<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
STERLING SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 7372 75-1873956
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>
300 CRESCENT COURT, SUITE 1200
DALLAS, TEXAS 75201
(214) 981-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DON J. MCDERMETT, JR., ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
STERLING SOFTWARE, INC.
300 CRESCENT COURT, SUITE 1200
DALLAS, TEXAS 75201
(214) 981-1000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
-----------------
Copies to:
MARK E. BETZEN, ESQ. JOSEPH W. CONROY, ESQ.
JONES, DAY, REAVIS & POGUE HUNTON & WILLIAMS
2300 TRAMMELL CROW CENTER 1751 PINNACLE DRIVE
2001 ROSS AVENUE MCLEAN, VIRGINIA 22102
DALLAS, TEXAS 75201 (703) 714-7400
(214) 220-3939
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE AND ALL
OTHER CONDITIONS TO THE MERGER (THE "MERGER") OF A WHOLLY OWNED SUBSIDIARY OF
STERLING SOFTWARE, INC. ("STERLING SOFTWARE") WITH AND INTO MYSTECH ASSOCIATES,
INC. ("MYSTECH") PURSUANT TO THE AGREEMENT AND PLAN OF MERGER FILED AS EXHIBIT
2.1 HERETO (THE "MERGER AGREEMENT") HAVE BEEN SATISFIED OR WAIVED.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[_]
-----------------
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CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.10 per share (1) 942,813 shares (2) $3.34 (3) $3,152,510 $929.99
====================================================================================================================================
</TABLE>
(1) This Registration Statement also relates to rights to purchase Series A
Junior Participating Preferred Stock, par value $.10 per share, of Sterling
Software ("Rights"). One Right will be issued together with and will attach
to each share of Common Stock, par value $.10 per share, of Sterling
Software ("Sterling Software Common Stock") issued pursuant to the Merger
Agreement, unless the Rights shall have theretofore expired or been
redeemed.
(2) The number of shares of Sterling Software Common Stock to be registered has
been determined based on the estimated maximum number of shares of Sterling
Software Common Stock to be issued in exchange for shares of Common Stock,
par value $.20 per share, of Mystech ("Mystech Common Stock") in the Merger
and upon exercise of certain options of Mystech following the Merger, as
contemplated by the Merger Agreement.
(3) Pursuant to Rule 457(f)(2) under the Securities Act of 1933 (the
"Securities Act"), the Proposed Maximum Offering Price Per Share is based
on the book value of $22.53 for shares of Mystech Common Stock computed as
of March 31, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE>
MYSTECH ASSOCIATES, INC.
SKYLINE ONE
5205 LEESBURG PIKE, SUITE 1200
FALLS CHURCH, VIRGINIA 22041
June ___, 1998
Dear Shareholders:
You are invited to attend the Special Meeting of Shareholders of Mystech
Associates, Inc. ("Mystech") to be held on ____________, July ___, 1998, at ____
a.m., Eastern Time, at __________________, ____________, Virginia (including any
postponement or adjournment thereof, the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a proposal
to approve an Agreement and Plan of Merger, dated as of May 27, 1998 (the
"Merger Agreement"), among Sterling Software, Inc., a Delaware corporation
("Sterling Software"), Sterling Software (Connecticut), Inc., a Connecticut
corporation and a wholly owned subsidiary of Sterling Software ("Merger Sub"),
and Mystech, pursuant to which Merger Sub will be merged with and into Mystech,
with Mystech continuing as the surviving corporation and becoming a wholly owned
subsidiary of Sterling Software. As a result of the Merger, each outstanding
share of Common Stock of Mystech will be converted into the right to receive
5.49313 shares of Common Stock of Sterling Software.
At the Special Meeting, you will also be asked to consider and vote upon a
proposal to terminate the Mystech Associates, Inc. Corporate Stock Ownership
Agreement (the "Mystech Stock Ownership Agreement"), which provides that
ownership of shares of capital stock of Mystech will generally be limited to
employees of Mystech. The termination of the Mystech Stock Ownership Agreement
is a condition to the obligation of each of Sterling Software and Merger Sub to
effect the Merger.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF MYSTECH
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TERMINATION OF THE
MYSTECH STOCK OWNERSHIP AGREEMENT.
Please read carefully the accompanying Notice of Special Meeting of
Shareholders and Proxy Statement/Prospectus for additional information regarding
the matters to be considered and voted upon at the Special Meeting. Whether or
not you plan to attend the Special Meeting, please complete, sign and date the
enclosed proxy card and return it promptly in the enclosed postage prepaid
envelope. If you attend the Special Meeting, you may vote in person if you
wish, even though you have previously returned your proxy card.
Sincerely,
/s/ David L. Young
David L. Young
Chairman of the Board,
President and
Chief Executive Officer
<PAGE>
MYSTECH ASSOCIATES, INC.
SKYLINE ONE
5205 LEESBURG PIKE, SUITE 1200
FALLS CHURCH, VIRGINIA 22041
_____________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY ___, 1998
_____________________________
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Mystech
Associates, Inc. ("Mystech") will be held at ___________________________, _____
______, Virginia, at ____ a.m., Eastern Time, on _______________, July ___, 1998
(including any postponement or adjournment thereof, the "Special Meeting"), for
the following purpose:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of May 27, 1998 (the "Merger Agreement"), among Sterling
Software, Inc., a Delaware corporation ("Sterling Software"), Sterling
Software (Connecticut), Inc., a Connecticut corporation and a wholly owned
subsidiary of Sterling Software ("Merger Sub"), and Mystech, pursuant to
which Merger Sub will be merged with and into Mystech (the "Merger"), with
Mystech continuing as the surviving corporation and becoming a wholly owned
subsidiary of Sterling Software.
2. To consider and vote upon a proposal to terminate the Mystech Associates,
Inc. Corporate Stock Ownership Agreement (the "Mystech Stock Ownership
Agreement").
The Board of Directors of Mystech has fixed June ___, 1998 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Special Meeting or any adjournment or postponement thereof. Only holders of
record of Common Stock, par value $.20 per share, of Mystech at the close of
business on that date will be entitled to notice of and to vote at the Special
Meeting.
The accompanying Proxy Statement/Prospectus, which constitutes an integral
part of this Notice of Special Meeting of Shareholders, describes the Merger
Agreement, the Merger and dissenters' rights available to shareholders in
connection with the Merger. Please read carefully the Proxy
Statement/Prospectus. TO ENSURE THAT YOUR VOTE WILL BE COUNTED, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. You may revoke your proxy in the manner described in the accompanying
Proxy Statement/Prospectus at any time before it is voted at the Special
Meeting. Executed proxies with no instructions indicated thereon will be voted
"FOR" approval of the Merger Agreement and termination of the Mystech Stock
Ownership Agreement.
By Order Of The Board of Directors,
/s/ Richard T. Dreghorn
Richard T. Dreghorn
Secretary
Falls Church, Virginia
June ___, 1998
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. ASSUMING THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1998
PROXY STATEMENT
of
MYSTECH ASSOCIATES, INC.
______________
PROSPECTUS
of
STERLING SOFTWARE, INC.
This Proxy Statement/Prospectus is furnished to holders of shares of Common
Stock, par value $.20 per share (the "Mystech Common Stock"), of Mystech
Associates, Inc., a Connecticut corporation ("Mystech"), in connection with the
solicitation by and on behalf of the Board of Directors of Mystech (the "Mystech
Board") of proxies for use at a Special Meeting of Shareholders of Mystech (the
"Special Meeting") to be held at ______________, ______________, ______________,
Virginia, at _____ a.m., Eastern Time, on ___________, July __, 1998. This
Proxy Statement/Prospectus, the Notice of Special Meeting of Shareholders and
the accompanying proxy card are first being sent to holders of shares of Mystech
Common Stock on or about June __, 1998.
At the Special Meeting, holders of record of shares of Mystech Stock at the
close of business on June __, 1998 (the "Record Date") will consider and vote
upon (i) the approval of the Agreement and Plan of Merger, dated as of May 27,
1998 (the "Merger Agreement"), among Sterling Software, Inc., a Delaware
corporation ("Sterling Software"), Sterling Software (Connecticut), Inc., a
Connecticut corporation and a wholly owned subsidiary of Sterling Software
("Merger Sub"), and Mystech, pursuant to which Merger Sub will be merged with
and into Mystech (the "Merger"), with Mystech continuing as the surviving
corporation and becoming a wholly owned subsidiary of Sterling Software, and
(ii) the termination of the Mystech Associates, Inc. Corporate Stock Ownership
Agreement (the "Mystech Stock Ownership Agreement"). The termination of the
Mystech Stock Ownership Agreement, which provides that ownership of shares of
capital stock of Mystech will generally be limited to employees of Mystech, is a
condition to the obligation of each of Sterling Software and Merger Sub to
effect the Merger. See "The Merger" for a description of the Merger Agreement
and other information regarding the Merger.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time") each then-outstanding share of Mystech Common Stock (other
than any shares owned by Mystech or any subsidiary of Mystech or by Sterling
Software, Merger Sub or any other subsidiary of Sterling Software, which shares
will be canceled) will be converted into the right to receive 5.49313 shares of
Common Stock, par value $.10 per share, of Sterling Software ("Sterling Software
Common Stock").
This Proxy Statement/Prospectus also constitutes the Prospectus of Sterling
Software included in a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the issuance of shares of
Sterling Software Common Stock in connection with the Merger. All information
concerning Sterling Software contained in this Proxy Statement/Prospectus has
been furnished by Sterling Software, and all information concerning Mystech
contained in this Proxy Statement/Prospectus has been furnished by Mystech.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 HEREOF FOR A DISCUSSION OF CERTAIN RISKS
OF OWNERSHIP OF SHARES OF STERLING SOFTWARE COMMON STOCK AND OTHER MATTERS THAT
SHOULD BE CONSIDERED BY HOLDERS OF MYSTECH COMMON STOCK IN DETERMINING HOW TO
VOTE UPON THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
______________
THE SHARES OF STERLING SOFTWARE COMMON STOCK OFFERED HEREBY HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________
The date of this Proxy Statement/Prospectus is June __, 1998.
<PAGE>
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus in
connection with the solicitation of proxies or the offering of securities made
hereby and, if given or made, such information or representations must not be
relied upon as having been authorized by Sterling Software, Mystech or any other
person. This proxy Statement/Prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom it is not lawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of Sterling Software or Mystech since the date
hereof or that the information herein is correct as of any time subsequent to
the date hereof.
AVAILABLE INFORMATION
Sterling Software is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission also maintains a Website, located at http://www.sec.gov, that
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission. Copies of such reports, proxy
statements and other information also can be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such reports, proxy statements and other
information relating to Sterling Software may also be inspected at the offices
of the New York Stock Exchange, Inc. (the "NYSE") at 20 Broad Street, New York,
New York 10005.
As permitted under the Securities Act and the Exchange Act, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information can be inspected and copied
or obtained from the Commission in the manner described above. Statements
contained in this Proxy Statement/Prospectus as to the contents of any other
document referred to herein are not necessarily complete, and each such
statement is qualified in all respects by reference to the copy of such other
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Sterling Software with the
Commission are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the fiscal year ended
September 30, 1997; (ii) Quarterly Reports on Form 10-Q for the fiscal quarters
ended December 31, 1997 and March 31, 1998; (iii) Proxy Statement on Schedule
14A for the Annual Meeting of Stockholders held on March 11, 1998; and (iv)
Registration Statement on Form 8-A/A, filed with the Commission on May 27, 1998
(collectively, together with all other documents and reports of Sterling
Software incorporated herein by reference, the "Sterling Software Reports").
