5.10 Inventory. The Inventory reflected on the December 31
---------
Balance Sheet or acquired since the date thereof was acquired or produced and
has been maintained in the ordinary course of the conduct of the Business
consistent with past practice. At the Closing, title to all of the Inventory
will vest in Buyer free and clear of all Liens other than Permitted Liens.
Section 5.11 Accounts Receivable. The Accounts Receivable have arisen
-------------------
from bona fide transactions in the ordinary course of the conduct of the
Business and are not subject to any valid discount, set-off or counterclaim.
Except to the extent specified on Schedule 5.11, to Seller's knowledge, the
-------------
Accounts Receivable are collectible in the amounts and within the time periods
reflected in the Financial Statements, in the case of Accounts Receivable which
arose prior to December 31, 1996, and in the amounts and within time periods
consistent with the payment history of comparable accounts receivable arising in
the ordinary course of the conduct of the Business as it is now conducted, in
the case of Accounts Receivables which have arisen since December 31, 1996. At
the Closing, good, marketable and exclusive title to all of the Accounts
Receivable will vest in Buyer (or, to the extent applicable, will be vested in
one or more of the Transferred Subsidiaries) free and clear of all Liens.
Section 5.12 Taxes. (a) Each of the Transferred Subsidiaries has filed or
-----
caused to be filed with the appropriate Governmental Authorities all Tax Returns
(as defined in Section 14.1) required to be filed by it (taking into account all
extensions of due dates). All such Tax Returns were correct and complete in all
respects material to such Tax Returns. All amounts in respect of Taxes due or
claimed by any Governmental Authority or other taxing authority or any other
person or entity to be due from any of the Transferred Subsidiaries have been
fully paid. Except to the extent specified on
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<PAGE>
Schedule 5.12(a), (i) none of the Transferred Subsidiaries has waived any
- ----------------
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency, (ii) no claim that could affect
Buyer, the Purchased Assets or the Transferred Subsidiaries has been made by any
tax authority in any jurisdiction where Seller or any of the Subsidiaries, as
the case may be, does not file Tax Returns that Seller or any of the
Subsidiaries, as the case may be, is or may be subject to taxation in such
jurisdiction, and, to Seller's knowledge, no such assertion of jurisdiction is
threatened, (iii) no issue has been raised by any tax authority which reasonably
may be expected to result in a deficiency for any taxable period of any of the
Transferred Subsidiaries, (iv) none of the Transferred Subsidiaries is a party
to, has received notice of, or has knowledge of, any pending or threatened
administrative or judicial action or proceeding by any Governmental Authority
for the assessment or collection of any Taxes, and (v) no security interests
have been imposed on or asserted against any of the Purchased Assets, the
Transferred Subsidiaries or any rights, property or assets of any of the
Transferred Subsidiaries as a result of or in connection with any failure or
alleged failure to pay any Tax.
(b) Seller shall cause all Tax Returns required to be filed by any
Transferred Subsidiary with any Governmental Authority with respect to any Tax
period, or portion thereof, ended on or before December 31, 1996 to be so filed
prior to the Closing. Such Tax Returns shall be correct and complete in all
respects material to such Tax Returns. Seller shall cause to be paid all
amounts due in respect of Taxes as shown on such Tax Returns. Notwithstanding
the above, if the due date for filing a Tax Return (or extension thereof) is
more than twenty days following the Closing, and Seller shall have failed to
file such Tax Return and pay the Taxes associated therewith, Buyer shall do so
and Seller shall promptly reimburse Buyer the amount of such Taxes. Should
Buyer then fail to file such Tax Returns by the due date (or extension thereof)
or pay the associated Tax, Buyer shall be solely responsible for payment of
penalties and interest with respect thereto unless such failure was not due to
the fault or negligence of Buyer, in which case Seller shall promptly reimburse
Buyer for such penalties and interest.
(c) Each of Seller and each of the Subsidiaries has (i) withheld and duly
and timely paid to the appropriate taxing authority all Taxes required to be
withheld with respect to any amounts paid or owing to any employee, creditor,
independent contractor or other third party in connection with the Business, and
any additional amounts representing related employer liability for employment
Taxes under applicable Law, except where the failure to do so would not have a
Material Adverse Effect, and (ii) correctly and properly prepared and duly and
timely filed all returns and reports relating to Taxes withheld from each of
their employees, former employees and other payees engaged primarily in the
conduct of the Business and to their liability for employment Taxes and other
withholding Taxes under federal, state, municipal, local, foreign and other
Laws.
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Section 5.13 Litigation. Except to the extent specified on Schedule 5.13,
---------- -------------
there are no legal, administrative, arbitration, investigatory or other actions,
suits, claims, hearings or proceedings pending or, to Seller's knowledge,
threatened against Seller or any of the Subsidiaries (or, to Seller's knowledge,
pending or threatened against any customer or licensee of Seller or any of the
Subsidiaries in connection with the use of the Software of which Seller or any
Assigning Subsidiary has received written notice) arising out of or relating to
this Agreement, the transactions contemplated hereby or the conduct of the
Business, or otherwise pertaining to or affecting the Business or any of the
Purchased Assets. Neither Seller nor any Subsidiary is in default under any
judgment, order or decree of any Governmental Authority applicable to it
relating to the conduct of the Business or the ownership or use of the Purchased
Assets.
Section 5.14 Compliance with Law; Permits. The Purchased Assets and the
----------------------------
use thereof by Seller and the Subsidiaries comply in all material respects with,
and in connection with the conduct of the Business, Seller and each of the
Subsidiaries is in compliance in all material respects with, all applicable
Laws. The Permits constitute all of the licenses, permits, authorizations and
approvals issued by any Governmental Authority that are reasonably necessary for
the conduct of the Business as now conducted. Except to the extent specified on
Schedule 1.1(k), Seller and the Subsidiaries are in compliance in all material
- ---------------
respects with the terms of the Permits, all of the Permits are valid and in full
force and effect and, to the knowledge of Seller, no Governmental Authority has
instituted any proceedings for the cancellation, non-renewal or modification of
any of the Permits and, to the knowledge of Seller, no such proceedings are
threatened.
Section 5.15 Historical Financial Information. (a) The balance sheets of
--------------------------------
the Business and each of the Transferred Subsidiaries as of December 31, 1996,
and the statements of earnings of the Business and each of the Transferred
Subsidiaries and the statements of cash flows of the Business and each of the
Transferred Subsidiaries for the year ended December 31, 1996, as provided by
Seller to Buyer prior to the date hereof (collectively, the "Financial
Statements") have been prepared from and in accordance with the books and
records of Seller pertaining to the Business, present fairly, in all material
respects, the financial position of the Business as of the dates indicated
therein and the results of operations of the Business as of and for the periods
indicated therein and, except to the extent specified on Schedule 5.15(a), were
----------------
prepared in conformity with GAAP, as applicable to the Business, consistently
applied, subject to normal year-end adjustments which, in the aggregate, are not
material.
(b) There are no liabilities of Seller or any Subsidiary of any kind or
character relating to the Business, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than (i) liabilities specifically
provided for in the December 31 Balance Sheet or described on Schedule 5.15(b);
----------------
(ii) liabilities arising subsequent to
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December 31, 1996 in the ordinary course of the conduct of the Business; and
(iii) liabilities that, individually or in the aggregate, are not material to
the Business.
Section 5.16 Reserved.
--------
Section 5.17 Brokers. Except to the extent specified on Schedule 5.17, no
------- -------------
broker, finder, agent, representative or similar intermediary has acted for or
on behalf of Seller in connection with this Agreement or the transactions
contemplated hereby, and no broker, finder, agent, representative or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection herewith, based on any agreement or understanding with
Seller or any action taken by Seller.
Section 5.18 Knowledge. As used in this Article V, the terms "to Seller's
---------
knowledge" and "to the knowledge of Seller" shall mean the actual knowledge of
the persons listed on Schedule 5.18.
-------------
Section 5.19 Employee Benefit Plans. Schedule 5.19 sets forth a complete
---------------------- -------------
and correct list of all employee benefit plans, as defined in Section 3(3) of
ERISA (as defined in Section 14.1) and all other compensation or employee
benefit plans, agreements or arrangements (whether or not subject to ERISA)
which Seller or any affiliate maintains or to which Seller or any affiliate
makes or has an obligation to make contributions or under which Seller or any
affiliate is liable for compensation or benefit payments with respect to
employees or former employees of the Business (the "Employee Plans"), other than
non-U.S. Employee Plans, as to which a complete and correct list will be
provided to Buyer by Seller as promptly as practicable after the date hereof and
in no event later than the thirtieth day after the date hereof. A general
description of all Employee Plans maintained by the Subsidiaries domiciled
outside of the United States or to which any such Subsidiary makes or has an
obligation to make contributions or under which any such Subsidiary is liable
for compensation or benefit payments with respect to employees or former
employees of the Business will be provided to Buyer by Seller as promptly as
practicable after the date hereof and in no event later than the thirtieth day
after the date hereof. No Employee Plan maintained in the United States is a
multiemployer plan within the meaning of Section 3(37) of ERISA or a multiple
employer plan described in Section 4063 or 4064 of ERISA. Each Employee Plan
that is intended to qualify under Section 401(a) of the Code (as defined in
Section 14.1) has been determined by the IRS (as defined in Section 14.1) to so
qualify, and nothing has since occurred which may reasonably be expected to
cause the loss of such qualification. Each Employee Plan has been maintained
and operated in compliance with its terms and with applicable Law, and nothing
has occurred or is reasonably expected to occur which will result in any
liability to Buyer, any Transferred Subsidiary or any of their respective
affiliates with respect to any Employee Plan for any period prior to the
Closing, except for liabilities to pay compensation or benefits in accordance
with the terms of the Employee Plan. Except to the extent specified on Schedule
--------
5.19, the fair market value
- ----
-19-
<PAGE>
of the assets of each funded Employee Plan maintained by an Assigning Subsidiary
or a Transferred Subsidiary will be at least equal to the present value of the
benefits accrued under the Employee Plan determined as of the Closing Date by
applying reasonable actuarial assumptions. Seller has furnished or made
available (in the case of U.S. Employee Plans) or will furnish or make available
as promptly as practicable (in the case of non-U.S. Employee Plans), to Buyer a
complete and correct copy of every document pursuant to which each Employee Plan
is established or operated and a description of each Employee Plan for which
there is no written document, and will provide as promptly as practicable a
complete and correct copy of the most recent financial statements or actuarial
valuation report for each Employee Plan maintained by an Assigning Subsidiary or
a Transferred Subsidiary. Seller shall make available to Buyer within five
business days after the date hereof a complete and correct list of all
employees, consultants and contract workers of the Business (including all
employees, consultants and contract workers of the Subsidiaries), and thereafter
shall keep Buyer informed on a reasonably current basis of any changes to the
information contained therein prior to the Closing.