All documents and reports filed by Sterling Software pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting are deemed to
be incorporated by reference in this Proxy Statement/Prospectus and to be a part
hereof from the dates of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein is deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference documents that are
not presented herein or delivered herewith. These documents, other than exhibits
to such documents, are available, without charge, to any person to whom this
Proxy Statement/Prospectus is delivered, on written or oral request, to:
Sterling Software, Inc., 300 Crescent Court, Suite 1200,
ii
<PAGE>
Dallas, Texas 75201, Attention: Investor Relations (214) 981-1000. In order
to ensure timely delivery of the documents, any request should be made by June
_____, 1998.
NOTE REGARDING FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE BASED UPON THE BELIEFS AND ASSUMPTIONS OF, AND ON INFORMATION
AVAILABLE TO, THE MANAGEMENT OF THE COMPANY MAKING SUCH STATEMENT. THE
FOLLOWING STATEMENTS ARE OR MAY CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: (I) STATEMENTS
REGARDING BENEFITS TO BE REALIZED AS A RESULT OF THE MERGER, FUTURE DEVELOPMENT
OF THE BUSINESSES OF STERLING SOFTWARE OR OTHER EFFECTS OF THE MERGER; (II)
STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS "MAY," "WILL,"
"COULD," "SHOULD," "BELIEVE," "EXPECT," "FUTURE," "POTENTIAL," "ANTICIPATE,"
"INTEND," "PLAN," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF; AND (III) OTHER STATEMENTS REGARDING MATTERS THAT ARE NOT HISTORICAL
FACTS. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES, INCLUDING (I) RISKS AND UNCERTAINTIES RELATING TO THE POSSIBLE
INVALIDITY OF THE UNDERLYING BELIEFS AND ASSUMPTIONS, (II) POSSIBLE CHANGES OR
DEVELOPMENTS IN SOCIAL, ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL AND
REGULATORY CIRCUMSTANCES AND CONDITIONS, AND (III) ACTIONS TAKEN OR OMITTED TO
BE TAKEN BY THIRD PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS,
COMPETITORS AND LEGISLATIVE, REGULATORY, JUDICIAL AND OTHER GOVERNMENTAL
AUTHORITIES AND OFFICIALS. IN ADDITION TO ANY RISKS AND UNCERTAINTIES
SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH FORWARD-LOOKING STATEMENTS,
THE STATEMENTS IN THE IMMEDIATELY PRECEDING SENTENCE AND THE STATEMENTS IN "RISK
FACTORS" BEGINNING ON PAGE 11 OF THIS PROXY STATEMENT/PROSPECTUS OR IN THE
REPORTS, PROXY STATEMENTS AND OTHER INFORMATION REFERRED TO IN "AVAILABLE
INFORMATION" CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL AMOUNTS, RESULTS, EVENTS AND CIRCUMSTANCES TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
iii
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... ii
NOTE REGARDING FORWARD-LOOKING INFORMATION................................ iii
SUMMARY................................................................... 1
The Parties............................................................. 1
Recent Developments..................................................... 1
The Special Meeting..................................................... 1
Recommendation of the Mystech Board..................................... 2
Opinion of the ESOP Trustees' Financial Advisor......................... 2
The Merger.............................................................. 2
The Stockholder Agreement............................................... 5
Historical Financial Information of Sterling Software................... 6
Historical Financial Information of Mystech............................. 8
Comparative Unaudited Per Share Financial Information................... 9
Market Price Information................................................ 10
Risk Factors............................................................ 10
RISK FACTORS.............................................................. 11
Market Risks; Factors Affecting Quarterly Financial Results;
Fixed Exchange Ratio.................................................... 11
Competition............................................................. 11
Technological Change; Dependence on New and Enhanced Products........... 11
Growth Through Acquisitions............................................. 12
Ability to Attract Qualified Personnel.................................. 12
Risks Associated with International Operations.......................... 12
Risks Associated with Government Contracts; Backlog..................... 12
Certain Antitakeover Provisions......................................... 13
THE SPECIAL MEETING....................................................... 13
General................................................................. 13
Voting at the Special Meeting........................................... 13
Proxies; Revocation..................................................... 14
THE MERGER................................................................ 14
Background of the Merger................................................ 14
Mystech's Reasons for the Merger........................................ 16
Opinion of the ESOP Trustees' Financial Advisor......................... 17
Sterling Software's Reasons for the Merger.............................. 20
Certain Projected Financial Information of Mystech...................... 20
The Merger Agreement.................................................... 21
Stock Exchange Listing.................................................. 27
Accounting Treatment.................................................... 27
Certain Federal Income Tax Consequences................................. 28
Regulatory Approvals.................................................... 29
Interests of Certain Persons in the Merger.............................. 29
Dissenters' Rights...................................................... 30
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iv
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TABLE OF CONTENTS (CONT'D)
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THE STOCKHOLDER AGREEMENT................................................. 32
Voting of Shares........................................................ 32
Other Matters........................................................... 32
BUSINESSES OF STERLING SOFTWARE AND MYSTECH............................... 33
Sterling Software....................................................... 33
Mystech................................................................. 33
OWNERSHIP OF CERTAIN SECURITIES OF MYSTECH................................ 33
RESTRICTIONS ON RESALES OF
STERLING SOFTWARE COMMON STOCK BY CERTAIN PERSONS....................... 34
COMPARISON OF RIGHTS OF HOLDERS OF MYSTECH COMMON STOCK
AND STERLING SOFTWARE COMMON STOCK...................................... 35
Authorized Capital...................................................... 35
Restrictions on Transfers of Shares..................................... 35
Amendment of Certificate of Incorporation............................... 35
Amendment of Bylaws..................................................... 36
Special Meetings........................................................ 36
Action Without a Meeting................................................ 37
Directors............................................................... 37
Removal of Directors.................................................... 38
Indemnification of Officers and Directors............................... 38
Limitation of Liability................................................. 40
Dividends............................................................... 41
Stockholder Proposal Procedures......................................... 41
Business Combination Statutes........................................... 41
Appraisal/Dissenters' Rights............................................ 43
Derivative Actions...................................................... 43
Rights Plan............................................................. 43
LEGAL MATTERS............................................................. 44
EXPERTS................................................................... 44
INDEX TO HISTORICAL FINANCIAL INFORMATION
OF MYSTECH.............................................................. F-1
APPENDIX A -- Agreement and Plan of Merger................................ A-1
APPENDIX B -- Opinion of Willamette Management Associates................. B-1
APPENDIX C -- Connecticut Business Corporation Act,
Sections 33-855 to 33-872................................. C-1
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v
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SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Proxy Statement/Prospectus and the attached Appendices, all of which
should be reviewed carefully. As required by the context, references in this
Proxy Statement/Prospectus to "Sterling Software," "Mystech" or the "Surviving
Company" should be construed as references to Sterling Software, Mystech or the
Surviving Company, as the case may be, together with their respective
predecessors and subsidiaries. References to "fiscal" years are references to
fiscal years of Sterling Software or Mystech, as the case may be, which end on
September 30 and June 30, respectively.
THE PARTIES
Sterling Software. Sterling Software 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: systems
management, applications management and federal systems. The mailing address of
Sterling Software's principal executive offices is 300 Crescent Court, Suite
1200, Dallas, Texas 75201, and its telephone number is (214) 981-1000. See
"Businesses of Sterling Software and Mystech--Sterling Software" and
"Incorporation of Certain Documents by Reference."
Mystech. Mystech was founded in 1971. Mystech is a recognized supplier of
information technology services within the federal systems market, specializing
in information operations and command and control systems. The mailing address
of Mystech's principal executive offices is Skyline One, 5204 Leesburg Pike,
Suite 1200, Falls Church, Virginia 22041, and its telephone number is (703) 671-
8680. See "Businesses of Sterling Software and Mystech--Mystech."
RECENT DEVELOPMENTS
On March 11, 1998, the Board of Directors of Sterling Software (the "Sterling
Software Board") authorized a 2-for-1 stock split that was effected by means of
a dividend of one share of Sterling Software Common Stock for each outstanding
share of Sterling Software Common Stock (the "2-for-1 Stock Split"). The
dividend effecting the 2-for-1 Stock Split was paid on April 3, 1998 to holders
of record of outstanding shares of Sterling Software Common Stock at the close
of business on March 20, 1998.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held at ____________,
____________, ____________, Virginia, at ______ a.m., Eastern Time, on
__________, July __, 1998.
Purpose. The purpose of the Special Meeting is for shareholders of Mystech to
consider and vote upon the approval of the Merger Agreement, a copy of which is
attached hereto as Appendix A, and the termination of the Mystech Stock
Ownership Agreement. See "The Special Meeting."
Shares Entitled to Vote. At the Record Date, there were [139,925] shares of
Mystech Common Stock outstanding, with each share being entitled to one vote at
the Special Meeting, and such shares were held of record by [197] holders. See
"The Special Meeting--Voting at the Special Meeting."
Required Vote. The affirmative vote of the holders of two-thirds of the
outstanding shares of Mystech Common Stock entitled to vote thereon is required
for the approval of the Merger Agreement and the termination of the Mystech
Stock Ownership Agreement. At the Record Date, (i) directors and executive
officers of Mystech and their affiliates beneficially owned, in the aggregate,
approximately 31.71% of the outstanding shares of Mystech Common Stock and (ii)
David L. Young, Robert J. Cotter, Jr., Ann E. Wohlleber and Richard I. Broadbent
(collectively, the "Principal Shareholders") owned, in the aggregate,
approximately 30.3% of the outstanding shares of Mystech Common Stock.
- --------------------------------------------------------------------------------
<PAGE>
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Each of the Principal Shareholders has agreed to vote, or instruct the trustees
(the "ESOP Trustees") of the Mystech Associates, Inc. Employee Stock Ownership
Trust, which forms a part of and implements the Mystech Associates, Inc.
Employee Stock Ownership Plan (the "Mystech ESOP") to vote, the shares of
Mystech Common Stock beneficially owned by such Principal Shareholder for the
approval of the Merger Agreement and the termination of the Mystech Stock
Ownership Agreement. See "The Stockholder Agreement."
Revocation of Proxies. Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the proxy is voted at the
Special Meeting. A proxy may be revoked by filing with the Secretary of Mystech
prior to the voting of the proxy either a written instrument revoking the proxy
or an executed proxy bearing a later date, or by voting in person at the Special
Meeting. Attendance at the Special Meeting will not, in itself, constitute the
revocation of a proxy. See "The Special Meeting--Proxies; Revocation."
RECOMMENDATION OF THE MYSTECH BOARD
At a meeting held on May 27, 1998, the Mystech Board unanimously adopted the
Merger Agreement and approved the termination of the Mystech Stock Ownership
Agreement. The Mystech Board believes that the Merger is in the best interests
of Mystech and its shareholders and unanimously recommends that Mystech
shareholders vote FOR approval of the Merger Agreement and termination of the
Mystech Stock Ownership Agreement.
OPINION OF THE ESOP TRUSTEES' FINANCIAL ADVISOR
Willamette Management Associates ("Willamette") was retained by the ESOP
Trustees to advise them as to the fairness of the consideration to be received
by the Mystech ESOP, on account of the shares of Mystech Common Stock held by
the Mystech ESOP, in the Merger. On May 27, 1998, Willamette delivered to the
ESOP Trustees its written opinion that, as of such date and based upon and
subject to the matters set forth therein, (i) the consideration to be received
by the Mystech ESOP for its shares of Mystech Common Stock pursuant to the
transactions contemplated by the Merger Agreement is at least equal to the fair
market value of such shares and (ii) the terms and conditions of the
transactions contemplated by the Merger Agreement are fair to the Mystech ESOP
from a financial point of view. See "The Merger--Opinion of the ESOP Trustees'
Financial Advisor."
THE MERGER
General. On the terms and subject to the conditions set forth in the Merger
Agreement, at the Effective Time, Merger Sub will be merged with and into
Mystech, with Mystech continuing as the surviving corporation in the Merger (as
such, the "Surviving Company"). At the Effective Time, each then-outstanding
share of common stock of Merger Sub will be converted into one share of common
stock of the Surviving Company, which will thereby become a wholly owned
subsidiary of Sterling Software.
Conversion of Mystech Shares. At the Effective Time, each then-outstanding
share of Mystech Common Stock (other than shares of Mystech Common Stock owned
by Mystech or any subsidiary of Mystech or by Sterling Software, Merger Sub or
any other subsidiary of Sterling Software, which shares will be canceled) will
be converted into the right to receive 5.49313 shares of Sterling Software
Common Stock (the "Merger Consideration"). See "The Merger--The Merger
Agreement--Consideration to be Paid in the Merger."
The Merger Agreement does not contain any provisions for adjustment of the
number of shares of Sterling Software Common Stock to be received upon such
conversion based on fluctuations in the price of Sterling Software Common Stock.
Accordingly, the value of the consideration to be received by holders of shares
of Mystech Common Stock in the Merger will depend on the market price of
Sterling Software Common Stock at and after the Effective Time. On May 27,
1998, the date the Merger Agreement was executed and delivered by the parties
thereto, the closing price per share of Sterling Software Common Stock as
reported on the NYSE Composite Transactions List was $26 5/16. There can be no
assurance that the market price of the Sterling Software Common Stock at and
after the Effective Time will not be lower than such price. See "--Market Price
Information" and "Risk Factors--Market Risks; Factors
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Affecting Quarterly Financial Results; Fixed Exchange Ratio." Mystech
shareholders are encouraged to obtain current market quotes.
For a description of the principal differences between the rights of holders
of Mystech Common Stock and holders of Sterling Software Common Stock, see
"Comparison of Rights of Holders of Mystech Common Stock and Sterling Software
Common Stock."
Treatment of Mystech Stock Options. At the Effective Time, each then-
outstanding option to purchase shares of Mystech Common Stock (a "Mystech
Option") under the Mystech Associates, Inc. Stock Option Plan (the "Mystech
Stock Option Plan") will be assumed by Sterling Software and will constitute an
option to acquire the number of shares of Sterling Software Common Stock
(rounded down to the nearest whole share) determined by multiplying (i) the
number of shares of Mystech Common Stock subject to such Mystech Option
immediately prior to the Effective Time by (ii) 5.49313 (the "Option Conversion
Factor"), at an exercise price per share of Sterling Software Common Stock
(increased to the nearest whole cent) equal to (i) the exercise price per share
of Mystech Common Stock subject to such Mystech Option divided by (ii) the
Option Conversion Factor. See "The Merger--The Merger Agreement--Treatment of
Mystech Stock Options."
Fractional Shares. No certificates representing fractional shares of Sterling
Software Common Stock will be issued pursuant to the Merger. In lieu of any
such fractional shares, each holder of shares of Mystech Common Stock who
otherwise would be entitled to receive a fractional share of Sterling Software
Common Stock pursuant to the Merger will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the per
share closing price of Sterling Software Common Stock on the NYSE on the date on
which the Effective Time occurs (the "Closing Date") by (ii) the fractional
interest to which such holder would otherwise be entitled.
Effective Time of the Merger. As soon as practicable, but in no event later
than the second business day following the date on which the last of the
conditions set forth in the Merger Agreement (other than those that by their
nature are to be satisfied at the Closing (as hereinafter defined)) is satisfied
or waived, Merger Sub and Mystech will cause a certificate of merger (the
"Certificate of Merger") to be filed with the Secretary of State of the State of
Connecticut as provided in the Connecticut Business Corporation Act (the
"Connecticut Act"). The Merger will become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Connecticut.
Conditions to the Merger. The obligation of each party to effect the Merger
is conditioned upon, among other things: (i) the approval of the Merger
Agreement by Mystech's shareholders; (ii) the absence of any order or injunction
that prohibits the consummation of the Merger; (iii) the shares of Sterling
Software Common Stock to be issued pursuant to the Merger having been authorized
for listing on the NYSE, subject to official notice of issuance; (iv) the
Registration Statement having been declared effective by the Commission and not
being subject to any stop order or proceeding seeking the same; (v) the waiting
period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), having expired or been terminated; (vi) the receipt of
certain tax opinions (see "--Certain Federal Income Tax Consequences"); and
(vii) Sterling Software having received a letter from its independent public
accountants, Ernst & Young LLP ("Ernst & Young"), setting forth the concurrence
of Ernst & Young with the conclusion of Sterling Software's management that the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and the applicable rules and regulations of the
Commission if consummated in accordance with the Merger Agreement. In addition,
the obligation of each of Sterling Software and Merger Sub to effect the Merger
is conditioned upon the termination of the Mystech Stock Ownership Agreement.
See "The Merger--The Merger Agreement--Conditions to the Merger."
Termination. The Merger Agreement may be terminated under certain
circumstances, including by mutual written consent of Sterling Software and
Mystech and by either Sterling Software or Mystech (i) if the Effective Time has
not occurred on or before August 31, 1998 (otherwise than as a result of
material breach of the Merger Agreement by the party seeking to effect such
termination), (ii) if an order, decree or ruling has been issued or other action
taken by a court of competent jurisdiction which permanently restrains, enjoins
or otherwise prohibits the Merger, (iii) if the Special Meeting has been held
and the Merger Agreement has not been approved by the affirmative vote of
holders of the requisite number of shares of Mystech Common Stock, or (iv) if
the other party commits certain breaches of its
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
representations, warranties or covenants contained in the Merger Agreement. The
Merger Agreement also may be terminated by Sterling Software if the Shareholders
Meeting shall not have been held by July 31, 1998 as a result of a breach by
Mystech of its obligations under the Merger Agreement or if the Mystech Board
has (i) withdrawn or modified, in a manner adverse to Sterling Software, its
approval of the Merger Agreement or the transactions contemplated thereby or its
recommendation that the shareholders of Mystech approve the Merger Agreement,
(ii) approved, endorsed or recommended to its shareholders an alternative
transaction, or (iii) resolved to do any of the foregoing. If the Merger
Agreement is terminated (i) under the circumstances described in the immediately
preceding sentence or (ii) because the Special Meeting has been held and the
Merger Agreement has not been approved by an affirmative vote of the holders of
the requisite number of shares of Mystech Common Stock, Mystech will be required
to pay to Sterling Software a fee in an amount of up to $1,246,282 (with such
amount being subject to being increased to $2,492,563 if Mystech enters into an
agreement providing for an alternative transaction within 12 months after such
termination). See "The Merger--The Merger Agreement--Termination; Effects of
Termination."
Governmental and Regulatory Matters. In connection with the transactions
contemplated by the Merger Agreement, Sterling Software and Mystech have made
filings with the Federal Trade Commission (the "FTC") and the Antitrust Division
of the Department of Justice (the "Antitrust Division") pursuant to the HSR Act.
Consummation of the Merger is conditioned upon, among other things, the
expiration or termination of the applicable waiting period under the HSR Act.
See "The Merger--The Merger Agreement--Conditions to the Merger" and "--
Regulatory Approvals."
Dissenters' Rights. Under the Connecticut Act, dissenters' rights will be
available to holders of Mystech Common Stock in connection with the Merger. Any
shareholder desiring to exercise dissenters' rights must follow precisely the
procedures prescribed by the Connecticut Act, which procedures are summarized in
"The Merger--Dissenters' Rights."
Interests of Certain Persons in the Merger. Certain members of Mystech's
management and the Mystech Board may be deemed to have certain interests in the
Merger that are in addition to their interests as shareholders of Mystech
generally. Such interests relate to, among other things, provisions in the
Merger Agreement regarding the treatment of outstanding Mystech Options and the
performance and provision of obligations and benefits under existing severance
agreements and compensation and benefit plans. The Mystech Board was aware of
these interests and considered them, among other matters, in adopting the Merger
Agreement. See "The Merger--Interests of Certain Persons in the Merger," "The
Merger--The Merger Agreement--Treatment of Mystech Stock Options" and "--
Employee Benefit Matters."
Certain Federal Income Tax Consequences. The Merger has been structured to
qualify as a non-taxable transaction under the Internal Revenue Code of 1986, as
amended (the "Code"). It is a condition to the obligation of each of Sterling
Software and Merger Sub to effect the Merger that Sterling Software shall have
received an opinion from Jones, Day, Reavis & Pogue ("Jones Day"), counsel to
Sterling Software, to the effect that (i) the Merger will be treated for federal
income tax purposes as a tax-free reorganization and each of Mystech, Sterling
Software and Merger Sub will be a party to that reorganization and (ii) no gain
or loss will be recognized for federal income tax purposes by Mystech, Sterling
Software or Merger Sub upon consummation of the Merger or by the shareholders of
Mystech upon their exchange of shares of Mystech Common Stock for Sterling
Software Common Stock in connection with the Merger (except with respect to the
receipt of cash in lieu of fractional shares). It is a condition to the
obligation of Mystech to effect the Merger that Mystech shall have received an
opinion from Hunton & Williams ("Hunton & Williams"), counsel to Mystech, to the
same effect. See "The Merger--Certain Federal Income Tax Consequences."
Accounting Treatment. It is expected that the Merger will be accounted for
under the pooling of interests method of accounting. It is a condition to the
obligation of each of the parties to effect the Merger that Sterling Software
shall have received a letter from Ernst & Young setting forth the concurrence of
Ernst & Young with the conclusion of Sterling Software's management that the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and the applicable rules and regulations of the
Commission if consummated in accordance with the Merger Agreement. See "The
Merger--Accounting Treatment."
- --------------------------------------------------------------------------------
4
<PAGE>
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THE STOCKHOLDER AGREEMENT
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that, simultaneously with the execution thereof, the Principal
Shareholders enter into an agreement (the "Stockholder Agreement") pursuant to
which, among other things, each Principal Shareholder agreed to (i) vote, or
instruct the ESOP Trustees to vote, all of the shares of Mystech Common Stock
beneficially owned by such Principal Shareholder for the approval of the Merger
Agreement and the termination of the Mystech Stock Ownership Agreement, and (ii)
pay certain amounts to Sterling Software if an alternative transaction is
consummated pursuant to an agreement entered into by Mystech within 12 months
after the termination of the Merger Agreement (other than any termination
thereof by mutual consent of the parties thereto or as a result of a material
breach thereof by Sterling Software). See "The Stockholder Agreement." As of the
Record Date, the Principal Shareholders beneficially owned, in the aggregate,
approximately 30.3% of the outstanding shares of Mystech Common Stock.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
HISTORICAL FINANCIAL INFORMATION OF STERLING SOFTWARE
The following summary historical financial information should be read in
conjunction with the historical financial statements of Sterling Software, the
related notes and the other information contained elsewhere in this Proxy
Statement/Prospectus or incorporated by reference herein. See "Available
Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30 ENDED MARCH 31
---------------------------------------------------------- ----------------------
1993 (1) 1994 1995 (2) 1996 1997 (3) 1997 1998
---------- --------- ---------- ---------- ----------- ---------- ----------
OPERATING DATA: (in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.............................. $303,207 $325,903 $396,311 $ 439,171 $ 488,978 $ 203,885 $ 308,226
Cost of sales........................ 149,454 143,889 160,735 182,239 199,806 87,884 120,973
Product development and
enhancement........................ 20,919 20,505 27,702 20,921 23,114 9,817 16,665
Selling, general and
administrative..................... 115,403 112,380 147,552 175,237 197,341 84,292 117,148
Income from continuing operations
before reorganization costs,
purchased research and develop-
ment, other income (expense),
income taxes, extraordinary item
and cumulative effect of a change
in accounting principle........... 17,431 49,129 60,322 60,774 68,717 21,892 53,440
Reorganization costs................. 87,622 19,512 106,037
Purchased research and develop-
ment............................... 62,000 137,849
Income (loss) from continuing
operations before income taxes,
extraordinary item and
cumulative effect of a change in
accounting principle............... (73,153) 46,346 (18,656) 84,886 (136,396) 42,996 69,686
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of a
change in accounting principle..... (48,041) 30,586 (33,656) 60,598 (132,968) 28,064 45,992
Income from discontinued
operations, net of taxes (4)....... 15,194 27,753 42,930 51,187
Gain on the initial public offering
of subsidiary, net of taxes (4).... 126,103
Income (loss) applicable to
common stockholders................. (38,106) 58,143 9,129 237,888 (132,968) 28,064 45,992
Average common shares
outstanding (5).................... 35,014 39,624 47,298 64,632 76,988 76,895 77,297
Per common share data (5):
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of a
change in accounting principle:
Basic............................ $ (1.40) $ .77 $ (.71) $ .94 $ (1.73) .36 .59
Diluted.......................... (1.40) .64 (.71) .88 (1.73) .36 .57
Income (loss) before extra-
ordinary item and cumulative
effect of a change in
accounting principle:
Basic............................ (.97) 1.47 .19 3.68 (1.73) .36 .59
Diluted.......................... (.97) 1.16 .19 3.37 (1.73) .36 .57
Net income (loss):
Basic............................ (1.09) 1.47 .19 3.68 (1.73) .36 .59
Diluted.......................... (1.09) 1.16 .19 3.37 (1.73) .36 .57
</TABLE>
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6
<PAGE>
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<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30 ENDED MARCH 31
---------------------------------------------------------- ----------------------
1993 (1) 1994 1995 (2) 1996 1997 (3) 1997 1998
---------- --------- ---------- ---------- ----------- ---------- ----------
BALANCE SHEET DATA: (in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital................. $ 57,106 $122,961 $218,713 $ 732,918 $ 558,746 $ 758,903 $ 619,955
Total assets.................... 364,087 444,661 657,711 1,097,613 1,065,658 1,091,629 1,079,764
Long-term debt.................. 117,532 115,932 116,668
Other noncurrent liabilities.... 18,331 18,867 21,845 36,397 49,249 45,326 57,745
Stockholders' equity............ 97,697 175,804 348,338 879,491 748,254 908,228 793,880
</TABLE>
________________
(1) Results of operations for fiscal 1993 include $87,622,000 of reorganization
costs primarily related to the reorganization of Sterling Software's
operations in connection with the combination of Sterling Software and
Systems Center, Inc.
(2) Results of operations for fiscal 1995 include $62,000,000 of purchased
research and development costs charged to expense in accordance with the
purchase method of accounting in connection with the merger of Sterling
Software with KnowledgeWare, Inc., as well as $19,512,000 of reorganization
costs primarily related to the reorganization of Sterling Software's
operations in connection with such merger.
(3) On June 30, 1997, Sterling Software completed the acquisition of
substantially all of the assets used by the Software Division of Texas
Instruments Incorporated ("TI Software") for approximately $214,774,000
(including costs directly related to the acquisition). The acquisition was
accounted for in accordance with the purchase method of accounting and,
accordingly, the results of operations of TI Software are included in
Sterling Software's results of operations from the date of acquisition.
Results of operations for fiscal 1997 include $137,849,000 of purchased
research and development costs, which is the portion of the purchase price
attributable to in-process research and development and which was charged
to expense in accordance with the purchase method of accounting. Results
of operations for fiscal 1997 also include reorganization costs of
$106,037,000 primarily related to the reorganization of Sterling Software's
operations in connection with the acquisition of TI Software and the
termination of Sterling Software's International Distributor Agreement with
Sterling Commerce, Inc. These reorganization costs also include the write-
down of certain excess cost over net assets acquired related to Sterling
Software's federal systems business. The tax benefit related to the
purchased research and development and reorganization costs was
$39,737,000.
(4) On March 13, 1996, Sterling Commerce, Inc. ("Sterling Commerce"), a former
wholly owned subsidiary of Sterling Software, completed the initial public
offering (the "Offering") of 13,800,000 shares of its common stock, par
value $0.01 per share ("Commerce Stock"). 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 previously unissued
shares of Commerce Stock. The Offering resulted in net proceeds to
Sterling Software of approximately $265,458,000 after deducting
underwriting discounts and commissions and Sterling Software's pro rata
share of Offering expenses. On September 30, 1996, Sterling Software
completed the spin-off of Sterling Commerce with the pro rata distribution
(the "Distribution") of its remaining 81.6% ownership in Sterling Commerce
to Sterling Software's stockholders by means of a tax-free dividend. The
Distribution resulted in the reduction of Sterling Software's stockholders'
equity in the amount of $113,549,000, representing the book value of net
assets distributed. The results of operations of Sterling Commerce for
1993 to 1996 have been classified as discontinued operations.