Section 5.20 Books and Records of Subsidiaries. All of the minute books
---------------------------------
and stock record books of each of the Transferred Subsidiaries (or true and
complete copies thereof) have been or will be made available to Buyer for
inspection and contain materially accurate records of all meetings of, and
written consents by, the boards of directors (and any committees thereof) and
stockholders of each of the Transferred Subsidiaries since the date of its
formation (or, if later, since the date of its acquisition by Seller).
Section 5.21 Environmental. (a) The Business has at all times been
-------------
conducted, and the Purchased Assets are, in all material respects, in compliance
with all applicable Environmental Laws.
(b) Except to the extent specified on Schedule 5.21(b), neither Seller nor
----------------
any Subsidiary has engaged in or permitted any operations or activities upon, or
any use or occupancy of, any real property now or previously owned, leased or
operated by Seller or any Subsidiary in connection with the Business (the "Real
Property"), or any portion thereof, resulting in the storage, emission, release,
discharge, dumping or disposal of any Hazardous Materials on, under, in or about
the Real Property in quantities that are reportable or the remediation of which
is required, or with respect to which other affirmative remediation or response
action must be taken, under applicable Environmental Laws.
Section 5.22 Reliance. The representations and warranties of Buyer
--------
contained in this Agreement, the Buyer Closing Certificate and the Collateral
Agreements constitute the sole and exclusive representations and warranties of
Buyer to Seller in connection with this Agreement and the transactions
contemplated hereby, and Seller acknowledges
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<PAGE>
that all other representations and warranties are specifically disclaimed and
may not be relied upon or serve as a basis for a claim against Buyer.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as of the date hereof and as
of the Closing Date as follows:
Section 6.1 Existence and Authority of Buyer. Buyer is a corporation
--------------------------------
validly incorporated, existing and in good standing under the laws of the State
of Delaware. Buyer has full corporate power and authority to enter into this
Agreement and the Collateral Agreements and to perform its obligations hereunder
and thereunder. The execution, delivery and performance of this Agreement and
the Collateral Agreements by Buyer have been duly and validly authorized by all
necessary corporate proceedings on the part of Buyer. This Agreement
constitutes, and when executed and delivered, the Collateral Agreements will
constitute, the legal, valid and binding obligations of Buyer, enforceable
against it in accordance with their respective terms, subject, as to
enforceability, to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 6.2 Consents and Approvals; Absence of Violations. (a) Except to
---------------------------------------------
the extent specified on Schedule 6.2(a), no notification, authorization, consent
---------------
or approval of, or notice to, or filing or registration with, any Governmental
Authority is required to be obtained or given, and no waiting period is required
to expire, in connection with Buyer's execution and delivery of this Agreement
or the Collateral Agreements and the performance of its obligations hereunder or
thereunder except for filings with the FTC and the DOJ pursuant to the HSR Act.
(b) Neither Buyer's execution and delivery of this Agreement or of the
Collateral Agreements, nor Buyer's performance of its obligations hereunder or
thereunder, will (i) except to the extent specified on Schedule 6.2(b), conflict
---------------
with, violate any provision of, result in the breach of, constitute a default
under, give rise to the acceleration of, or entitle any party to accelerate
(whether after the filing of notice or lapse of time or both), any obligation
under, permit any person to terminate, modify or cancel the rights of Buyer
under, any provision of any mortgage, lien, agreement, license or other
obligation to which Buyer is a party, or by which Buyer is bound, or to which
Buyer's assets are subject, (ii) violate any provision of the certificate of
incorporation or by-laws of Buyer, or (iii) violate any Laws or any judgment,
order, or decree of any Governmental Authority to which Buyer is subject, except
for such conflicts, violations, breaches, defaults, accelerations, terminations,
modifications or
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<PAGE>
cancellations that would not, individually or in the aggregate, (x) materially
impair the ability of Buyer to perform its obligations hereunder or under any of
the Collateral Agreements, or (y) prevent or materially delay the consummation
of the purchase and sale of the Purchased Assets contemplated hereby.
Section 6.3 Brokers. Except to the extent specified on Schedule 6.3
------- ------------
hereto, no broker, finder, agent, representative or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent, representative
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection herewith based on any agreement or understanding
with Buyer or any action taken by Buyer.
Section 6.4 Cash Consideration. Buyer shall, at the Closing, have
------------------
available sufficient cash to enable it to deliver the Purchase Price to Seller
in accordance with Section 2.1.
Section 6.5 Reliance. The representations and warranties of Seller
--------
contained in this Agreement, the Seller Closing Certificate and the Collateral
Agreements constitute the sole and exclusive representations and warranties of
Seller to Buyer in connection with this Agreement and the transactions
contemplated hereby, and Buyer acknowledges that all other representations and
warranties are specifically disclaimed and may not be relied upon or serve as a
basis for a claim against Seller. BUYER ACKNOWLEDGES THAT SELLER DISCLAIMS ALL
WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS AGREEMENT AS TO THE
PURCHASED ASSETS OR THE TRANSFERRED SUBSIDIARY SHARES, OR ANY OF THEM, EITHER
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VII.
COVENANTS OF SELLER
-------------------
Section 7.1 Conduct of Business and Compliance. Except as otherwise
----------------------------------
agreed to by an executive officer of Buyer, which agreement shall not be
unreasonably withheld or delayed, or as otherwise specifically contemplated
hereby, Seller covenants and agrees that, between the date hereof and the
Closing, Seller shall, and shall cause the Subsidiaries to, conduct the Business
only in the ordinary course and consistently with Seller's past practice and to:
(a) hold, use, operate, preserve, protect, repair and maintain the
Purchased Assets in a commercially reasonable manner consistent with Seller's
past practice;
-22-
<PAGE>
(b) use commercially reasonable efforts to retain and preserve the
relationships with and the goodwill of, the present and potential customers,
suppliers and employees of the Business and others having business relations
with the Business;
(c) promptly advise Buyer in writing of the commencement of, and of any
threat to commence (of which Seller has knowledge), any suit, claim, action,
arbitration, legal or administrative proceeding, governmental investigation or
tax audit relating to or involving the Business, the Purchased Assets or any of
the Transferred Subsidiaries;
(d) comply in all material respects with the provisions of all Contracts,
Permits and applicable Laws;
(e) not enter into any Contract, or terminate, modify or amend in any
material respect or waive any material right under any Contract, except in the
ordinary course of the conduct of the Business consistent with Seller's past
practice;
(f) not (i) enter into any Contract (other than customer agreements on
Seller's standard forms or that do not otherwise contain provisions materially
more adverse to Seller or any Subsidiary than those customarily accepted by
Seller and the Subsidiaries in the ordinary course of the conduct of the
Business) that would constitute a Significant Contract or involve the payment or
receipt of more than $200,000 or (ii) terminate, modify or amend in any material
respect or waive any material right under any Significant Contract or any
Contract entered into with Buyer's consent pursuant to clause (i) of this
Section 7.1(f);
(g) not sell, consume, amortize, dispose of or encumber, or enter into any
agreement for the sale, disposition or encumbrance of, all or any portion of any
rights, properties or assets that, absent such sale, consumption, amortization
or disposition, would be included in the Purchased Assets as of the Closing,
except in the ordinary course of the conduct of the Business consistent with
Seller's past practice;
(h) not grant, create or permit to exist any Liens on any of the Purchased
Assets, other than Permitted Liens in the case of Tangible Personal Property,
Expensed Assets and Inventory;
(i) not (i) increase in any manner the rate of compensation of any of the
Transferred Employees (as defined in Section 9.4), (ii) make or agree to make
any payment pursuant to any Employee Plan, including any payment of any pension,
retirement allowance, severance or other employee benefit, for the benefit of
the Transferred Employees, (iii) adopt or enter into any additional Employee
Plan, or employment or consulting agreement, for the benefit of or with any of
the Transferred Employees, or (iv) terminate the employment of any Transferred
Employee prior to the
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Closing except, in any such case, as required by Law or under the terms of any
existing agreement or any existing Employee Plan;
(j) not surrender, modify, amend, waive, forfeit or otherwise adversely
affect any material right under any of the Permits or Intellectual Property;
(k) not enter into any compromise or settlement of any litigation, action,
suit, claim, proceeding or investigation that (i) would result in the imposition
of any Lien or other restriction affecting any of the Purchased Assets, (ii)
would be binding on Buyer, or (iii) otherwise relates to or affects the
Business, the Purchased Assets or the Transferred Subsidiaries;
(l) not modify or amend its accounting policies, practices and procedures
or the manner in which the books, records and financial statements of Seller
pertaining to the Business, the Purchased Assets or the Transferred Subsidiaries
are prepared and maintained;
(m) except in the ordinary course of the conduct of the Business consistent
with Seller's past practice, not (i) delay or defer the payment or discharge of
any liability or obligation that, if not paid or discharged prior to the
Closing, would constitute an Assumed Liability, (ii) accelerate or use any
special efforts to collect any portion of any account receivable or other amount
due to Seller or any Subsidiary that, if not collected prior to the Closing,
would constitute a Purchased Asset, or (iii) take or omit to take any other
action, in the case of any of the matters referred to in the foregoing clauses
(i) and (ii), with the purpose or effect of increasing the Assumed Liabilities
(or the liabilities or obligations of any Transferred Subsidiary) or reducing
the Purchased Assets to the benefit of Seller and/or any Assigning Subsidiary
and the detriment of Buyer and/or any Transferred Subsidiary;
(n) not permit any of its officers, directors, employees, affiliates,
agents or other representatives to, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with, or provide any
assistance or information to, any person or entity (other than Buyer and its
representatives) concerning any sale or other disposition of all or any
significant portion of the Business, the Purchased Assets or the Transferred
Subsidiaries; and
(o) not sell, purchase, transfer or otherwise modify or alter in any way
the beneficial or record ownership of, and not permit any of its affiliates to
sell, purchase, transfer or otherwise modify or alter the beneficial or record
ownership of, any of the Transferred Subsidiary Shares, including, without
limitation, any such sale, purchase, transfer or other modification or
alteration of beneficial or record ownership among Seller and one or more of its
affiliates in connection with any corporate restructuring or reorganization.