(5) All share and per share data have been restated for dates and periods ended
prior to April 3, 1998 to reflect the 2-for-1 Stock Split and for dates and
periods ended prior to December 31, 1997 to conform with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
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7
<PAGE>
HISTORICAL FINANCIAL INFORMATION OF MYSTECH
The following summary historical financial information should be read in
conjunction with the historical financial statements of Mystech, the related
notes and the other information contained elsewhere in this Proxy Statement/
Prospectus. See "Index to Historical Financial Information of Mystech."
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED JUNE 30 ENDED MARCH 31
--------------------------------------------------- ------------------
1993(1) 1994 1995 1996 1997 1997 1998
--------- --------- -------- -------- --------- -------- --------
OPERATING DATA: (in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................................. $15,633 $17,121 $21,566 $27,001 $31,123 $23,179 $24,038
Cost of sales........................... 12,728 14,087 17,581 21,921 25,417 19,085 19,221
Product development and
enhancement........................... 173 410
Selling, general and
administrative........................ 2,229 2,169 2,531 3,968 4,770 3,471 3,987
Income from continuing operations
before other income,
income taxes, discontinued
operations and loss from equity
investment............................ 676 865 1,281 702 936 623 830
Income from continuing
operations before income taxes,
discontinued operations and loss
from equity investment................ 1,655 797 1,147 584 827 524 677
Income from continuing operations
before discontinued operations
and loss from equity investment....... 1,459 536 699 384 967 314 553
Loss from discontinued
operations, net of taxes.............. (66) (13)
Loss from equity investment............. (1,164) (366)
Income (loss) applicable to
common stockholders................... 1,393 523 699 384 (197) 314 187
Average common shares
outstanding (2)....................... 158 146 135 141 142 143 141
Per common share data (2):
Income from continuing
operations before discontinued
operations and loss from equity
investment:
Basic...............................
Diluted.............................
Income before loss from
equity investment:
Basic...............................
Diluted.............................
Net income (loss):
Basic...............................
Diluted.............................
BALANCE SHEET DATA:
Working capital..................... $ 2,581 $ 2,369 $ 2,702 $ 2,252 $ 1,367 $ 1,474 $ 1,823
Total assets........................ 5,493 5,277 5,340 6,625 7,351 7,781 7,252
Long-term debt...................... 736 819 314 62
Other noncurrent liabilities........ 31 481 481 253 178
Stockholders' equity................ 2,391 1,600 2,647 3,397 3,118 3,666 3,153
</TABLE>
________________
(1) In June 1993, Mystech became obligated to purchase the entire interest of
its largest stockholder from his estate. Mystech was the beneficiary of
life insurance policies in the amount of $1,100,000, of which $950,000 had
been pledged to the bank for repayment of outstanding debt in the amount of
$910,071. The bank authorized the use of the pledged life insurance
proceeds for the purchase of shares from the estate. On January 14, 1994,
Mystech purchased the estate's entire interest, 47,100 shares of common
stock, for $1,563,720. The purchase price was paid by a down payment of
$1,063,720 and a $500,000 promissory note payable to the estate.
(2) All share and per share data for and at the end of fiscal 1993 have been
restated to reflect a 5-for-1 stock split effected by Mystech on February
28, 1994.
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8
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COMPARATIVE UNAUDITED PER SHARE FINANCIAL INFORMATION
The following tables sets forth (i) book value per share information for
Sterling Software and Mystech on a historical basis and for Mystech on an
equivalent per share basis and (ii) net income and loss information (basic and
diluted) for Sterling Software and Mystech on a historical basis and for Mystech
on an equivalent per share basis. The historical per share financial
information for Sterling Software has been adjusted to reflect the 2-for-1 Stock
Split and, where necessary, to conform with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Pro forma per share financial
information giving effect to the consummation of the Merger has not been
presented because the pro forma effects of the Merger on the historical
financial position and results of operations of Sterling Software are not
material. The equivalent historical per share financial information for Mystech
represents the historical information for Sterling Software multiplied by
5.49313.
The information set forth in the following tables is derived from the
consolidated historical financial statements of Sterling Software and Mystech
including the related notes thereto, contained elsewhere in this Proxy
Statement/ Prospectus or incorporated by reference herein, and should be read in
conjunction therewith. See "Available Information," "Incorporation of Certain
Documents by Reference" and "Index to Historical Financial Information of
Mystech."
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
<S> <C> <C>
Book Value Per Share
Historical:
Sterling Software............................ $ 9.70 $10.23
Mystech...................................... 20.95 22.53
Mystech Equivalent.............................. 53.31 56.18
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER 30 (1) ENDED
----------------------------- MARCH 31,
1995 (2) 1996 1997 (3) 1998
--------- ------- --------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share
Historical:
Sterling Software (Basic)................ $ .19 $ 3.68 $ (1.73) $ .59
Sterling Software (Diluted).............. .19 3.37 (1.73) .57
Mystech (Basic)..........................
Mystech (Diluted)........................
Mystech Equivalent (Basic).................
Mystech Equivalent (Diluted)...............
</TABLE>
(1) Sterling Software's fiscal year ends on September 30 and Mystech's fiscal
year ends on June 30. Amounts shown are based upon Sterling Software's
results of operations for its fiscal years ended on the dates indicated
and upon Mystech's results of operations for the corresponding 12-month
periods ended on the dates indicated.
(2) See footnote (2) under "Historical Financial Information of Sterling
Software" for a description of certain nonrecurring costs and expenses
incurred during the year ended September 30, 1995.
(3) See footnote (3) under "Historical Financial Information of Sterling
Software" for a description of certain nonrecurring costs and expenses
incurred during the year ended September 30, 1997.
Neither Sterling Software nor Mystech has paid any cash dividends since
October 1, 1994. Sterling Software does not expect to pay cash dividends in the
foreseeable future.
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9
<PAGE>
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MARKET PRICE INFORMATION
The Sterling Software Common Stock trades on the NYSE under the symbol "SSW."
The following table sets forth the high and low sales prices per share of
Sterling Software Common Stock as reported on the NYSE Composite Transactions
List (and as adjusted for periods prior to April 6, 1998 to reflect the 2-for-1
Stock Split) for each fiscal quarter in fiscal years 1996 and 1997 and for the
other periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------------ -----------
<S> <C> <C>
Year Ended September 30, 1996:
Quarter Ended:
December 31, 1995.............................. $ 31 3/16 $ 20
March 31, 1996................................. 36 5/16 24 3/8
June 30, 1996.................................. 40 11/16 35 3/16
September 30, 1996............................. 38 3/4 28 7/8
Year Ended September 30, 1997 (1):
Quarter Ended:
December 31, 1996.............................. $ 17 5/16 $ 14 1/8
March 31, 1997................................. 16 5/16 13 5/8
June 30, 1997.................................. 16 13/16 13 11/16
September 30, 1997............................. 18 3/8 15 7/16
Year Ending September 30, 1998 (1):
Quarter Ended:
December 31, 1997.............................. $ 20 27/32 $ 16 1/4
March 31, 1998................................. 28 13/16 17 3/4
June 30, 1998 (through May 27, 1998)........... 29 1/2 23 11/16
</TABLE>
(1) Sales prices for all periods subsequent to September 30, 1996 reflect
the Distribution. See footnote (4) under "Historical Financial
Information of Sterling Software."
There is no established market for shares of Mystech Common Stock, and price
quotations therefor are not available. Willamette was retained by the ESOP
Trustees to advise them as to whether (i) the consideration to be received by
the Mystech ESOP for its shares of Mystech Common Stock pursuant to the
transactions contemplated by the Merger Agreement is at least equal to the fair
market value of such shares and (ii) the terms and conditions of the
transactions contemplated by the Merger Agreement are fair to the Mystech ESOP
from a financial point of view. In connection with rendering such advice to the
ESOP Trustees, Willamette performed certain analyses which produced a range of
values for shares of Mystech Common Stock of $94.52 to $114.36 per outstanding
share as of May 27, 1998. See "The Merger--Opinion of the ESOP Trustees'
Financial Advisor." The analyses performed by Willamette are subject to
inherent uncertainties, are not necessarily indicative of the current fair
market value of shares of Mystech Common Stock and are disclosed herein solely
for the information of Mystech shareholders.
On May 27, 1998, the last full trading day prior to the public announcement by
Sterling Software and Mystech of the execution of the Merger Agreement, the
closing price per share of Sterling Software Common Stock as reported on the
NYSE Composite Transactions List was $26 5/16. On June __, 1998, the last full
trading day prior to the date of this Proxy Statement/Prospectus, the closing
price per share of Sterling Software Common Stock as reported on the NYSE
Composite Transactions List was $____. Mystech shareholders are encouraged to
obtain current market quotations.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks of ownership of Sterling
Software Common Stock and other matters that should be considered by holders of
Mystech Common Stock in determining how to vote upon the matters described
herein.
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RISK FACTORS
Prior to voting on the proposal described herein, Mystech shareholders should
consider carefully the risk factors discussed below as well as all of the
information contained elsewhere in this Proxy Statement/Prospectus, including
the Appendices hereto. See also "Note Regarding Forward-Looking Information."
MARKET RISKS; FACTORS AFFECTING QUARTERLY FINANCIAL RESULTS; FIXED EXCHANGE
RATIO
The market price of Sterling Software Common Stock is subject to fluctuation,
and there can be no assurance that the price of the Sterling Software Common
Stock will not decline below current levels. Sterling Software believes factors
such as actual or anticipated fluctuations in quarterly financial results,
changes in earnings estimates by securities analysts and announcements of
material events by Sterling Software, its major customers or its competitors, as
well as general industry or economic conditions, may cause the market price of
Sterling Software Common Stock to fluctuate, perhaps substantially.
Fluctuations in Sterling Software's quarterly financial results could result
from a variety of factors, including changes in the levels of revenue derived
from sales of software products and services, market acceptance of new and
enhanced versions of the products and services of Sterling Software or its
competitors, the size and timing of significant orders, changes in operating
expenses, changes in Sterling Software's strategy, the effect of acquisitions
and general industry and economic factors. Sterling Software has limited or no
control over many of these factors.
Pursuant to the terms of the Merger Agreement, each outstanding share of
Mystech Common Stock (other than shares of Mystech Common Stock owned by Mystech
or any subsidiary of Mystech or by Sterling Software, Merger Sub or any other
subsidiary of Sterling Software, which shares will be canceled, and any
Dissenting Shares) will be converted at the Effective Time into the right to
receive 5.49313 shares of Sterling Software Common Stock. The Merger Agreement
does not provide for any adjustment to the number of shares of Sterling Software
Common Stock issuable in respect of each such share of Mystech Common Stock
based upon fluctuations in the price of Sterling Software Common Stock.
Accordingly, the value of the consideration to be received by holders of Mystech
Common Stock upon the consummation of the Merger is not presently ascertainable
and will depend upon the market price of Sterling Software Common Stock at and
after the Effective Time. The Merger Agreement does not provide Mystech the
right to terminate the Merger Agreement based upon fluctuations in the price of
Sterling Software Common Stock.
COMPETITION
The computer software and services industry is highly competitive. Sterling
Software competes with both large companies with substantially greater resources
and small specialized companies that compete in a particular geographic region
or market niche. Sterling Software also competes with internal programming
staffs of corporations and with hardware manufacturers.
Sterling Software generally expects competition to increase in the future from
both existing competitors and other companies that may enter Sterling Software's
existing or future markets. In particular, Sterling Software expects competition
within its federal business to increase because of continued federal budget
constraints and cutbacks. In addition, continuing consolidation among providers
of technical services to the federal government is increasing the size and
market presence of many of Sterling Software's competitors in this market
segment.
Sterling Software believes that its ability to compete successfully in the
software products and services markets depends on numerous factors, including
product performance, functionality and reliability, price and customer service
and support. There can be no assurance that new or established competitors will
not offer products and services that are superior to and/or lower in price than
those of Sterling Software.
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW AND ENHANCED PRODUCTS
The computer software and services industry is characterized by rapid
technological change, frequent new product and service introductions and
evolving industry standards. Sterling Software's future success will depend in
significant part on its ability to anticipate industry standards, continue to
apply advances in software product and service
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technologies, enhance existing software products and services and introduce and
acquire new software products and services on a timely basis to keep pace with
technological developments. There can be no assurance that Sterling Software
will be successful in developing, acquiring or marketing new or enhanced
products or services that respond to technological change or evolving industry
standards, that Sterling Software will not experience difficulties that could
delay or prevent the successful development, acquisition or marketing of such
products or services or that its new or enhanced products and services will
adequately meet the requirements of the marketplace or achieve market
acceptance.
GROWTH THROUGH ACQUISITIONS
Sterling Software's growth has been significantly enhanced through
acquisitions of other businesses, products and licenses. If Sterling Software is
unable to continue to make appropriate acquisitions on attractive terms, it may
be more difficult for Sterling Software to achieve growth levels consistent with
those historically achieved. There can be no assurance as to Sterling Software's
ability to make attractive acquisitions, the timing thereof or the ultimate
benefits therefrom to Sterling Software.
The integration of operations following any significant acquisition requires
the dedication of management resources, and may be complicated by the necessity
of integrating personnel with disparate business backgrounds and corporate
cultures. In addition, the retention of key employees of any business acquired
by Sterling Software may be critical to ensure continued advancement,
development and support of the acquired business' technology, as well as on-
going sales and marketing efforts. Consequently, there can be no assurance that
Sterling Software's ability to increase or maintain revenue will not be
diminished by management distractions, loss of personnel or other factors
resulting from any significant acquisition.
ABILITY TO ATTRACT QUALIFIED PERSONNEL
Sterling Software's business is dependent upon its ability to attract and
retain highly qualified managerial, technical and sales personnel. Competition
for such personnel is intense. There can be no assurance that Sterling Software
can retain its key managerial, technical and sales personnel or that it can
attract, assimilate or retain such personnel in the future.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Revenue from Sterling Software's international operations represented 38%, 38%
and 37% of Sterling Software's fiscal 1995, 1996 and 1997 revenue, respectively.
Sterling Software's ability to successfully maintain and expand its software
products and services business internationally will depend upon, among other
things, its ability to attract and retain both talented and qualified
managerial, technical and sales personnel and software product and services
customers outside the United States and its ability to continue to effectively
manage its domestic operations while also focusing on international operations
and expansion.
International operations are subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, longer payment
cycles, increased difficulties in collecting accounts receivable and potentially
adverse tax consequences. To the extent international sales are denominated in
foreign currencies, gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from international operations
may contribute to fluctuations in Sterling Software's results of operations. In
the past, Sterling Software has entered into, and may in the future enter into,
hedging transactions in an effort to reduce its exposure to currency exchange
risks.
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTS; BACKLOG
Federal government contracts historically have been a significant part of
Sterling Software's business, representing 25% of Sterling Software's revenue
during fiscal 1997 and 26% of Sterling Software's revenue during both fiscal
1995 and 1996. A large portion of Sterling Software's federal government
contracts is funded for one year or less and is subject to contract award,
extension or expiration at different times during the year, and all of Sterling
Software's federal government contracts are subject to termination by the
government for convenience or failure to obtain funding. Based upon past
practices, Sterling Software believes that the contract renewal options included
in existing contracts
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will be exercised for the full period designated in such contracts, but no
assurance can be given that such contracts will be renewed.
Sterling Software's backlog relates principally to the uncompleted portion of
multi-year professional services contracts with agencies of the federal
government, including renewal options with government agencies, a portion of
which are restricted by law to a term ending on the last day of the government
agencies' then current fiscal year. Determination of Sterling Software's backlog
involves estimation, particularly with respect to customer requirements
contracts and multi-year contracts of a cost-reimbursement or incentive nature.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Delaware General Corporation Law (the "Delaware
Act"), Sterling Software's Certificate of Incorporation (the "Sterling Software
Certificate") and Bylaws (the "Sterling Software Bylaws") and certain agreements
to which Sterling Software is a party (including the Rights Agreement, dated
December 18, 1996, between Sterling Software and BankBoston, N.A., as amended
(the "Rights Agreement")) may have the effect of delaying, deterring or
preventing a change in control of Sterling Software. In addition, the Sterling
Software Certificate authorizes the issuance of up to 125,000,000 shares of
Sterling Software Common Stock and 10,000,000 shares of Preferred Stock, par
value $.10 per share ("Sterling Software Preferred Stock"), of Sterling
Software. The Sterling Software Board has the power to determine the price and
terms under which any such additional capital stock may be issued and to fix the
terms of such Sterling Software Preferred Stock, and existing stockholders of
Sterling Software will not have preemptive rights with respect thereto.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished by Mystech to its
shareholders in connection with the solicitation by and on behalf of the Mystech
Board of proxies for use at the Special Meeting. The Special Meeting will be
held at ____________, ____________, ____________, Virginia, at 8:00 a.m.,
Eastern Time, on ___________, July ___, 1998. The purpose of the Special Meeting
is for shareholders of Mystech to consider and vote upon the approval of the
Merger Agreement and the termination of the Mystech Stock Ownership Agreement.
THE MYSTECH BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF MYSTECH
AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF MYSTECH
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TERMINATION OF THE
MYSTECH STOCK OWNERSHIP AGREEMENT.
VOTING AT THE SPECIAL MEETING
The holders of record of shares of Mystech Common Stock at the close of
business on June ___, 1998, the Record Date, are entitled to vote such shares at
the Special Meeting. At the Record Date, there were [139,925] shares of Mystech
Common Stock outstanding, with each such share being entitled to one vote at the
Special Meeting, and such shares were held of record by [197] holders. Shares of
Mystech Common Stock held in the treasury of Mystech, owned by Mystech or by any
subsidiary of Mystech are not considered to be outstanding.
The holders of shares representing at least 50% of the shares of Mystech
Common Stock outstanding at the Record Date will constitute a quorum for the
transaction of business at the Special Meeting. If the persons present or
represented by proxy at the Special Meeting constitute the holders of shares
representing less than 50% of the shares of Mystech Common Stock outstanding at
the Record Date, the Special Meeting may be adjourned to a subsequent date for
the purpose of obtaining a quorum.
The approval of the Merger Agreement and the termination of the Mystech Stock
Ownership Agreement require the affirmative vote of the holders of two-thirds of
the shares of Mystech Common Stock entitled to vote thereon.
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Abstentions and broker non-votes will be included in determining the number of
shares held by persons present or represented by proxy at the Special Meeting
for purposes of determining whether a quorum exists. Because the approval of the
Merger Agreement and the termination of the Mystech Stock Ownership Agreement
require the affirmative vote of shares representing two-thirds of the shares of
Mystech Common Stock entitled to vote thereon, abstentions and broker non-votes
will have the same effect as votes against such proposals.
At the Record Date, (i) directors and executive officers of Mystech and their
affiliates beneficially owned, in the aggregate, approximately 31.71% of the
outstanding shares of Mystech Common Stock and (ii) the Principal Shareholders
beneficially owned, in the aggregate, approximately 30.3% of the outstanding
shares of Mystech Common Stock. Each of the Principal Shareholders has agreed to
vote, or instruct the ESOP Trustees to vote, the shares of Mystech Common Stock
beneficially owned by such Principal Shareholder for the approval of the Merger
Agreement and the termination of the Mystech Stock Ownership Agreement. See "The
Stockholder Agreement."
PROXIES; REVOCATION
All shares of Mystech Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, unless
such proxies shall have been revoked, will be voted at the Special Meeting in
accordance with the instructions on the proxies. If no instructions are
indicated, such proxies will be voted for the approval of the Merger Agreement.
A proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted at the Special Meeting. A proxy
may be revoked by filing with the Secretary of Mystech prior to the voting of
the proxy either a written instrument revoking the proxy or an executed proxy
bearing a later date, or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not, in itself, constitute the revocation of a
proxy.
Sterling Software and Mystech will share the cost of the preparation and
mailing of this Proxy Statement/ Prospectus (although, if the Merger is
consummated, Sterling Software will ultimately bear the full cost thereof).
Mystech may solicit proxies otherwise than by the use of the mails, in that
certain officers and regular employees of Mystech, without additional
compensation, may use their personal efforts, by telephone or otherwise, to
obtain proxies. Mystech will also request persons and entities holding shares in
their names, or in the name of their nominees, that are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners and will reimburse such holders for their reasonable expenses in so
doing.
THE MERGER
BACKGROUND OF THE MERGER
On several occasions in early 1997, representatives of Sterling Software
expressed to representatives of Mystech an interest in discussing a possible
business combination transaction involving Sterling Software and Mystech.
On April 23, 1997, Gene Konopik, President of Sterling Software's Federal
Systems Group, an operating unit of Sterling Software which provides highly
specialized information technology services to the federal government (the
"Federal Systems Group"), and Phil Kiviat, Vice President for Business
Development of the Federal Systems Group, met with David L. Young, President and
Chief Executive Officer of Mystech, and John McGlone, Vice President and Chief
Operating Officer of Mystech, to ascertain whether Mystech would consider being
acquired by Sterling Software. At such meeting, the parties exchanged general
corporate information and discussed Mystech's possible interest in being
acquired.
On May 5, 1997, Sterling Software and Mystech entered into an agreement
providing for the confidential treatment of information exchanged by them in
connection with discussions relating to a possible transaction. On June 16 and
July 3, 1997, meetings were held between Mr. Young and Mr. Kiviat to exchange
strategic planning and financial information.
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On July 16, 1997, representatives of Mystech and Sterling Software met to
discuss further Mystech's strategic business objectives, including Mystech's
involvement in the "telemedicine" business through a joint venture known as
Telemedicine Applications Company, LLC (the "TMAC Joint Venture"). On July 29,
1997, a meeting was held between Mr. Young and Mr. McGlone of Mystech, and Mr.
Konopik and Mr. Kiviat of Sterling Software, to confirm Sterling Software's
position that any acquisition proposal would not include Mystech's interest in
the TMAC Joint Venture. On August 19, 1997, Mr. Konopik and Mr. Young had a
dinner meeting during which Mr. Konopik proposed that Sterling Software acquire
Mystech in a taxable transaction in which Sterling Software would acquire the
entire equity interest in Mystech for consideration consisting of $17.0 million
in a combination of cash and Sterling Software Common Stock. On or about August
26, 1997, after conferring with the Mystech Board, Mr. Young notified Mr.
Konopik by telephone that the price and terms proposed by Mr. Konopik were not
sufficient to merit further discussions.
Between February and April, 1998, discussions were held among representatives
of Mystech and Sterling Software regarding Sterling Software's interest in
acquiring Mystech on terms more favorable to Mystech and its shareholders than
those proposed by Mr. Konopik on August 19, 1997. Such discussions principally
focused on: (i) the valuation of Mystech; (ii) the potential willingness of
Sterling Software to structure a tax-free transaction in which the consideration
to be received by Mystech's shareholders would consist of shares of Sterling
Software Common Stock; (iii) the valuation of Sterling Software Common Stock;
and (iv) the ratio at which shares of Mystech Common Stock would be exchanged
for shares of Sterling Software Common Stock. In addition, issues relating to
the integration of the two companies and their respective management teams were
discussed.
On April 14, 1998, Mr. Young and Steven Bracci, Mystech's Vice President and
Chief Financial Officer, met with Argy, Wiltse & Robinson, P.C., Mystech's
independent accountants ("Argy Wiltse"), and with Hunton & Williams, Mystech's
outside legal counsel, to notify them that Mystech might receive a formal
acquisition proposal and to discuss key financial and legal issues that were
likely to arise in connection therewith. Later that day, Mr. Konopik submitted
to Mr. Young a termsheet setting forth proposed terms for an acquisition of
Mystech by Sterling Software, together with proposed forms of a merger agreement
and a stockholder agreement. The termsheet and documentation submitted by Mr.
Konopik contemplated, among other things, (i) a tax-free merger transaction in
which Sterling Software would acquire the entire equity interest in Mystech for
consideration consisting of Sterling Software Common Stock valued at $23.1
million (with such valuation to be fixed on the basis of the closing price for
shares of Sterling Software Common Stock on April 30, 1998), (ii) a termination
fee to be payable by Mystech in certain circumstances in an amount equal to 10%
of the merger consideration, and (iii) a stockholder agreement pursuant to which
Mystech's largest individual shareholders would grant voting proxies and certain
other rights to Sterling Software.
On April 15 and 16, 1998, Mr. Young made informal inquiries of the members of
the Mystech Board concerning the Sterling Software proposal and, as a result,
concluded that a consensus existed among the directors that the Sterling
Software proposal had merit and should be pursued by Mystech. On April 20, 1998,
Mr. Young and Mr. Bracci conferred with representatives of Hunton & Williams
with respect to the Sterling Software proposal and the proposed documentation
relating thereto.
On April 22, 1998, Mr. Young and Mr. McGlone met with Mr. Konopik, Mr. Kiviat,
John Cook, Sterling Software's Senior Vice President of Business Development,
and James Gilbert, the Chief Financial Officer of the Federal Systems Group, to
discuss various aspects of the Sterling Software proposal. On April 27, 1998,
Mr. Bracci and Paul Argy of Argy Wiltse met with Mr. Gilbert to discuss Sterling
Software's due diligence review of Mystech. On April 28 and 29, 1998, Mr. Young
visited Sterling Software's corporate offices in Dallas, Texas and met with
various representatives of Sterling Software to continue to discuss various
aspects of the Sterling Software proposal. In addition, Mr. Young attended
Sterling Software's "Worldwide Customer Conference" in order to gain a more
comprehensive understanding of Sterling Software's business.