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The provisions of this Section 7.1 are cumulative, and Seller's obligations
under any particular subparagraph hereof shall be determined without reference
to (x) the provisions of any other subparagraph hereof or (y) the reference to
the conduct of the Business in the ordinary course contained in the preamble to
the various subparagraphs hereof.
Section 7.2 Pre-Closing Access. Prior to Closing, Seller shall give the
------------------
employees, attorneys, accountants and other representatives of Buyer, at Buyer's
reasonable request and upon reasonable notice, reasonable access during normal
business hours to the personnel, properties, books, contracts, reports and
records (including financial information) relating to the Business in order that
Buyer may have the opportunity to make such investigation as it desires of the
affairs of the Business and to furnish Buyer with information, and copies of all
documents and agreements, including but not limited to financial and operating
data and other information concerning the financial condition, results of
operations and operations of the Business, that Buyer may reasonably request,
but subject to such reasonable limitations as may be imposed by Seller. The
rights of Buyer under this Section 7.2 shall not be exercised in such a manner
as to interfere with Seller's operation of the Business. Seller shall have no
duty hereunder to provide Buyer access to any information as to which Seller
owes any third party a duty of confidentiality without such third party's prior
written consent; provided, however, that Seller shall use commercially
reasonable efforts to obtain such consents with respect to Significant Contracts
as soon as practicable after the date hereof.
Section 7.3 Update to Disclosure. From time to time prior to the Closing,
--------------------
Seller shall promptly provide Buyer with written notice of any matter which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described on any Schedule or which is necessary to
correct any information on any Schedule which has been rendered inaccurate
thereby. Notwithstanding anything to the contrary contained herein, no notice
shall have any effect for any purpose on any of the representations or
warranties of Seller contained herein.
Section 7.4 Compliance. Between the date hereof and the Closing, Seller
----------
shall not take any action that would cause the representations and warranties
made by Seller herein not to be true and correct, in all material respects, as
of the Closing without the prior written consent of Buyer.
Section 7.5 Intercompany Obligations. Notwithstanding anything to the
------------------------
contrary contained herein, at or immediately prior to the Closing, Seller, in
consultation with Buyer, shall cause all financial obligations due and payable
as of the Closing Date or attributable to any period ending on or prior to the
Closing Date in respect of Intercompany Obligations to be assigned and
transferred, cancelled and discharged or otherwise treated as of the Closing, in
each case in a manner that has no adverse tax consequences (including the loss
or reduction of net operating loss carryforwards) to
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Buyer or the Transferred Subsidiaries, with the result that immediately
following the Closing there shall be no obligations that constitute Intercompany
Obligations. For purposes of this Agreement, the term "Intercompany
Obligations" means all intercompany notes, cash advances and payables between
the Business or any of the Transferred Subsidiaries, on the one hand, and Seller
and any of its affiliates (other than any of the Transferred Subsidiaries), on
the other hand.
ARTICLE VIII.
COVENANTS OF BUYER
------------------
Section 8.1 Compliance. Between the date hereof and the Closing, Buyer
----------
shall not take any action that would cause the representations and warranties
made by Buyer herein not to be true and correct, in all material respects, as of
the Closing without the prior written consent of Seller.
ARTICLE IX.
ADDITIONAL COVENANTS
--------------------
Section 9.1 Names, Trademarks, Etc. (a) Buyer and its affiliates shall
-----------------------
revise trademarks and product literature, change signage and stationery and
otherwise discontinue use of the names "TEXAS INSTRUMENTS INCORPORATED," "TI"
and variations thereof (collectively, the "TI Trade Names") as promptly as
practicable after the Closing; provided, however, that Buyer may consume the
Inventory, stationery and similar supplies on hand as of the Closing which
contain TI Trade Names thereon; provided that, to the extent practicable, such
items are overstamped or otherwise appropriately modified to indicate that the
Business is then being conducted by Buyer. Except as expressly provided in this
Section 9.1, Buyer shall not be permitted to use the TI Trade Names in any
manner.
(b) Notwithstanding the provisions of Section 9.1(a), Buyer and the
Transferred Subsidiaries shall have a non-exclusive, royalty-free right on the
terms and subject to the conditions set forth in the form of license agreement
attached hereto as Exhibit B (the "Trademark License Agreement"), for a period
---------
of six months following the Closing Date, to use the TI Trade Names in
connection with the development, use and marketing of the Software; provided
that any such use shall be made in a manner that is limited to references to the
historical association of Seller with the Software and that indicates that the
association of Seller with the Software has been discontinued.
Section 9.2 Government Approvals. Each of Buyer and Seller shall use
--------------------
commercially reasonable efforts to obtain, and to cooperate with the other party
in obtaining, all authorizations, consents, orders and approvals of any
Governmental
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Authority that may be or become necessary in connection with the consummation of
the transactions contemplated by this Agreement. Promptly following the
execution of this Agreement, Seller and Buyer shall each file a Premerger
Notification and Report Form and all documentary attachments thereto required to
be filed with the FTC and the DOJ pursuant to the HSR Act. Buyer shall pay all
filing fees required by the HSR Act in connection with the transactions
contemplated by this Agreement. Seller and Buyer shall file any additional
information requested by the FTC or the DOJ in connection with this Agreement or
the transactions contemplated hereby as soon as practicable after receipt of any
request for such information. Neither Seller nor Buyer shall unreasonably take
or fail to take any action which reasonably could be expected to have the effect
of delaying, impairing or impeding the receipt of any authorizations, consents,
orders and approvals of any Governmental Authority (including approval under the
HSR Act) as contemplated by this Section 9.2.
Section 9.3 Satisfaction of Conditions. Each of Buyer and Seller shall
--------------------------
use commercially reasonable efforts in good faith to satisfy promptly all
conditions required hereby to be satisfied by such party and shall take such
other actions as may be necessary in order to consummate the transactions
contemplated by this Agreement.
Section 9.4 Employee Matters.
----------------
(a) Employment. All of the employees of the Business who are employed on
----------
the Closing Date other than personnel on agreed severance or retirement programs
on the Closing Date or people who have given notice of termination on or prior
to the Closing Date (including those actively at work or on holiday or vacation,
leave of absence or other approved absence from work), and individuals who have
received offers but have not reported to work, shall be offered employment with
Buyer on such date at salary and benefit levels that Buyer believes are
comparable in the aggregate to those currently enjoyed by employees of the
Business employed in the U.S., or, with respect to employees employed outside
the U.S., on terms and conditions of employment which are required by applicable
Laws, collective bargaining agreements, employment agreements, works councils or
other applicable requirements. Such persons who accept such offer on such date
shall be hereafter referred to as "Transferred Employees." Nothing contained
herein shall be construed to grant to any Transferred Employee a right to
employment by Buyer or a Transferred Subsidiary for any particular length of
time.
(i) Without limiting the foregoing, the parties recognize that
the transactions contemplated in this Agreement may be subject to the
European Transfer of Undertaking Laws and counterparts thereof or similar
laws in other countries outside the U.S. (collectively, "Automatic Transfer
Law"). As such, it is hereby acknowledged and agreed that at the time of
consummation of the transfer of the Purchased Assets located in each such
jurisdiction, the employees employed in such jurisdiction with respect to
the Business or the Purchased Assets
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automatically will become employees of Buyer or the affiliate of Buyer that
acquires the Business or the Purchased Assets in that jurisdiction and will
also be Transferred Employees.
(ii) Any liability or obligation that Seller or any Assigning
Subsidiary may incur with respect to severance benefits or termination
indemnity for Transferred Employees arising out of Buyer's failure to
provide Transferred Employees with pay, benefits and other terms and
conditions of employment identical to those provided Transferred Employees
as of the Closing or, where Buyer's provision of an identical benefit is
impracticable or impossible, Buyer's failure to provide a compensation and
benefits package of comparable value at least sufficient to provide Buyer
and Seller with a good faith defense to any allegation or claim that such
Transferred Employees might make for severance or termination indemnity,
will be an Assumed Liability.
(iii) Each of Buyer and Seller shall comply with the
requirements of the Automatic Transfer Laws and any other Laws applicable
to the Transferred Employees.
(b) Pre-Employment Drug Testing. Buyer shall waive all pre-employment drug
---------------------------
testing of all Transferred Employees in connection with its employment offers.
(c) Past Service Credit. Buyer shall cause all of its employee benefit and
-------------------
compensation plans (including pension, profit-sharing, retirement, savings,
401(k), vacation, paid time-off, employee and retiree health and other employee
or retiree financial, welfare or other benefit plans (excluding Buyer's
sabbatical policy)) covering or otherwise benefiting any of the Transferred
Employees after the Closing to count service as recognized by Seller and its
affiliates, without duplication of benefits, for purposes of eligibility to
participate, vesting and benefit accrual to the same extent such service was
recognized under the corresponding plans of Seller. Buyer shall also cause all
waiting periods under each plans that would otherwise be applicable to newly
hired employees to be waived with respect to Transferred Employees.
(d) Vacation. Buyer shall give Transferred Employees credit, for purposes
--------
of Buyer's vacation or other paid leave benefit programs (excluding Buyer's
sabbatical policy), for their accrued and unpaid vacation or paid leave balance
as of the Closing Date. Buyer's ongoing vacation or other paid leave benefit
programs shall provide for vacation accruals at least equivalent to the Seller's
and its affiliates' current U.S. policies (copies of which have been provided to
Buyer) and non-U.S. policies or programs.
(e) Welfare Plans. Except as otherwise provided herein, Seller's and its
-------------
affiliates' Employee Plans that are welfare plans shall be responsible for all
claims incurred (whether or not reported) prior to the Closing Date (and all
related liabilities
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and obligations shall be Retained Liabilities), and Buyer's welfare plans shall
be responsible for all claims incurred under Buyer's welfare plans on and after
the Closing Date.