On May 4, 1998, Mr. Young advised Mr. Konopik that there existed a number of
issues that would need to be resolved before agreement could be reached with
respect to the proposed transaction. On May 6, 7 and 8, representives of
Sterling Software conducted a due diligence review of Mystech at the offices of
Hunton & Williams. On May 12 and 13, 1998, Mr. Young, accompanied by
representatives of Hunton & Williams, met at Sterling Software's corporate
offices in Dallas, Texas with various Sterling Software representatives
including Mr. Konopik, Mr. Cook, Don J. McDermett, Jr., Sterling Software's
Senior Vice President and General Counsel, and a representative of Jones Day,
Sterling Software's outside legal counsel, to seek to resolve the principal
outstanding issues and to negotiate the terms of the definitive documentation
for the proposed transaction. At such meeting, and in the days thereafter prior
to May 21, 1998, virtually all
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of such issues were resolved and all of the material terms of the definitive
documentation for the proposed transaction were negotiated.
On May 21, 1998, the Mystech Board met to consider the proposed merger
agreement and stockholder agreement and the transactions contemplated thereby,
including the consideration proposed to be paid to Mystech's shareholders. Mr.
Young and other officers of Mystech, representatives of Hunton & Williams and
representatives of Argy Wiltse made presentations to the Mystech Board and
discussed with the Mystech Board their views and analyses of various aspects of
the proposed transaction. The Mystech Board reviewed and discussed, among other
issues, (i) the background of the proposed transaction, (ii) strategic
alternatives potentially available to Mystech, (iii) financial and valuation
analyses of the proposed transaction (and the opinion contemplated to be
prepared by Willamette for the benefit of the ESOP Trustees), (iv) the terms of
the proposed merger agreement and stockholder agreement, (v) regulatory and tax
aspects of the proposed transaction, and (vi) other matters more fully described
below under "--Mystech's Reasons for the Merger." The Mystech Board decided to
consider additional information prior to making a final determination with
respect to the proposed transaction at a meeting scheduled for May 27, 1998.
On May 27, 1998, the Mystech Board of Directors met to consider and act upon
the proposed Merger Agreement and the transactions contemplated thereby,
including the proposed termination of the Mystech Stock Ownership Agreement. Mr.
Young and other members of Mystech's management and representatives of Hunton &
Williams made presentations to the Mystech Board and discussed with the Mystech
Board their views and analyses of various aspects of the proposed transaction.
The Mystech Board reviewed and discussed, among other things, (i) the background
of the proposed transaction; (ii) strategic alternatives potentially available
to Mystech; (iii) financial and valuation analyses of the proposed transaction
(and the opinion prepared by Willamette for the benefit of the ESOP Trustees);
(iv) the terms of the proposed Merger Agreement and Stockholder Agreement
(including the changes thereto that had been negotiated subsequent to the May
21, 1998 meeting of the Mystech Board); (v) regulatory and tax aspects of the
proposed transaction; and (vi) other matters described below under "--Mystech's
Reasons for the Merger." Following a discussion of the foregoing, and based upon
its review of such factors as it deemed relevant to its decision, the Mystech
Board unanimously adopted the Merger Agreement and approved the termination of
the Mystech Stock Ownership Agreement, and authorized the execution, delivery
and performance of the Merger Agreement.
MYSTECH'S REASONS FOR THE MERGER
The Mystech Board has determined that the Merger is in the best interests of
Mystech and its shareholders. ACCORDINGLY, THE MYSTECH BOARD HAS UNANIMOUSLY
ADOPTED THE MERGER AGREEMENT AND APPROVED THE TERMINATION OF THE MYSTECH STOCK
OWNERSHIP AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE MYSTECH'S SHAREHOLDERS
VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TERMINATION OF THE
MYSTECH STOCK OWNERSHIP AGREEMENT.
In reaching its determination to adopt the Merger Agreement, the Mystech Board
considered a number of factors, including without limitation the factors listed
below:
Consideration to be Received by Mystech Shareholders. The Board considered the
amount and form of the consideration to be received by Mystech's shareholders in
the Merger (i.e., 5.49313 shares of Sterling Software Common Stock per share of
Mystech Common Stock), together with related matters, including: (i) recent and
historical market prices for shares of Sterling Software Common Stock; (ii) the
opportunity for holders of Mystech Common Stock to hold Sterling Software Common
Stock following the Merger and, consequently, to benefit from the growth
potential of Sterling Software following the Merger; (iii) the historical
trading volume of Sterling Software Common Stock and the liquidity associated
with shares of Sterling Software Common Stock (in contrast to the lack of
liquidity associated with shares of Mystech Common Stock); and (iv) the
anticipated absence of federal income taxes on the exchange of shares of Mystech
Common Stock for shares of Sterling Software Common Stock in the Merger.
Mystech's Business, Conditions and Prospects. The Mystech Board considered
information with respect to the financial condition, results of operations and
business of Mystech, on both historical and prospective bases, together with
current industry, economic and market conditions. In this regard, the Mystech
Board considered, among other things, (i) the strengths of Mystech's government
contracting business, including Mystech's technology, market position and
management team, (ii) competitive conditions in the markets in which Mystech
operates, including the capital resources required to compete effectively with
large defense contractors and the inherent limitations on Mystech's existing
capital resources, and (iii) strategic opportunities in the markets in which
Mystech operates, and the limitations on Mystech's ability to take advantage of
such opportunities due to its present size and capital resources.
Sterling Software's Business, Condition and Prospects. The Mystech Board
considered information with respect to the financial condition, results of
operations and business of Sterling Software, on both historical and prospective
bases, together with current industry, economic and market conditions. In this
regard, the Mystech Board considered, among other things, (i) the size and
financial strength of Sterling Software and its superior ability to pursue
growth opportunities in the government contracting industry, (ii) the
diversification of Sterling Software's businesses beyond the government
contracting industry and Sterling Software's position in the markets
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in which it operates, and (iii) Sterling Software's history of sustained growth
(through acquisitions and otherwise) and ongoing growth strategy.
Opinion of Willamette. The Mystech Board considered the opinion delivered by
Willamette to the ESOP Trustees to the effect that (i) the consideration to be
received by the Mystech ESOP for its shares of Mystech Common Stock pursuant to
the transactions contemplated by the Merger Agreement is at least equal to the
fair market value of such shares and (ii) the terms and conditions of the
transactions contemplated by the Merger Agreement are fair to the Mystech ESOP
from a financial point of view. See "--Opinion of ESOP Trustees' Financial
Advisor."
The Provisions of the Merger Agreement. The Mystech Board considered the
provisions of the Merger Agreement, including the absence of any provision in
the Merger Agreement which the Mystech Board considered to be unduly onerous or
likely to materially impede the consummation of the Merger or materially impair
the benefits to Mystech's shareholders sought to be obtained thereby.
Effect of Certain Arrangements on Potential Acquirors. The Mystech Board
considered the effects that certain provisions of the Merger Agreement and the
Stockholder Agreement could have on the willingness of other potential acquirors
to submit proposals for alternative transactions and on the terms of any such
proposals. See "The Merger-- The Merger Agreement--No Solicitation," "--
Termination; Effects of Termination" and "The Stockholder Agreement--Voting of
Shares."
Interests of Certain Persons. The Mystech Board considered the interests of
certain persons, including directors and officers of Mystech, in the Merger, as
described in "The Merger--Interests of Certain Persons in the Merger."
In view of the numerous factors taken into consideration, the Mystech Board did
not consider it practical to, and did not attempt to, quantify or otherwise
assign relative weights to the factors considered by it in reaching its
decision.
OPINION OF THE ESOP TRUSTEES' FINANCIAL ADVISOR
The Mystech Board did not receive an opinion from a financial advisor as to
the fairness of the Merger to the holders of Mystech Common Stock. However, at
its May 27, 1998 meeting, the Mystech Board reviewed the opinion provided by
Willamette to the ESOP Trustees in connection with the transactions contemplated
by the Merger Agreement (the "Willamette Opinion"). The Mystech Board believes
that, with respect to the value of the consideration to be received for shares
of Mystech Common Stock pursuant to the transactions contemplated by the Merger
Agreement and the fairness, from a financial point of view, of the terms and
conditions of the transactions contemplated by the Merger Agreement, the holders
of shares of Mystech Common Stock other than the Mystech ESOP are in no
different position than the Mystech ESOP.
The Willamette Opinion is to the effect that, as of the date thereof, based
upon and subject to the assumptions made, matters considered and limits on the
review undertaken by Willamette, (i) the consideration to be received by the
Mystech ESOP for the shares of Mystech Common Stock held by it pursuant to the
transactions contemplated by the Merger Agreement is at least equal to the fair
market value of such shares and (ii) the terms and conditions of the
transactions contemplated by the Merger Agreement are fair to the Mystech ESOP
from a financial point of view. Willamette has consented to the inclusion of the
Willamette Opinion as Appendix B to this Proxy Statement/Prospectus.
THE FULL TEXT OF THE WILLAMETTE OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY
WILLAMETTE, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE WILLAMETTE OPINION SET
FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE WILLAMETTE OPINION. MYSTECH SHAREHOLDERS ARE
URGED TO READ THE WILLAMETTE OPINION IN ITS ENTIRETY.
In arriving at its opinion, Willamette made such reviews, analyses and
inquiries as it deemed necessary and appropriate under the circumstances. In
this regard, Willamette held discussions with Mystech's management and
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reviewed, among other things: (i) a draft of this Proxy Statement/Prospectus;
(ii) Mystech's audited financial statements for the fiscal years 1993 through
1997; (iii) Mystech's unaudited financial statements for the nine month periods
ended March 31, 1997 and 1998; (iv) certain projected financial information
prepared by Mystech's management; (v) certain publicly available information and
financial data on publicly traded companies similar to Mystech; (vi) the Mystech
Certificate and the Mystech Bylaws; (vii) certain reports filed by Sterling
Software with the Commission; (viii) various investment banks' research reports
on Sterling Software; and (ix) such additional studies, analyses and
investigations as Willamette deemed appropriate.
Willamette did not conduct a physical examination of all of Mystech's
properties or facilities, and did not obtain, and was not provided with, any
independent formal evaluation of such properties and facilities. Willamette
reviewed the financial information and other internal data provided to it and
other publicly available information, and while unable to verify the accuracy
and completeness of such data and information, judged the reasonableness thereof
and made certain adjustments thereto. The Willamette Opinion was necessarily
based upon market, economic and other conditions as they existed on, and could
be evaluated as of, the date of such opinion. In addition, Willamette relied
upon a representation made by management of Mystech that there had been no
material adverse change in the business, financial position or results of
operations of Mystech from March 31, 1998 to the date of the Willamette Opinion.
In arriving at its opinion, Willamette was not authorized to solicit, and did
not solicit, indications of interest from any other person with respect to the
acquisition of Mystech or any of its assets, nor did Willamette review any
potential transactions in lieu of the transactions contemplated by the Merger
Agreement.
Set forth below is a brief summary of the financial analyses performed by
Willamette in connection with its opinion and discussed by the Mystech Board at
its meeting on May 27, 1998.
Historical Prices of Sterling Software Common Stock. In order to derive a
value for shares of Sterling Software Common Stock, Willamette reviewed and
analyzed recent and historical market prices for Sterling Software Common Stock.
Based on the closing sale price of Sterling Software Common Stock as reported on
the NYSE Composite Transactions List on May 26, 1998, the last trading day
before the meeting at which the Mystech Board approved the Merger Agreement, the
implied value of the Merger Consideration was $146.25 per share of Mystech
Common Stock. See "Summary--Market Price Information" for information regarding
historical market prices for Sterling Software Common Stock.
Analysis of Selected Publicly Traded Companies. In order to derive a value for
shares of Mystech Common Stock, Willamette compared certain financial
information and commonly used valuation measurements for Mystech to
corresponding information and measurements for a group of seven publicly traded
information technology service companies (consisting of Analysis & Technology,
Inc., BTG, Inc., CACI International, Comptek Research, Inc., Nichols Research
Corporation, Questech, Inc. and VSE Corporation (collectively, the "Selected
Companies")). Such financial information and valuation measurements included,
among other things, (i) common equity market valuation, (ii) capitalization
ratios, (iii) operating performance, (iv) ratios of common equity market value
as adjusted for debt and cash ("Enterprise Value") to revenues, earnings before
interest expense, income taxes and depreciation and amortization ("EBITDA"),
earnings before interest expense and income taxes ("EBIT"), debt-free cash flow
("DFCF"), debt-free net income ("DFNI") and total book value of invested capital
("TBVIC"). To calculate the trading multiples for the Selected Companies to
compare to the applicable multiple of Mystech, Willamette used publicly
available information concerning historical performance, including published
historical financial information. This analysis indicated (i) ranges of minority
interest value as a multiple of latest 12 months ("LTM") revenues of 0.19x to
0.84x with a median of 0.51x, LTM EBITDA of 5.3x to 12.8x with a median of 9.1x,
LTM EBIT of 10.5x to 21.3x with a median of 14.5x, LTM DFCF of 6.0x to 16.8x
with a median of 12.7x, LTM DFNI of 17.3x to 36.7x with a median of 23.7x, and
LTM TBVIC of 1.3x to 4.7x with a median of 2.8x and (ii) ranges of minority
interest value as a multiple of five-year average revenues of 0.28x to 1.21x
with a median of .63x, five-year average EBITDA of 6.8x to 16.3x with a median
of 11.9x, five-year average EBIT of 12.4x to 25.1x with a median of 16.6x,
five-year average DFCF of 8.7x to 22.1x with a median of 16.5x, and five-year
average DFNI of 20.5x to 41.9x with a median of 27.1x.
In comparison, Mystech had a minority interest value as a multiple of LTM
revenues of .5x, LTM EBITDA of 9.0x, LTM EBIT of 12.5x, LTM DFCF of 12.5x, LTM
DFNI of 20.5x, and LTM TBVIC of 3.7x. The multiples for
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Mystech on a five-year average basis are .65x revenues, 12.0x EBITDA, 14.5x
EBIT, 16.5x DFCF, and 24.0x DFNI. To calculate an Enterprise Value a 25% control
premium was added to the minority interest value.
Willamette also compared the same financial information and valuation
measurements for Mystech to corresponding information and measurements for a
group of four information technology service companies that were acquired in
transactions (the "Selected Transactions") that were consummated within a
reasonable time frame prior to the date of the Williamette Opinion. Those four
companies are BDM International, Inc., Computer Data Systems, Inc., Geodynamics
Corporation, and Logicon, Inc. This analysis indicated (i) ranges of Enterprise
Value as a multiple of LTM revenues of .46x to 1.14x with a median of .85x, LTM
EBITDA of 5.2x to 19.1x with a median of 11.7x, LTM DFCF of 5.5x to 23.1x with a
median of 15.6x, LTM DFNI of 14.0x to 34.3x with a median of 25.0x, and LTM
TBVIC of 0.99x to 4.68x with a median of 4.11x and (ii) ranges of Enterprise
Value as a multiple of three-year average revenues of 0.50x to 1.44x with a
median of 0.98x, three-year average EBITDA of 5.2x to 19.1x with a median of
11.5x, three-year average EBIT of 10.5x to 23.3x with a median of 15.5x,
three-year average DFCF of 6.3x to 28.1x with a median of 17.3x, and three-year
average DFNI of 17.7x to 38.4x with a median of 26.3x.
In comparison, Mystech had an Enterprise Value as a multiple of LTM revenues
of .85x, LTM EBITDA of 10.5x, LTM EBIT of 14.5x, LTM DFCF of 15.5x, LTM DFNI of
25x, and LTM TBVIC of 4.1x. The multiples for Mystech on a three-year average
basis are 1.00x revenues, 11.5x EBITDA, 15.5x EBIT, 17.5x DFCF, and 26.0x DFNI.
None of the Selected Companies or Selected Transactions were identical to
Mystech or the Merger. Willamette believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments reflected in Willamette's opinion
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
Discounted Cash Flow Analysis. In order to derive a value for shares of
Mystech Common Stock, Willamette performed a discounted cash flow analysis for
Mystech. Willamette calculated the discounted cash flow values for Mystech as
the sum of the net present values of (i) the estimated future cash flow that
Mystech will generate over a specified future period, plus (ii) the value of
Mystech at the end of such period. The estimated future cash flows were based on
financial projections for Mystech prepared by Mystech's management. The terminal
value of Mystech was calculated based on projected net cash flow for the first
fiscal year following such period and at a multiple of 11.1x. Willamette used a
discount rate of 14.0%. Willamette used such discount rate based on its judgment
of the estimated weighted average cost of capital of Mystech, and used such
multiple based on the reciprocal of the capitalization rate for which the
formula is the weighted average cost of capital of 14.0% less a long-term growth
rate of 5.0%.
The foregoing analyses produced a range of Enterprise Values for Mystech of
$16.2 million to $19.6 million, or $94.52 to $114.36 per outstanding share of
Mystech Common Stock.
The foregoing summary is not a comprehensive description of all analyses
performed and factors considered by Willamette in connection with preparing the
Willamette Opinion. The preparation of such an opinion is a complex process
involving the application of subjective business judgment in determining the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Willamette believes that its analyses must
be considered as a whole and that considering any portion of such analyses and
of the factors considered without considering all analyses and factors could
create a misleading view of the process underlying the opinion. In arriving at
its fairness determination, Willamette did not assign specific weights to any
particular analyses.
The ESOP Trustees selected Willamette to render an opinion in connection with
the transactions contemplated by the Merger Agreement based on Willamette's
qualifications, expertise, reputation and experience. The ESOP Trustees retained
Willamette pursuant to a letter agreement dated May 19, 1998 (the "Engagement
Letter"). As compensation for Willamette's services in connection with the
transactions contemplated by the Merger Agreement, the Mystech ESOP has agreed
to pay Willamette a cash fee of $35,000 in the aggregate (no portion of which
was made contingent upon the specific conclusions reached in the Willamette
Opinion or upon the consummation of the Merger). The Mystech ESOP has agreed to
reimburse Willamette for reasonable
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travel and other out-of-pocket expenses incurred in connection with the
transactions contemplated by the Merger Agreement or otherwise arising out of
the retention of Willamette under the Engagement Letter. The Mystech ESOP has
also agreed to indemnify Willamette and certain related persons to the full
extent lawful against certain liabilities, including certain liabilities under
the federal securities laws arising out of its engagement or the transactions
contemplated by the Merger Agreement.
Willamette is one of the nation's leading independent financial advisory and
business valuation firms. Willamette's principal business is the valuation of
businesses and business interests, including both privately-held and publicly
traded companies, for all purposes, including employee stock ownership plans,
mergers and acquisitions, divestitures, public offerings, gift and estate taxes,
corporate and partnership recapitalizations, dissolutions and other objectives.
STERLING SOFTWARE'S REASONS FOR THE MERGER
Sterling Software believes that the Merger is in the best interests of it and
its stockholders. Sterling Software maintains a strategy of seeking to acquire
businesses and products to fill strategic market niches. The Merger will permit
Sterling Software to expand its Federal Systems Group to include the highly
specialized information technology services offered by Mystech, and is expected
to result in broadening the current customer base of the Federal Systems Group
to include the customers of Mystech. Although Sterling Software presently
competes on a limited basis with Mystech in certain broadly defined markets, the
Merger would enable Sterling Software to offer highly specialized information
technology services in certain market niches in which it does not currently
compete, and enhance Sterling Software's ability to offer products and services
to certain government entities that are not presently customers of Sterling
Software.
CERTAIN PROJECTED FINANCIAL INFORMATION OF MYSTECH
In the course of the discussions described in "The Merger--Background of the
Merger," Mystech provided Sterling Software with certain business and financial
information which was not publicly available. Such information included, among
other things, certain projected results of operations for Mystech's 1998 and
1999 fiscal years (the "Mystech Projections") prepared by the management of
Mystech. The Mystech Projections do not take into account any of the potential
effects of the Merger. Set forth below is a summary of the Mystech Projections.
<TABLE>
<CAPTION>
YEAR ENDING YEAR ENDING
JUNE 30, 1998 JUNE 30, 1999
-------------- --------------
(in thousands)
<S> <C> <C>
Revenue................................. $32,538 $40,000
Operating income........................ 1,147 2,100
Interest expense........................ (203) (90)
Income tax provision.................... (231) (800)
Loss from equity method (1)............. (388) -
Net income.............................. 347 1,210
</TABLE>
___________________
(1) Represents Mystech's share of losses incurred by Telemedicine
Applications Company, LLC ("TMAC") and related unreimbursed costs
incurred by Mystech during the period. Mystech disposed of its former
50% interest in TMAC as of September 19, 1997.
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The projected results of operations for Mystech's 1998 fiscal year included in
the Mystech Projections were based upon actual results of operations for the
nine months ended March 31, 1998 and projected results of operations for the
three months ending June 30, 1998. The principal assumptions underlying the
projected results of operations for the three months ending June 30, 1998 (as
compared to the nine months ended March 31, 1998) are as follows: (i) no
existing customer contracts will be terminated and all customer contracts that
are scheduled to expire or are otherwise subject to renewal will be renewed on
substantially identical terms; (ii) revenue and cost of sales will continue as
in the prior nine months and as expected under the contracts in place as of
March 31, 1998; (iii) general and administrative expenses will generally be
consistent with the level thereof during the prior nine months; (iv) interest
expense will decrease due to reduced usage of Mystech's revolving credit
facility and the repayment of all long-term debt in January 1998.
The principal assumptions underlying the projected results of operations for
Mystech's 1999 fiscal year included in the Mystech Projections (as compared to
the projected results of operations for Mystech's 1998 fiscal year included
therein) are as follows: (i) no existing customer contracts will be terminated
and all customer contracts that are scheduled to expire or are otherwise subject
to renewal will be renewed on substantially identical terms; (ii) revenue will
increase by 23% as a result of additional contract awards and increased staffing
on existing contracts; (iii) cost of sales will increase by 27% due to a change
in Mystech's cost structure resulting from the identification of costs as
attributable to the performance of certain contracts as allocable under the
federal government's Cost Accounting Standards (CAS) and the Federal Acquisition
Regulations (FAR) that were not previously identifiable as such under CAS and
FAR; (iv) general and administrative expenses will decrease by 8% as a result of
operational efficiencies created by the increased volume and the change in
Mystech's cost structure resulting in costs formally accounted for as general
and administrative expenses being accounted for as cost of sales under CAS and
FAR; (v) interest expense will decrease by 66% as the result repayment of all
long-term debt during 1998 and an assumed $1.1 million net repayment of short
term borrowings.
The Mystech Projections are included in this Proxy Statement/Prospectus only
because such information was provided to Sterling Software in connection with
its evaluation of the Merger. As a matter of course, neither Sterling Software
nor Mystech makes public projections or forecasts of its anticipated financial
position or results of operations. Accordingly, neither Sterling Software nor
Mystech anticipates that it will, and each of them disclaims any obligation to,
furnish updated projections to any person, cause such information to be included
in documents required to be filed with the Commission, or otherwise make such
information public (irrespective in any such case of whether the Mystech
Projections, in light of events or developments occurring after the date hereof,
cease to have a reasonable basis).
While presented with numerical specificity, the Mystech Projections are based
upon a variety of assumptions relating to general economic conditions and the
business of Mystech which may not be realized and are subject to significant
uncertainties and contingencies, many of which are beyond the control of
Sterling Software and Mystech. There can be no assurance that the Mystech
Projections will be realized and actual results may vary materially from those
shown. The inclusion of the Mystech Projections herein should not be regarded
as an indication that either Mystech or Sterling Software considers such
projections to be an accurate prediction of future events.
The Mystech Projections were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants.
The Mystech Projections should be evaluated in conjunction with the historical
financial statements and other information contained in reports and statements
filed with the Commission from time to time by Sterling Software and the
information set forth under the captions "Note Regarding Forward-Looking
Information" and "Risk Factors."
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus.
The Merger. On the terms and subject to the conditions set forth in the
Merger Agreement, at the Effective Time (i) Merger Sub will be merged with and
into Mystech and (ii) the separate corporate existence of Merger Sub will cease
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and Mystech will continue as the Surviving Company. As soon as practicable, but
in no event later than the second business day following the date on which the
last of the conditions set forth in the Merger Agreement (other than those that
by their nature are to be satisfied at the Closing) is satisfied or waived,
Merger Sub and Mystech will cause the Certificate of Merger to be filed with the
Secretary of State of the State of Connecticut as provided in the Connecticut
Act. The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Connecticut. The Merger will
have the effects set forth in the applicable provisions of the Connecticut Act.
Consideration to be Paid in the Merger. The Merger Agreement provides that at
the Effective Time, by virtue of the Merger and without any action on the part
of any holder thereof: (i) each share of Mystech Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Mystech Common Stock owned by Mystech or any subsidiary of Mystech or by
Sterling Software, Merger Sub or any other subsidiary of Sterling Software) will
be converted into the right to receive 5.49313 fully paid and nonassessable
shares of Sterling Software Common Stock and (ii) each share of common stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately prior
to the Effective Time will be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Company. Each share of Mystech Common Stock issued and
outstanding immediately prior to the Effective Time that is owned by Mystech or
any subsidiary of Mystech or by Sterling Software, Merger Sub or any other
subsidiary of Sterling Software (other than shares of Mystech Common Stock held
in trust accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties) will automatically be canceled and retired
and will cease to exist and no cash or other consideration will be delivered or
deliverable in exchange therefor.
One right (a "Right") issuable pursuant to the Rights Agreement will be issued
together with and will attach to each share of Sterling Software Common Stock
issued pursuant to the immediately preceding paragraph unless the Rights shall
have expired or been redeemed prior to the Effective Time.
Dissenting Shares. The Merger Agreement provides that shares of Mystech
Common Stock outstanding immediately prior to the Effective Time held by a
holder who has perfected the right to obtain payment of the fair value of such
shares in accordance with Sections 33-855 to 33-872 of the Connecticut Act
("Dissenting Shares") will not be converted into the right to receive shares of
Sterling Software Common Stock unless the holder thereof fails to perfect or
otherwise loses such holder's right to obtain payment of the fair value of his
shares. If, after the Effective Time, such a holder fails to perfect or loses
any such right to obtain payment of the fair value of his shares, each such
share of such holder will be treated as a share that had been converted as of
the Effective Time into the right to receive the Merger Consideration in
accordance with the Merger Agreement.