(f) Reimbursement Accounts. Seller shall cause the transfer from its
----------------------
medical and dependent care expense reimbursement account plans or VEBA trust, as
applicable, to Buyer's medical and dependent care expense reimbursement account
plans or VEBA trust, as applicable, the respective account balances of the
Transferred Employees, and the obligations of Seller's reimbursement account
plans or VEBA trust, as applicable, to provide benefits to the Transferred
Employees with respect to the transferred account balances will be Assumed
Liabilities. Buyer's medical and dependent care expense reimbursement account
plans shall permit, effective as of the Closing Date, Transferred Employees to
continue their payroll deductions previously elected under Seller's medical and
dependent care expense reimbursement account plans. As soon as practicable
after December 31, 1997, Buyer shall reimburse Seller for benefits paid by
Seller prior to the Closing Date under the medical reimbursement account of each
Transferred Employee in excess of contributions received from such Transferred
Employee prior to the Closing Date but only to the extent that such Transferred
Employee continues to contribute to Buyer's medical reimbursement account plan
after the Closing Date.
(g) OSHA Medical Records; Other Records; Payroll Deductions. Buyer shall
-------------------------------------------------------
accept delivery from Seller of all OSHA (as defined in Section 14.1) exposure
and other records with respect to the Business, and shall maintain such records
and provide copies thereof to current and former employees engaged primarily in
the conduct of the Business in compliance with OSHA. Buyer shall obtain from
Transferred Employees, as part of its hiring process or otherwise, their
consents to the transfer of their medical and other records and all payroll
deduction authorizations from Seller to Buyer.
(h) U.S. Defined Contribution Plans. Seller shall (subject to applicable
-------------------------------
Law) permit Transferred Employees to receive a distribution or make an elective
transfer to Buyer's U.S. defined contribution plan of their total account
balances (including any plan loan to any such employee) under Seller's defined
contribution plans, and Buyer shall cause its U.S. defined contribution plan
established or designated by Buyer, which shall be qualified under Section 401
of the Code, to accept an elective transfer or rollover of such account balances
(including any plan loans to any such employees).
(i) Health Plans. Buyer shall credit toward the applicable deductibles and
------------
copayment limits under its group health plans the same amounts credited under
the Seller's and its affiliates' group health plans for each Transferred
Employee. Buyer shall cause Buyer's group health plans to waive the application
of pre-existing condition and proof of insurability provisions for all
conditions that Transferred Employees and covered dependents have as of the
Closing.
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(j) TEXINS Association. Without limiting the generality of Section 9.4(a),
------------------
Seller shall take all reasonable steps to permit the continued participation of
Transferred Employees in the Dallas and Spring Creek TEXINS Associations for a
period of two years after the Closing Date or, if shorter, for as long as
Transferred Employees are employed at the Spring Creek site (the "TEXINS
Maintenance Period"), provided that Buyer fulfills its obligations under the
next sentence. Buyer shall, during the TEXINS Maintenance Period, subsidize the
continued participation of such Transferred Employees at the same per employee
amount of subsidy as is in effect at the date hereof and as shall be changed by
Seller from time to time thereafter (provided such change applies in a non-
discriminatory fashion to all participants in such TEXINS Association), to the
extent that Seller meets its obligations under the preceding sentence and to the
extent that such Transferred Employees continue to be participants in the TEXINS
Association. Nothing herein shall prevent Seller from discontinuing any TEXINS
Association at any location at any time, in which case participation of the
Transferred Employees described in this paragraph shall cease.
(k) Wage Reporting. Buyer shall, in accordance with and to the extent
--------------
permitted by U.S. Revenue Procedure 84-77, 1984-2 C.B. 753, assume all
responsibility for preparing and filing Form W-2, Form W-3, Form 941, Form W-4
and Form W-5. Seller and Buyer shall comply, and cause their respective
subsidiaries to comply, with the procedures described in Section 5 of U.S.
Revenue Procedure 84-77. The obligations of Buyer under this Section 9.4(k)
shall be Assumed Liabilities.
(l) Non-U.S. Plans. Buyer and Seller shall cooperate and take all actions
--------------
reasonably necessary to effectuate the transfer, where required or permitted by
Law, from Seller or one of the Assigning Subsidiaries (or from an Employee Plan
maintained by Seller or one of the Assigning Subsidiaries or from a trust
established pursuant to such Employee Plan) to Buyer or one of its subsidiaries
(or to a plan or trust maintained by Buyer or one of its subsidiaries) of the
assets and liabilities attributable to Transferred Employees under any Employee
Plan other than the TI Employees International Universal Profit Sharing Plan
maintained by Seller or any of the Assigning Subsidiaries primarily for the
benefit of employees employed outside the United States. Any liabilities
transferred pursuant to the preceding sentence shall be Assumed Liabilities.
(m) Unvested Stock Options. Schedule 9.4(m) provides for the disposition
---------------------- ---------------
of unvested stock options held by certain Transferred Employees.
(n) Pension and Retiree Medical Benefits. On or before the Closing Date,
------------------------------------
Seller shall take all action necessary to cause each Transferred Employee who is
a participant in the TI Employee Pension Plan as of the Closing Date and who has
attained age 50 and has completed at least 15 years of service to continue to
earn credit for such number of additional years (not to exceed five) of age and
service during such
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employee's period of employment with Buyer or any of its affiliates for all
purposes of determining eligibility for early retirement benefits under the TI
Employees Pension Plan and retiree medical benefits under Seller's retiree
medical plan.
Section 9.5 Certain Tax Matters. (a) Seller and Buyer shall each (i)
-------------------
provide the other with such assistance as may reasonably be requested by either
of them in connection with the preparation of any Tax Return, audit or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) retain and provide the other with any
records or other information that may be relevant to such Tax Return, audit or
examination, proceeding or determination, and (iii) provide the other with any
final determination of any such audit or examination, proceeding or
determination that affects any amount required to be shown on any Tax Return of
the other for any period. Without limiting the generality of the foregoing,
Buyer and Seller shall retain until the applicable statutes of limitations
(including any extensions) have expired copies of all records or information
that may be relevant to returns filed by the other party for all tax periods or
portions thereof ending before or including the Closing Date.
(b) Buyer shall not, and shall not cause or permit any of the Transferred
Subsidiaries to (i) take any action on the Closing Date, other than in the
ordinary course of business or as contemplated by this Agreement, that would
result in any indemnification obligation of Seller under this Agreement or (ii)
without the consent of Seller, except as otherwise required by applicable Law,
or unless Seller is fully indemnified and held harmless (to Seller's
satisfaction) from any resulting liability, make or change any Tax election,
amend any Tax Return or take any position on any Tax Return, take any action,
omit to take any action or enter into any transaction that results in any
increased Tax liability or reduction of any Tax asset of Seller with respect to
any Tax period, or portion thereof, ending on or before December 31, 1996.
Buyer shall make an election under Section 338 of the Code and the regulations
thereunder with respect to Buyer's acquisition of Transferred Subsidiary Shares
pursuant to this Agreement. Buyer shall make the determination of the
allocation of foreign taxes for the 1997 tax year between Buyer and Seller in
accordance with applicable IRS regulations.
(c) In the event Buyer receives a refund of any amount of Tax paid by any
Transferred Subsidiary as shown on a Tax Return of such Transferred Subsidiary
filed with respect to any Tax period, or portion thereof, ended on or before
December 31, 1996, Buyer shall promptly pay Seller the amount of such Tax
refund.
Section 9.6 Non-Solicitation or Hire of Employees and Contract Workers.
----------------------------------------------------------
Except as otherwise provided in this Agreement, from and after the date hereof
until 25 months after the Closing, neither Seller nor Buyer shall solicit for
employment or hire, employ or otherwise retain (whether as an employee, officer,
agent, consultant,
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advisor, contractor or in any capacity whatsoever) any employee or contract
worker of the other party, without the prior written consent of such other
party; provided, however, that nothing contained herein shall prevent Seller or
Buyer from engaging in discussions regarding the hiring, employment or other
retention, or hiring, employing or otherwise retaining, any such employee or
contract worker if such discussions or hiring, employment or other retention
shall be the result of the response by any such employee or contract worker to a
written employment advertisement placed in a publication of general circulation
or transmitted over the Internet or a general solicitation conducted by
executive search firms, employment agencies or other general employment
services, not directed specifically at employees or contract workers of Buyer or
Seller, respectively.
Section 9.7 Labor. Buyer and Seller acknowledge that, following
-----
completion of the transactions contemplated hereby, employees of Buyer or its
subsidiaries ("Buyer's Employees") will be working in close proximity to
employees of Seller or its subsidiaries ("Seller's Employees"). To the extent
practicable, Buyer's Employees and Seller's Employees shall not be integrated or
commingled, and in any event shall be kept separate for purposes of workplace
policies and practices, employee communications and all other labor and human
resource matters. Buyer and Seller shall take and cause their respective
subsidiaries to take all steps reasonably necessary or appropriate to comply
with the requests of the other party to accomplish and maintain the complete
separation, to the extent commercially practicable, of the workforces of Buyer
or its subsidiaries, on the one hand, and of Seller or its subsidiaries, on the
other hand. In the event that any of Buyer's Employees, Seller's Employees or
any labor union or organization representing or seeking to represent such
employees, engages or threatens to engage in any strikes, work slowdowns, work
stoppages or other interferences with work, or any picketing, demonstration,
distribution, solicitation or organizing activities of any nature at any
locations where Buyer or its subsidiaries and Seller or its subsidiaries share
common facilities or are located in close proximity with each other, Buyer and
its subsidiaries or Seller and its subsidiaries, as the case may be, shall take
any and all actions reasonably requested by the other party to separate, to the
extent commercially practicable, the employees or individuals engaging in such
activities, or the employees or individuals to which such activities are
directed by any labor union or organization, from access to the employees of the
other party and its subsidiaries and to facilities shared with or occupied by
employees of the other party and its subsidiaries. Such actions shall include
designating or constructing entrances and exits, parking facilities and other
facilities which are separate and apart from facilities used by the employees of
the other party and its subsidiaries and preventing the use by employees of such
party and its subsidiaries of facilities used by employees of the other party
and its subsidiaries.
Section 9.8 Severance Pay and Benefits. Subject to the conditions set
--------------------------
forth on Schedule 9.8, for a period of 12 months following Closing, Buyer shall
------------
provide, and cause its subsidiaries to provide, severance pay and benefits at a
level equal to Seller's severance pay and benefits practices described on
Schedule 9.8 for any U.S. Transferred
- ------------
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Employee who terminates for reasons other than voluntary resignation or
termination for cause due to substantive violations of Buyer's established rules
of work procedures.
Section 9.9 Confidentiality. (a) Unless and until the transactions
---------------
contemplated hereby have been consummated, the Nondisclosure Agreement dated
March 3, 1997 between Buyer and Seller (the "Confidentiality Agreement") shall
remain in full force and effect.
(b) From and after the date hereof (with respect to information referred to
in clause (i) below) and from and after the Closing Date (with respect to
information referred to in clause (ii) below), Seller shall, and shall cause its
officers, directors, employees, affiliates, agents and other representatives to,
hold in confidence (and not release or disclose to any person or entity other
than Buyer and its authorized representatives) and not use for any purpose prior
to the first anniversary of the Closing Date any (i) proprietary or other
information regarding Buyer or any of its affiliates disclosed to Seller or any
of the other foregoing persons or entities in connection with the negotiation or
preparation of this Agreement or otherwise in connection with the transactions
contemplated hereby or (ii) proprietary or other information relating to the
Purchased Assets or the Business that remains after the Closing in the
possession of Seller or any of the other foregoing persons or entities.
Notwithstanding the foregoing, the confidentiality obligations of this Section
9.9(b) shall not apply to information (x) which Seller is compelled to disclose
by judicial or administrative process, or, in the opinion of Seller's counsel,
by other mandatory requirements of Law or (y) which can be shown to have been
generally available to the public otherwise than as a result of a breach of this
Section 9.9(b).
Section 9.10 Limitation on Competition. (a) As a material inducement to
-------------------------
Buyer's entry into this Agreement, and as further consideration for the
covenants of Buyer contained herein, during the period beginning on the Closing
Date and ending on the third anniversary of the Closing Date, Seller and its
affiliates shall not, directly or indirectly, engage or invest in, organize or
participate in the organization of any entity if such entity is engaged in or to
be engaged in, or provide financial, technical or other assistance to, any other
person or entity for the purpose of facilitating the engagement or investment by
such other person or entity in, competition with Buyer anywhere in the world
(other than passive investments in the form of direct or indirect ownership of
less than 10% of the equity interests in any entity engaged in competition with
Buyer). For purposes of this Section 9.10(a), "competition with Buyer" means
the business, conduct or activity of designing, developing, marketing, selling,
delivering, licensing, supporting, maintaining or otherwise providing, or of
assisting or participating in the design, development, marketing, sale,
delivery, licensing, support, maintenance or provision of, applications
development software (including any such software that is similar in function to
any of the Software), or providing any related consulting services (including
any such consulting services that are similar to those performed in connection
with the conduct of
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the Business) in connection with the conduct of the Business as it is currently
conducted, with reasonable extensions thereof. For the avoidance of doubt,
"competition with Buyer" shall not mean the business, conduct or activity of
designing, developing, marketing, selling, delivering, licensing, supporting,
maintaining or otherwise providing, or of assisting or participating in the
design, development, marketing, sale, delivery, licensing, support, maintenance
or provision of, applications development software for semiconductor, voice
recognition and calculator products of Seller or its affiliates, or the
electronic systems which incorporate such products, and any related consulting
activity.
(b) Seller acknowledges that any breach of the covenant set forth in
paragraph (a) of this Section 9.10 will result in irreparable damage to Buyer
for which Buyer will have not adequate remedy at law and, accordingly, that
Buyer shall be entitled to an injunction restraining Seller from such breach;
provided, however, that resort to such injunctive relief shall not be exclusive
of any other remedy at law, in equity or otherwise, and shall not preclude the
recovery by Buyer of monetary damages or other relief in addition thereto. In
the event that the covenant set forth in paragraph (a) of this Section 9.10
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too long a period of time or to too large a
geographic area or by reason of being too extensive in any other respect or for
any other reason, such covenant shall be interpreted to extend only for the
maximum period of time and/or geographic area as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court.
Section 9.11 Audited Financial Statements. (a) Seller shall cause Ernst &
----------------------------
Young LLP to prepare and provide Buyer no later than 60 days after the Closing,
at Buyer's expense, such financial statements for the Business as may be
required by Rule 3-05 or Article 11 of Regulation S-X promulgated under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, in connection with the filing by Buyer of a Current Report on Form 8-K
relating to the transactions contemplated hereby.
(b) From and after the date hereof, Seller shall provide Buyer and its
accountants and other representatives reasonable access during normal business
hours to the facilities, personnel and accounting and other records of Seller,
and shall otherwise assist and cooperate with Buyer, to the extent reasonably
necessary to permit Buyer and its accountants to prepare, at the expense of
Buyer, an unaudited balance sheet for the Business as of the Closing Date.
Section 9.12 Insurance. (a) From and after the Closing Date, Seller and
---------
its subsidiaries shall use commercially reasonable efforts to retain the right
to make claims and receive recoveries, for the benefit of Buyer, under any
insurance policies maintained at any time prior to the Closing by Seller or its
subsidiaries (the "Seller Insurance
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Policies"), covering any loss, liability (other than a Retained Liability) or
damage relating to the Purchased Assets or the Business and relating to or
arising out of occurrences prior to or at the Closing (a "Claim"). Seller shall
use reasonable efforts so that Buyer shall have the right, power and authority,
subject to any required consent of the carriers of the Seller Insurance
Policies, in the name of Seller, to make directly any Claims under the Seller
Insurance Policies and to receive directly recoveries thereunder. Buyer shall
notify Seller, promptly upon making any such Claim, of the basis and amount of
such Claim.
(b) Buyer shall bear costs relating to any self-retention or deductible and
any gaps in or limits on coverage applicable to a Claim asserted at any time
with respect to the applicable Seller Insurance Policy, after taking into
account the effect of any prior claim payments under the terms of such Seller
Insurance Policy, whether or not the applicable Seller Insurance Policy solely
covers claims of Buyer or covers claims of Buyer, on the one hand, and Seller,
on the other hand. In the event that any legal action, arbitration, negotiation
or other proceedings are required for coverage to be asserted against any
insurer or a Claim to be perfected, (i) Buyer shall, to the extent possible, do
so at its own expense or (ii) if Buyer is not permitted to assert coverage or
perfect a Claim, Seller shall do so, and, in either event, Buyer shall reimburse
Seller for any reasonable costs and expenses that Seller may incur because of
such action.
(c) Seller and its subsidiaries shall cooperate fully with Buyer in
connection with the submission of Claims on behalf of Buyer under the Seller
Insurance Policies and pay promptly over to Buyer any and all amounts received
by Seller or its subsidiaries under the Seller Insurance Policies with respect
to Claims.
(d) Seller shall retain custody of the Seller Insurance Policies and any
and all service contracts, claim settlements and all other insurance records
relating thereto, and Buyer shall have access to and the right to make copies of
all such documents and records upon reasonable request.
(e) Notwithstanding any provision of this Agreement, Seller shall not be
required to comply with this Section 9.12 or any portion thereof if so doing
would (i) be materially adverse to Seller or its subsidiaries or (ii) require
Seller or its subsidiaries to incur any significant costs not reimbursable by
Buyer.
Section 9.13 Novation of Government Contracts. (a) As soon as practicable
--------------------------------
following the date hereof, Seller shall prepare (with Buyer's assistance), in
accordance with Federal Acquisition Regulations part 42, (P) 42.12 and any
applicable agency regulations or policies, a written request meeting the
requirements of the Federal Acquisition Regulations part 42, as reasonably
interpreted by the Responsible Contracting Officer (as such term is defined in
Federal Acquisition Regulations Part 42, (P) 42.1202(a)), which shall be
submitted by Seller to each Responsible Contracting
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Officer, for the United States Government (i) to recognize Buyer as Seller's
successor in interest to all the Purchased Assets constituting Government
Contracts (as defined in Section 14.1); and (ii) to enter into a novation
agreement (a "Novation Agreement") in form and substance reasonably satisfactory
to Buyer and Seller and their respective counsel, pursuant to which, subject to
the requirements of the Federal Acquisition Regulations Part 42, all of Seller's
right, title and interest in and to, and all of Seller's obligations and
liabilities under, each such Government Contract shall be validly conveyed,
transferred and assigned and novated to Buyer by all parties thereto (in each
case on the terms and subject to the conditions set forth therein). Seller
shall provide to Buyer promptly any information regarding Seller required in
connection with such request. Seller and Buyer shall each use all reasonable
efforts to obtain all consents, approvals and waivers required for the purpose
of processing, entering into and completing the Novation Agreements with regard
to any of the Government Contracts, including responding to any requests for
information by the United States Government with regard to such Novation
Agreements.
(b) In connection with obtaining the consents contemplated in Section
9.13(a), Seller shall not consent to any modification of any Government Contract
included in the Purchased Assets that would adversely affect in any material
respect the rights or obligations under such Government Contract to be
transferred to Buyer without the prior written consent of Buyer.
Section 9.14 Notice. From the date hereof through the Closing Date,
------
Seller shall notify Buyer, and Buyer shall notify Seller, promptly (and in any
event within five business days of obtaining knowledge thereof) of any of the
following:
(a) any material breach of any representation, warranty or covenant of the
notifying party contained in this Agreement, whether or not any requirement for
notice or lapse of time or other condition precedent has been satisfied, which
is then continuing, specifying the details thereof and the action that the
notifying party has taken or proposes to take with respect thereto;
(b) any pending or threatened action, suit or proceeding challenging this
Agreement or any of the transactions contemplated hereby;
(c) any notice or other communication from any third party, of which Seller
or Buyer, as the case may be, has knowledge, alleging that the consent of such
third party (other than a consent the necessity of which is disclosed on any
Schedule), is or may be required in connection with the transactions
contemplated hereby;
(d) any other development that would prevent or raise a substantial doubt
regarding the satisfaction of any condition set forth in Article X, if Seller is
the notifying Party, or Article XI if Buyer is the notifying party; and
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(e) any notice or other communication from any Governmental Authority
regarding the transactions contemplated hereby.
Section 9.15 Transition Matters. (a) From and after the Closing, Seller
------------------
shall use its commercially reasonable efforts to assist in the transfer to Buyer
of the goodwill and reputation associated with the Business, and of Seller's
relationships with customers and suppliers.
(b) From and after the Closing, Seller shall (i) use commercially
reasonable efforts to cause all payments, correspondence and other
communications in respect of or relating to the Business, the Purchased Assets
or the Software to be delivered or directed to Buyer promptly and (ii) promptly
forward or remit to Buyer, in the form received, such payments and
correspondence thereafter received by Seller.
ARTICLE X.
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
The obligations of Buyer to consummate the transactions contemplated hereby
to be consummated at the Closing are subject to the satisfaction at or prior to
the Closing of the following conditions, but compliance with any such conditions
may be waived by Buyer.
Section 10.1 Truth of Representations and Warranties; Compliance with
--------------------------------------------------------
Covenants. The representations and warranties of Seller contained in this
- ---------
Agreement, which representations and warranties shall be deemed for purposes of
this Section 10.1 not to include any qualification or limitation with respect to
materiality (whether by reference to "Material Adverse Effect" or otherwise),
shall be true and correct at and as of the Closing (except where the failure
thereof to be true and correct, in the aggregate, would not have a Material
Adverse Effect), with the same effect as though such representations and
warranties were made at and as of the Closing, and Seller shall have performed
and complied with, in all material respects, all the covenants and agreements
required by this Agreement to be performed or complied with by Seller at or
prior to the Closing and Buyer shall have received a certificate signed by a
duly authorized employee of Seller certifying to the matters set forth in this
Section 10.1.
Section 10.2 No Adverse Proceedings. No suit, action, claim or
----------------------
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or other Governmental Authority shall have been
rendered against, Buyer or Seller or any of the Subsidiaries and no Law shall
have been enacted which renders unlawful, materially restrains or prohibits, as
of the Closing Date, the consummation of the transactions contemplated hereby in
accordance with the terms of this Agreement or
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which could reasonably be expected to limit Buyer's ownership or control of the
Purchased Assets or the Transferred Subsidiary Shares.
Section 10.3 HSR Act. All applicable waiting periods under the HSR Act
-------
shall have expired or been terminated.
Section 10.4 Third-Party Consents. Seller shall have obtained and shall
--------------------
have delivered to Buyer all third-party consents to the assignment of the
Contracts listed on Schedule 10.4.
-------------
ARTICLE XI.
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
The obligations of Seller to consummate the transactions contemplated
hereby to be consummated at the Closing are subject to the satisfaction at or
prior to the Closing of each of the following conditions, but compliance with
any such conditions may be waived by Seller:
Section 11.1 Truth of Representations and Warranties; Compliance with
--------------------------------------------------------
Covenants. The representations and warranties of Buyer contained in this
- ---------
Agreement, which representations and warranties shall be deemed for purposes of
this Section 11.1 not to include any qualification or limitation with respect to
materiality (whether by reference to a material adverse effect on the ability of
Buyer to consummate the transactions contemplated hereby or otherwise), shall be
true and correct at and as of the Closing (except where the failure thereof to
be true and correct, in the aggregate, would not have a material adverse effect
on the ability of Buyer to consummate the transactions contemplated hereby),
with the same effect as though such representations and warranties were made at
and as of the Closing, and Buyer shall have performed and complied with, in all
material respects, all the covenants and agreements required by this Agreement
to be performed or complied with by Buyer at or prior to the Closing and Seller
shall have received a certificate of the President or any Vice President of
Buyer certifying to the matters set forth in this Section 11.1.
Section 11.2 No Adverse Proceedings. No suit, action, claim or
----------------------
governmental proceeding shall be pending against, and no order, decree or
judgment of any court, agency or other Governmental Authority shall have been
rendered against, Buyer or Seller and no Law shall have been enacted which
renders unlawful, materially restrains or prohibits, as of the Closing Date, the
consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement.
Section 11.3 HSR Act. All applicable waiting periods under the HSR Act
-------
shall have expired or been terminated.
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ARTICLE XII.
TERMINATION PRIOR TO CLOSING
----------------------------
Section 12.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Closing by:
(a) mutual written consent of Buyer and Seller;
(b) notice of either Buyer or Seller in writing to the other;
(i) if a court of competent jurisdiction or Governmental Authority
shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties hereto shall use
their respective best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, and such order, decree, ruling or other action shall
have become final and nonappealable; or
(ii) if the Closing shall not have occurred on or before June 30,
1997; provided, however, that the right to terminate this Agreement shall
not be available to any party whose breach of this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before
such date; o r
(iii) if a material default or breach shall be made by the other with
respect to the due and timely performance of any of its covenants or
agreements contained herein, or in any of its representations or warranties
contained herein, if such default or breach has not been cured or waived
within 30 days after written notice to the other specifying, in reasonable
detail, such claimed material default or breach and demanding its cure or
satisfaction.
Section 12.2 Procedure and Effect of Termination. In the event of
-----------------------------------
termination and abandonment pursuant to Section 12.1 of the transactions
contemplated hereby, written notice thereof shall forthwith be given to the
other party to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned without further action by
either of the parties hereto. If this Agreement is terminated as provided
herein:
(a) upon request therefor, each party shall redeliver all documents, work
papers and other materials of the other party, and all copies of any such
materials, relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same; and
(b) neither party hereto shall have any liability or further obligation to
the other party to this Agreement resulting from such termination except (i)
that the
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provisions of Section 9.9 (Confidentiality), this Section 12.2, the proviso of
Section 12.1(b)(ii) and Section 14.9 (Expenses) shall remain in full force and
effect and (ii) no party waives any claim or right against a breaching party to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or agreements set forth
herein.
ARTICLE XIII.
INDEMNIFICATION
---------------
Section 13.1 Indemnification by Seller. Seller shall indemnify and hold
-------------------------
harmless Buyer, its subsidiaries and affiliates, and each of their respective
officers, directors, shareholders, employees and agents (collectively, the
"Indemnified Buyer Parties") from and against any and all claims, actions,
suits, demands, assessments, judgments, losses, liabilities, obligations,
damages, costs and expenses (including investigation, defense and prosecution
costs and reasonable fees and expenses of attorneys) (collectively, "Claims and
Damages") resulting or arising from, relating to, based upon or incurred by any
Indemnified Buyer Party in connection with:
(a) any failure of Seller or any Assigning Subsidiary to pay, perform or
otherwise discharge any of the Retained Liabilities;
(b) Any breach of any representation or warranty of Seller contained herein
or in the Seller Closing Certificate, provided that, for purposes of determining
whether any such breach exists for purposes of this Section 13.1, such
representations and warranties shall be deemed not to include or be qualified by
any (i) qualification or limitation with respect to materiality, whether by
reference to "Material Adverse Effect" or otherwise, or (ii) exception for
matters specified on Schedule 5.12; and
-------------
(c) Any breach in any material respect of any covenant or agreement of
Seller contained herein.
Section 13.1A Additional Indemnification by Seller. Seller shall
------------------------------------
indemnify and hold harmless the Indemnified Buyer Parties from and against all
Claims and Damages resulting or arising from, relating to, based upon or
incurred by any Indemnified Buyer Party in connection with any claim that the
marketing, selling, delivering, licensing, supporting, maintaining or other
provision of the Software, directly or indirectly, by Buyer to its customers or
the use, sale or offer thereof constitutes an infringement of either of the two
patents set forth on Schedule 13.1A (and any other patents granted prior to the
--------------
Closing Date based on any reissues, reexaminations, continuations-in-part,
divisions or any and all foreign counterparts of either such patents); provided
that the foregoing indemnification shall not apply to (a) claims of induced
infringement arising out of acts of Buyer following the Closing, (b) claims of
infringement solely attributable
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to any modification of the Software after the Closing, or (c) claims of
infringement solely attributable to the sale or license by any Indemnified Buyer
Party of the Software in conjunction with the sale or license by any Indemnified
Buyer Party of other products.
Section 13.2 Indemnification by Buyer. Buyer shall indemnify and hold
------------------------
harmless Seller, its subsidiaries and affiliates, and each of their respective
officers, directors, shareholders, employees and agents (collectively, the
"Indemnified Seller Parties") from and against any and all Claims and Damages
resulting or arising from, based upon or incurred by any Indemnified Seller
Party in connection with:
(a) any failure of Buyer to pay, perform or otherwise discharge, on the
terms and subject to the conditions set forth herein, any of the Assumed
Liabilities (except to the extent that any of the Buyer Indemnified Parties
would be entitled to indemnification under Section 13.1(b) with respect to any
fact, circumstance or event relating to any such Assumed Liability);
(b) any breach of any representation or warranty of Buyer or any assignee
or designee of Buyer contained herein or in the Buyer Closing Certificate
(provided that, for purposes of determining whether any such breach exists for
purposes of this Section 13.2, such representations and warranties shall be
deemed not to include any qualification or limitation with respect to
materiality, whether by reference to "Material Adverse Effect" or otherwise);
(c) any breach in any material respect of any covenant or agreement of
Buyer set forth herein; and
(d) Buyer's conduct of the Business from and after the Closing.
Section 13.3 Limitations on Indemnification. (a) Notwithstanding anything
------------------------------
to the contrary contained herein, no Indemnified Party (as defined in Section
13.4) shall be entitled to make a claim against an Indemnifying Party (as
defined in Section 13.4) under Section 13.1(b) (except for a claim in respect of
a breach of any representation or warranty set forth in the second and third
sentences of Section 5.6(a), Section 5.12 or Section 5.17) or Section 13.2(b)
(except for a claim in respect of a breach of any representation or warranty set
forth in Section 6.3), as applicable, unless and until the aggregate amount of
indemnifiable losses incurred under Section 13.1(b) or 13.2(b), as applicable,
exceeds $1,000,000 (the "Threshold"), in which event the Indemnified Party shall
be entitled to make a claim against the Indemnifying Party with respect to the
full amount of such indemnifiable losses, including the portion thereof that
does not exceed the Threshold.
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(b) Neither Indemnifying Party shall be liable for indemnification payments
under this Article XIII to the extent that such aggregate indemnification
payments by such Indemnifying Party exceed the Purchase Price.
(c) The representations and warranties of Seller and of Buyer contained in
this Agreement shall survive the Closing until the expiration of one year from
the Closing Date; provided, however, that the representations and warranties set
forth in the last two sentences of each of Sections 5.1 and 6.1 shall survive
indefinitely, the representations and warranties set forth in Section 5.6 shall
survive until the expiration of five years from the Closing Date and the
representations and warranties set forth in Sections 5.12 and 5.17 shall survive
until the expiration of the statute of limitations applicable to the matters
covered thereby, giving effect to any mitigation, waiver or extension thereof.
The rights of any Indemnified Party to indemnification arising out of any claim
under Section 13.1(b) or 13.2(b), as applicable, that is asserted by notice to
the applicable Indemnifying Party given as herein provided prior to the
expiration of the applicable survival period (if any) shall survive
indefinitely. No claim for indemnification under Section 13.1A may be asserted
after the fifth anniversary of the Closing Date; provided, however, that the
rights of any Indemnified Buyer Party arising out of any such claim that is
asserted prior to the fifth anniversary of the Closing Date shall survive
indefinitely.
Section 13.4 Notice and Defense Procedures. (a) Whenever any claim shall
-----------------------------
arise or any proceeding shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Article XIII, such person (the
"Indemnified Party") shall promptly notify (in no event later than ten business
days after receipt of such notice) the person against whom such indemnity may be
sought (the "Indemnifying Party") thereof in writing, including, when known, the
facts constituting the basis for such claim or proceeding and the amount or an
estimate of the amount of the indemnified liability arising therefrom (such
notification being the "Claims Notice"). To the extent that any Claims Notice
relates to the assertion of a claim, the commencement of a suit, action or
proceeding or the imposition of a penalty or assessment by a third party that is
not an Indemnified Party (a "Third-Party Claim"), the Indemnified Party shall
include with the Claims Notice any written demand, complaint, petition, summons
or similar document relating thereto that is then in the Indemnified Party's
possession. The failure by an Indemnified Party to timely furnish to the
Indemnifying Party any notice document required to be furnished under this
Section 13.4(a) shall not relieve the Indemnifying Party from any liability or
obligation hereunder, except to the extent that such failure materially
prejudices the ability of the Indemnifying Party to defend such matter.
(b) In connection with any Third-Party Claim, the Indemnifying Party at its
sole cost and expense may, upon written notice to the Indemnified Party, elect
to assume the defense thereof. If the Indemnifying Party has so elected to
assume the defense of any such Third-Party Claim, such defense shall be
conducted by counsel chosen by the
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Indemnifying Party, provided that such counsel is reasonably satisfactory to the
Indemnified Party. The Indemnified Party shall be entitled to participate in
(but not control) the defense of any such Third-Party Claim, with its counsel
and at its own expense. If the Indemnifying Party has elected to assume the
defense of any Third-Party Claim as provided herein, the Indemnified Party shall
not be entitled to indemnification as to fees and expenses of any counsel
retained by the Indemnified Party after the time at which the Indemnifying Party
has so elected. The Indemnified Party shall not settle or compromise any Third-
Party Claim without the prior written consent of the Indemnifying Party, which
shall not be unreasonably withheld. In the event that the Indemnifying Party
shall assume the defense of any Third-Party Claim, it shall not compromise or
settle such Third-Party Claim unless (i) the Indemnified Party gives its prior
written consent, which shall not be unreasonably withheld, or (ii) the terms of
the compromise or settlement of such Third-Party Claim provide that the
Indemnified Party shall have no responsibility for the discharge of any
settlement amount and impose no other obligations or duties on the Indemnified
Party, and the compromise or settlement discharges all rights against the
Indemnified Party with respect to such Third-Party Claim. If a firm offer is
made to settle a pending or threatened Third-Party Claim for which the
Indemnified Party may be entitled to indemnification hereunder and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party shall give written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within ten calendar days
after its receipt of such notice, the Indemnifying Party may continue to contest
or defend such Third-Party Claim and, in such event, the maximum liability of
the Indemnifying Party as to such Third-Party Claim shall not exceed the amount
of such settlement offer. The Indemnified Party shall cooperate with the
defense of any such Third-Party Claim and shall provide such personnel,
technical support and access to information as may be reasonably requested by
the Indemnifying Party in connection with such defense.
(c) Any claim for indemnification hereunder that is not a Third-Party Claim
shall be asserted by the Indemnified Party by promptly delivering notice thereof
to the Indemnifying Party. If the Indemnifying Party does not respond to such
notice within 45 days after receipt thereof, it shall have no further right to
contest the validity of such claim.
(d) If, pursuant to Section 13.1A, Seller is required to indemnify and hold
harmless Buyer against any Third-Party Claim and if, in the good faith opinion
of Seller, the grant of a cross-license(s) under the U.S. Patent Application set
forth on Schedule 13.4(d) and the resulting patent, if any (and any other
----------------
patents granted prior to the Closing Date based on any reissues, reexaminations,
continuations-in-part, divisions or any and all foreign counterparts of such
application and/or patent), would be reasonably useful to resolve such claim(s),
Buyer agrees that upon Seller's request, Buyer will grant to claimant(s) such a
cross-license(s) on terms that are commercially reasonable under the
circumstances. Without limiting the generality of Section 13.4(b), it is the
intention
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of Buyer and Seller that should Seller elect to assume the defense of any Third-
Party Claim pursuant to Seller's indemnification obligation under Section
13.1A., Seller shall have the ability to assert against such claimant (i) any
defense available to the Indemnified Buyer Parties or (ii) any affirmative
claims assertable by the Indemnified Buyer Parties.
Section 13.5 Insurance. The amount of any liability for which an
---------
Indemnified Party shall be entitled to indemnification shall take into
consideration the amount of insurance or other third-party proceeds, if any,
actually received by the Indemnified Party in respect of such liability, and
such amount of insurance proceeds or other third-party proceeds shall not be
included in any calculation of the limitations on indemnification as set forth
in Sections 13.3(a) and 13.3(b). Upon making any indemnity payment, the
Indemnifying Party shall, to the extent of such indemnity payment, be subrogated
to all rights of the Indemnified Party against any third party in respect of the
loss to which the indemnity payment relates. An insurer who would otherwise be
obligated to pay any claim shall not be relieved of the responsibility with
respect thereto or, solely by virtue of the indemnification provision hereof,
have any subrogation rights with respect thereto. If any Indemnified Party
recovers an amount from a third party in respect of an indemnifiable loss for
which indemnification is provided in this Agreement after the full amount of
such indemnifiable loss has been paid by an Indemnifying Party or after an
Indemnifying Party has made a partial payment of such indemnifiable loss and the
amount received from the third party exceeds the remaining unpaid balance of
such indemnifiable loss, then the Indemnified Party shall promptly remit to the
Indemnifying Party the excess (if any) of (A) the sum of the amount theretofore
paid by the Indemnifying Party in respect of such indemnifiable loss plus the
amount received from the third party in respect thereof, less (B) the full
amount of such indemnifiable loss or other liability. Without limiting the
generality or effect of any other provision hereof, the Indemnified Party and
the Indemnifying Party shall duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described subrogation and
subordination rights.
Section 13.6 Adjustment to Purchase Price. Any indemnity payment
----------------------------
hereunder shall be treated as an adjustment to the Purchase Price.
Section 13.7 Exclusive Remedy. Except as provided in Section 9.10 and
----------------
with respect to the covenants in Sections 1.1, 1.3, 4.2, 4.3, 9.6, 9.9 and 9.11,
to the fullest extent permitted by law, the sole and exclusive remedy of Buyer
and Seller after the Closing with respect to any claim or cause of action
asserted by Buyer or Seller relating to or arising from breaches of the
representations, warranties or covenants of the other party contained in this
Agreement shall be limited to the rights of Buyer and Seller under, and shall be
subject to the terms and conditions of, this Article XIII.
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ARTICLE XIV.
MISCELLANEOUS
-------------
Section 14.1 Certain Definitions. For purposes of this Agreement, the
-------------------
term:
"Assigning Subsidiaries" shall mean the subsidiaries of Seller listed on
Schedule 14.1(a) hereto.
- ----------------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"DOJ" shall mean the Antitrust Division of the United States Department of
Justice.
"Environmental Laws" shall mean any applicable Federal, state, local or
foreign law or permit, each as in effect on or prior to the Closing Date,
relating to the environment or to any substance, pollutant, contaminant,
chemical, waste or material regulated as radioactive, hazardous or toxic.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean United States generally accepted accounting principles.
"Government Contract" shall mean (i) any Contract relating to the Business
between Seller or any of the Subsidiaries and any Governmental Authority and
(ii) any Contract relating to the Business entered into by Seller or any of the
Subsidiaries as subcontractor (at any tier) in connection with a Contract
between another person and any Governmental Authority.
"Governmental Authority" shall mean any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality.
"Hazardous Materials" shall mean petroleum and petroleum products and any
other substance that, as of the date hereof or the Closing Date, as applicable,
is identified or defined under any Environmental Law or law that relates to the
protection of human health as a hazardous, toxic or radioactive substance, waste
or material.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRS" shall mean the Internal Revenue Service.
-45-
<PAGE>
"Laws" shall mean the provisions of any law, statute, rule, ordinance or
regulation.
"Licensed Software" shall mean the Software and documentation listed on
Schedule 14.1(b) that are part of the Intellectual Property and any and all
- ----------------
intellectual property contained therein.
"Liens" shall mean any and all liens, mortgages, claims, charges, security
interests, options, preemptive purchase rights, licenses, or other encumbrances
of any kind or nature whatsoever.
"Material Adverse Effect" shall mean a material adverse effect on the
Purchased Assets or the financial condition or results of operations of the
Business, taken as a whole, or on the ability of Buyer to own and conduct the
Business following the Closing Date.
"OSHA" shall mean the Occupational Safety and Health Act of 1970, as
amended.
"Permitted Liens" shall mean (a) liens for taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet due
and payable and (c) other liens or imperfections on property which are not
material in amount or do not materially detract from the value of or materially
impair the existing use of the property affected by such lien or imperfection.
"Retained Intellectual Property" shall mean all intellectual property of
Seller that is not Intellectual Property.
"Subsidiaries" shall mean the Assigning Subsidiaries and the Transferred
Subsidiaries.
"Tax" shall mean any federal, state, local, foreign and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax,
additional amounts with respect thereto and reasonable costs and expenses
incurred in connection therewith (including interest, penalties, reasonable
attorneys' fees, reasonable accounting fees and reasonable investigation costs).
"Tax Returns" shall mean all returns, declarations, reports and information
returns or statements relating to Taxes, including any amendments thereto.
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<PAGE>
"Third-Party Software" shall mean any software products not owned by Seller
or a Subsidiary.
"Transferred Subsidiaries" shall mean the direct or indirect subsidiaries
of Seller listed on Schedule 1.1(j).
---------------
Section 14.2 Entire Agreement, Schedules and Exhibits. (a) This
----------------------------------------
Agreement, together with the Collateral Agreements and the Schedules and
Exhibits attached hereto, contains the entire understanding of the parties
relating to the subject matter contained herein, and this Agreement cannot be
changed or terminated orally and supersedes all prior agreements and
understandings relating to the subject matter hereof, other than the
Confidentiality Agreement, which shall remain in full force and effect.
(b) The Schedules and Exhibits to this Agreement shall be construed with
and as integral parts of this Agreement to the same extent as if they were set
forth verbatim herein.
Section 14.3 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
Section 14.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts for the convenience of the parties hereto, all of which together
shall constitute one and the same instrument.
Section 14.5 Headings. The headings of the articles and sections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
Section 14.6 Notice. Any notice, request, instruction, other
------
communications or other document to be given hereunder by either party hereto to
the other party shall be in writing and delivered personally, telecopied or sent
by recognized overnight delivery service, and shall be deemed given when so
delivered personally, telecopied (with appropriate confirmation of receipt) or
received, as follows:
If to Buyer, to: Sterling Software, Inc.
300 Crescent Court
Suite 1200
Dallas, Texas 75201-77853
Attention: Don J. McDermett, Jr.
Telecopier: 214-981-1265
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<PAGE>
with copies to: Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen
Telecopier: 214-969-5100
and if to Seller, to: Texas Instruments Incorporated
7839 Churchill Way
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Attention: Charles D. Tobin
Telecopier: 972-917-3804
with copies to: Texas Instruments Incorporated
P.O. Box 655474, M/S 241
Dallas, Texas 75265
Attention: Richard J. Agnich
Telecopier: 972-995-3511
or to such other address for a party as shall be specified by like notice.
Section 14.7 Choice of Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without regard to
principles of conflicts of laws.
Section 14.8 Invalid Provisions. If any provision of this Agreement or
------------------
any Collateral Agreement is held to be illegal, invalid or unenforceable under
any present or future Law, and if the rights or obligations of any party hereto
under this Agreement or any Collateral Agreement will not be materially and
adversely affected thereby, (a) such provision will be fully severable, (b) this
Agreement or such Collateral Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement or such Collateral Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement or such Collateral Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
Section 14.9 Expenses. Except as otherwise expressly provided herein,
--------
each of the parties hereto shall bear its expenses separately incurred in
connection with this Agreement and with the performance of its obligations
hereunder.
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<PAGE>
Section 14.10 Third Parties. Except as specifically set forth or referred
-------------
to herein, nothing herein expressed or implied is intended or shall be construed
to confer upon or give to any person other than the parties hereto and their
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
Section 14.11 Further Assurances. Subject to the terms and conditions
------------------
herein provided, each of the parties hereto shall use reasonable efforts to
take, or cause to be taken, such action, to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do, or
cause to be done, all things necessary, proper or advisable under the provisions
of this Agreement and under applicable law to consummate and make effective the
transactions contemplated hereby. For a period of 180 days after the Closing,
Seller shall use commercially reasonable efforts to assist Buyer in the
transition of the Business from Seller to Buyer.
Section 14.12 Publicity. Any general notices, releases, statements or
---------
communications to the general public or the press relating to this Agreement and
the transactions contemplated hereby shall be made only at such times and in
such manner as may be mutually agreed upon by Buyer and Seller; provided,
however, that the parties hereto shall be entitled to issue such press releases
and to make such public statements as are, in the opinion of their respective
legal counsel, required by applicable law, in which case the other party shall
be advised thereof and the parties shall use their reasonable efforts to cause a
mutually agreeable release or announcement to be issued. Once information has
been made available to the general public in accordance with this Agreement,
this section shall no longer apply to such information.
Section 14.13 Assignment. Neither this Agreement nor either of the
----------
parties' rights or obligations hereunder shall be assignable or delegatable to
any other person without the prior written consent of the other party hereto,
except that Buyer may assign its rights and obligations hereunder, in whole or
in part, to any one or more wholly owned subsidiaries of Buyer (but no such
assignment shall relieve Buyer of any of its obligations hereunder). Any
assignment or delegation in violation of this Section 14.13 shall be null and
void and of no force and effect.
Section 14.14 Waiver and Remedies. Any term or condition of this
-------------------
Agreement may be waived at any time by the party that is entitled to the benefit
thereof. Any such waiver shall be in writing and shall be executed by such
party. A waiver on one occasion shall not be deemed to be a waiver of the same
or any other breach on a future occasion.
Section 14.15 Certain Interpretive Matters and Definitions. (a) The
--------------------------------------------
parties hereto acknowledge that (i) the sale, transfer and assignment of the
Purchased Assets by Seller to Buyer pursuant to this Agreement constitute a sale
of the entire operating assets of the Business, which constitutes a separate
division, branch or identifiable
-49-
<PAGE>
segment of Seller and (ii) prior to the date hereof, the income and expenses
attributable to the Business were separately established from Seller's books of
account or record.
(b) Unless the context otherwise requires (i) all references in this
Agreement to Sections, Articles, Schedules or Exhibits are to Sections,
Articles, Schedules or Exhibits of or to this Agreement, (ii) each term defined
in this Agreement has the meaning assigned to it, (iii) each accounting term not
otherwise defined in this Agreement has the meaning assigned to it in accordance
with GAAP, (iv) "or" is disjunctive but not necessarily exclusive, (v) words in
the singular include the plural and vice versa, (vi) the terms "subsidiary" and
"affiliate" have the meanings given to those terms in Rule 12b-2 of Regulation
12B under the Securities Exchange Act of 1934, as amended, (vii) the phrase
"liabilities and obligations" means all such matters of any nature, whether
fixed or contingent, known or unknown, or arising under contract, law, equity or
otherwise, (viii) the word "including" and similar terms following any statement
will not be construed to limit the statement to the matters listed after such
word or term, whether a phrase of nonlimitation such as "without limitation" is
used, and (ix) when used in respect of actions to be taken or not to be taken by
Seller prior to the Closing, the term "Transferred Employee" means a person who
may become a Transferred Employee. All references to U.S. and United States will
be to the United States of America. All references to "$" or dollar amounts will
be to lawful currency of the United States of America.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SELLER:
TEXAS INSTRUMENTS INCORPORATED
By: /s/ David D. Martin
--------------------------------
Name: David D. Martin
Title: Executive Vice President
BUYER:
STERLING SOFTWARE, INC.
By: /s/ Sterling L. Williams
-----------------------------------
Name: Sterling L. Williams
Title: President and Chief Executive Officer
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<PAGE>
EXHIBIT 11.1
STERLING SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------- -------
<S> <C> <C>
Earnings:
Earnings applicable to common
stockholders.......................... $15,324 $15,324
======= =======
Shares:
Weighted average of shares outstanding. 38,466 38,466
Add common shares issued on assumed 7,232 7,232
exercise of options and warrants......
Less common shares assumed repurchased. (6,988) (6,988)
------- -------
38,710 38,710
======= =======
Earnings per common share:
Primary................................ $ .40
=======
Fully diluted.......................... $ .40
=======
</TABLE>
<PAGE>
EXHIBIT 11.2
STERLING SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------- -------
<S> <C> <C>
Earnings:
Earnings applicable to common
stockholders.......................... $152,018 $152,018
Add: Interest expense on amounts
outstanding for the 5 3/4%
Convertible Subordinated
Debentures (net of
applicable income taxes)......... 542
-------- --------
$152,018 $152,560
======== ========
Shares:
Weighted average of shares outstanding. 29,450 29,450
Add common shares issued on assumed
exercise of options and warrants...... 7,299 7,316
Less common shares assumed repurchased. (4,710) (4,171)
-------- --------
32,039 32,595
========
Common shares issued on assumed
conversion of 5 3/4% Convertible
Subordinated Debentures................ 1,915
--------
34,510
========
Earnings per common share:
Primary................................ $4.74
========
Fully diluted.......................... $4.42
========
</TABLE>
<PAGE>
EXHIBIT 11.3
STERLING SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------- -------
<S> <C> <C>
Earnings:
Earnings applicable to common
stockholders.......................... $28,064 $28,064
======= =======
Shares:
Weighted average of shares outstanding. 38,448 38,448
Add common shares issued on assumed
exercise of options and warrants...... 7,041 7,041
Less common shares assumed repurchased. (6,483) (6,483)
------- -------
39,006 39,006
======= =======
Earnings per common share:
Primary................................ $.72
=======
Fully diluted.......................... $.72
=======
</TABLE>
<PAGE>
[.EX114]
EXHIBIT 11.4
STERLING SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
-------- --------
<S> <C> <C>
Earnings:
Earnings applicable to common
stockholders.................................... $173,325 $173,325
Add: Interest expense on amounts
outstanding for the 5 3/4%
Convertible Subordinated
Debentures (net of applicable
income taxes)............................... 1,703
-------- --------
$173,325 $175,028
======== ========
Shares:
Weighted average of shares outstanding........... 28,032 28,032
Add common shares issued on assumed
exercise of options and warrants................ 7,875 7,920
Less common shares assumed repurchased........... (5,608) (4,544)
-------- --------
30,299 31,408
========
Common shares issued on assumed conversion of
5 3/4% Convertible Subordinated Debentures....... 2,990
--------
34,398
========
Earnings per common share:
Primary.......................................... $5.72
=======
Fully diluted.................................... $5.09
========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STERLING
SOFTWARE, INC. QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 571,501
<SECURITIES> 183,649
<RECEIVABLES> 117,730
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 896,978
<PP&E> 94,806
<DEPRECIATION> 44,491
<TOTAL-ASSETS> 1,091,629
<CURRENT-LIABILITIES> 138,075
<BONDS> 0
0
0
<COMMON> 3,989
<OTHER-SE> 904,239
<TOTAL-LIABILITY-AND-EQUITY> 1,091,629
<SALES> 106,744
<TOTAL-REVENUES> 106,744
<CGS> 45,022
<TOTAL-COSTS> 93,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 23,396
<INCOME-TAX> 8,072
<INCOME-CONTINUING> 15,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,324
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