Treatment of Mystech Stock Options. The Merger Agreement provides that, at
the Effective Time, each Mystech Option, whether or not then vested or fully
exercisable, will be assumed by Sterling Software and will constitute an option
(a "Substitute Option") to acquire, on substantially the same terms and subject
to substantially the same conditions as were applicable under such Mystech
Option, including without limitation term, vesting, exercisability and
termination provisions, the number of shares of Sterling Software Common Stock
(rounded down to the nearest whole share) determined by multiplying (i) the
number of shares of Mystech Common Stock subject to such Mystech Option
immediately prior to the Effective Time by (ii) the Option Conversion Factor, at
an exercise price per share of Sterling Software Common Stock (increased to the
nearest whole cent) equal to (i) the exercise price per share of Mystech Common
Stock subject to such Mystech Option divided by (ii) the Option Conversion
Factor.
Mystech has agreed to use all reasonable efforts to obtain all necessary
waivers, consents or releases from holders of Mystech Options under the Mystech
Stock Option Plan and take any such other action as may be reasonably necessary
to give effect to the transactions described in the immediately preceding
paragraph. Sterling Software has agreed to take all corporate action necessary
to reserve for issuance a sufficient number of shares of Sterling Software
Common Stock for delivery upon exercise of Substitute Options. Sterling
Software has also agreed to register such shares with the Commission on an
appropriate registration statement, to use all reasonable efforts to maintain
the effectiveness of such registration statement as long as such Substitute
Options remain outstanding and to use all reasonable efforts to cause such
shares of Sterling Software Common Stock to be listed on the NYSE.
Fractional Shares. No certificates representing fractional shares of Sterling
Software Common Stock will be issued pursuant to the Merger. In lieu of any
such fractional shares, each holder of shares of Mystech Common Stock
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<PAGE>
who otherwise would be entitled to receive a fractional share of Sterling
Software Common Stock pursuant to the Merger will be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying (i)
the per share closing price of Sterling Software Common Stock on the NYSE on the
Closing Date by (ii) the fractional interest to which such holder would
otherwise be entitled.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations by Mystech with respect to: (i) organization, good standing and
corporate power; (ii) authority and noncontravention; (iii) consents and
approvals; (iv) capital structure; (v) financial statements; (vi) absence of
certain changes or events and undisclosed liabilities; (vii) real property and
other assets; (viii) software; (ix) intellectual property; (x) material
contracts; (xi) litigation; (xii) compliance with laws; (xiii) environmental
laws; (xiv) taxes; (xv) benefit plans; (xvi) labor matters; (xvii) tax and
accounting matters; (xviii) brokers' fees; (xix) the opinion of the ESOP
Trustees' financial advisor; (xx) voting requirements; and (xxi) disclosure of
material information.
Sterling Software and Merger Sub have also made certain representations and
warranties with respect to: (i) organization, good standing and corporate power;
(ii) authority and noncontravention; (iii) capital structure; (iv) documents
filed with the Commission; (v) absence of certain changes or events; (vi)
brokers' fees; (vii) tax and accounting matters; and (viii) disclosure of
material information.
No representations and warranties made by Mystech, Sterling Software or Merger
Sub will survive beyond the Effective Time.
No Solicitation. The Merger Agreement provides that, from and including the
date of the Merger Agreement to the Effective Time, Mystech will not, and will
not authorize or permit any of its subsidiaries, or any of its or their
affiliates, officers, directors, employees, agents or representatives (including
without limitation any investment banker, financial advisor, attorney or
accountant retained by Mystech or any of its subsidiaries), to, directly or
indirectly, initiate, solicit, or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries, any expression of interest or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal; except
that nothing in the Merger Agreement will prohibit the Mystech Board, prior to
the time at which the Merger Agreement is approved by Mystech's shareholders,
from furnishing information to, or entering into, maintaining or continuing
discussions or negotiations with, any person that makes an unsolicited bona fide
written Acquisition Proposal after the date of the Merger Agreement, if, and to
the extent that, the Mystech Board, after consultation with and based upon the
advice of independent legal counsel, determines in good faith that (i) such
Acquisition Proposal would be more favorable to the Mystech shareholders than
the Merger, and (ii) the failure to take such action would result in a breach by
the Mystech Board of its fiduciary duties to the Mystech shareholders under
applicable law, and, prior to furnishing any non-public information to such
person, Mystech receives from such person an executed confidentiality agreement
with provisions no less favorable to Mystech than the confidentiality agreement
entered into by Sterling Software and Mystech in connection with the Merger. The
Merger Agreement further provides that Mystech will promptly (and, in any event
within 24 hours) notify Sterling Software after receipt by Mystech of any
Acquisition Proposal or any request for information relating to Mystech or its
subsidiaries or for access to the properties, books or records of Mystech or any
of its subsidiaries by any person who has informed Mystech that such person is
considering making, or has made, an Acquisition Proposal (which notice will
identify the person making, or considering to make, such Acquisition Proposal
and will set forth the material terms of any Acquisition Proposal received), and
Mystech will keep Sterling Software informed in reasonable detail of the terms,
status and other pertinent details of any such Acquisition Proposal. For
purposes of the Merger Agreement, "Acquisition Proposal" means an inquiry,
offer, proposal or indication of interest regarding any of the following (other
than the transactions contemplated by the Merger Agreement with Sterling
Software or Merger Sub) involving Mystech: (i) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all of the assets of Mystech and its subsidiaries, taken
as a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of Mystech or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
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<PAGE>
The Merger Agreement further provides that during the period from and
including the date thereof to and including the Effective Time, neither the
Mystech Board nor any committee thereof will withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Sterling Software or
Merger Sub, the approval of the Merger Agreement or the transactions
contemplated thereby or the recommendation referred to in "--Mystech Shareholder
Meeting" below, except that nothing contained in the Merger Agreement will
prohibit the Mystech Board from withdrawing or modifying such recommendation
following the receipt by Mystech after the date of the Merger Agreement, under
circumstances not involving any breach of the provisions described in the
immediately preceding paragraph, of an unsolicited Acquisition Proposal if, and
to the extent that, the Mystech Board, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that (i) the
transactions contemplated by such Acquisition Proposal would be more favorable
to Mystech's shareholders than the transactions contemplated by the Merger
Agreement and (ii) the failure to take such action would result in a breach by
the Mystech Board of its fiduciary duties to Mystech's shareholders under
applicable law. No such action taken by the Mystech Board will (i) have any
effect on Mystech's obligations described under "--Mystech Shareholder Meeting"
below to hold the Special Meeting, which obligations are absolute and
unconditional, (ii) permit Mystech to terminate the Merger Agreement, (iii)
permit Mystech to enter into any agreement providing for any transaction
contemplated by an Acquisition Proposal for as long as the Merger Agreement
remains in effect, or (iv) affect in any manner any other obligation of Mystech
under the Merger Agreement.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligation of each party to effect the Merger is subject to the satisfaction or
written waiver on or prior to the Closing Date of the following conditions: (i)
the Merger Agreement shall have been approved by the affirmative vote of the
holders of the requisite number of shares of capital stock of Mystech in the
manner required pursuant to Mystech's Certificate of Incorporation (the "Mystech
Certificate"), Mystech's Bylaws (the "Mystech Bylaws"), the Connecticut Act and
other applicable law; (ii) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; (iii) the shares of Sterling Software Common
Stock issuable to the Mystech shareholders pursuant to the Merger shall have
been approved for listing on the NYSE, subject to official notice of issuance;
(iv) the Registration Statement shall have been declared effective under the
Securities Act and not be the subject of any stop order or proceedings seeking a
stop order; (v) all necessary waiting periods under the HSR Act applicable to
the Merger shall have expired or been earlier terminated; and (vi) Sterling
Software shall have received a letter from Ernst & Young setting forth the
concurrence of Ernst & Young with the conclusion of Sterling Software's
management that the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board and applicable rules and
regulations of the Commission if consummated in accordance with the Merger
Agreement.
The obligation of each of Sterling Software and Merger Sub to effect the
Merger is further subject to satisfaction or written waiver on or prior to the
Closing Date of the following conditions: (i) the representations and warranties
of Mystech contained in the Merger Agreement, which representations and
warranties are deemed for purposes of this condition not to include any
qualification or limitation with respect to materiality (whether by reference to
Material Adverse Effect (as defined below) or otherwise), shall be true and
correct as of the Closing Date, except where the matters in respect of which
such representations and warranties are not true and correct, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on Mystech (such exception being inapplicable to the representations and
warranties of Mystech relating to its capital structure), with the same effect
as though such representations and warranties were made as of the Closing Date,
and Sterling Software and Merger Sub shall have received a certificate signed on
behalf of Mystech by an authorized officer of Mystech to such effect; (ii)
Mystech shall have performed in all material respects all obligations required
to be performed by it under the Merger Agreement at or prior to the Closing
Date, and Sterling Software and Merger Sub shall have received a certificate
signed on behalf of Mystech by an authorized officer of Mystech to such effect;
(iii) there shall not be pending or threatened any suit, action or proceeding
seeking to restrain or prohibit the Merger or seeking to obtain from Sterling
Software or Mystech or any of their respective affiliates in connection with the
Merger any material damages, or seeking any other relief that, following the
Merger, would materially limit or restrict the ability of Sterling Software and
its subsidiaries to own and conduct both the assets and businesses owned and
conducted by Sterling Software and its subsidiaries prior to the Merger and the
assets and businesses owned and conducted by Mystech and its subsidiaries prior
to the Merger; (iv) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental entity or any other person
required to be obtained or made prior to the Effective Time in connection with
the execution, delivery and performance of the Merger Agreement shall have been
obtained or made, except for the filing of the Certificate of Merger and except
where the failure to have obtained or made such consents, authorizations,
orders, approvals, filings
24
<PAGE>
or registrations could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Sterling Software or the Surviving
Company; (v) Sterling Software shall have received from Jones Day, counsel to
Sterling Software, on the Closing Date, an opinion, dated as of the Closing
Date, to the effect that for federal income tax purposes (A) the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code and
that each of Mystech, Sterling Software and Merger Sub will be a party to that
reorganization within the meaning of Section 368(b) of the Code, (B) no gain or
loss will be recognized by Mystech, Sterling Software or Merger Sub upon the
consummation of the Merger, and (C) no gain or loss will be recognized by the
shareholders of Mystech upon their exchange of shares of Mystech Common Stock
for Sterling Software Common Stock under Section 354 of the Code (except with
respect to the receipt of cash in lieu of fractional shares); and (vi) the
Mystech Stock Ownership Agreement shall have been terminated and shall be of no
further force or effect. For purposes of the Merger Agreement, a "Material
Adverse Effect" with respect to any person means a material adverse effect on
(i) the ability of such person to perform its obligations under the Merger
Agreement or to consummate the transactions contemplated thereby or (ii) the
condition (financial or otherwise), assets, liabilities (actual or contingent),
results of operations or business of such person and its subsidiaries taken as a
whole.
The obligation of Mystech to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions: (i) the representations and warranties of each of Sterling Software
and Merger Sub contained in the Merger Agreement, which representations and
warranties are deemed for purposes of this condition 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 as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, has not had and could
not reasonably be expected to have a Material Adverse Effect on Sterling
Software, with the same effect as though such representations and warranties
were made as of the Closing Date, and Mystech shall have received a certificate
signed on behalf of Sterling Software and Merger Sub by an authorized officer of
Sterling Software to such effect; (ii) each of Sterling Software and Merger Sub
shall have performed in all material respects all obligations required to be
performed by it under the Merger Agreement at or prior to the Closing Date, and
Mystech shall have received a certificate signed on behalf of Sterling Software
by an authorized officer of Sterling Software to such effect; and (iii) Mystech
shall have received from Hunton & Williams, counsel to Mystech, on the Closing
Date, an opinion, dated as of the Closing Date, to the effect that for federal
income tax purposes (A) the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code and that each of Mystech, Sterling
Software and Merger Sub will be a party to that reorganization within the
meaning of Section 368(b) of the Code, (B) no gain or loss will be recognized by
Mystech, Sterling Software or Merger Sub upon the consummation of the Merger,
and (C) no gain or loss will be recognized by the shareholders of Mystech upon
their exchange of shares of Mystech Common Stock for Sterling Software Common
Stock under Section 354 of the Code (except with respect to the receipt of cash
in lieu of fractional shares).
Termination; Effects of Termination. The Merger Agreement may be terminated
and the transactions contemplated thereby may be abandoned at any time prior to
the Effective Time, notwithstanding approval thereof by the Mystech
shareholders, in any one of the following circumstances: (i) by mutual written
consent duly authorized by the Sterling Software Board and the Mystech Board;
(ii) by Sterling Software or Mystech, if the Effective Time shall not have
occurred on or before August 31, 1998 (otherwise than as a result of a material
breach of any provision of the Merger Agreement by the party seeking to effect
such termination); (iii) by Sterling Software or Mystech, if any federal or
state court of competent jurisdiction or other governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and non-appealable; (iv)
by Sterling Software or Mystech, if the Special Meeting shall have been held and
the Merger Agreement shall not have been approved by the affirmative vote of the
requisite number of shares of capital stock of Mystech; (v) by Sterling
Software, if (A) the Mystech Board or any committee thereof shall have (1)
withdrawn or modified, in a manner adverse to Sterling Software or Merger Sub,
its approval or recommendation of the Merger Agreement or the other transactions
contemplated by the Merger Agreement, (2) approved, endorsed or recommended to
its shareholders an Acquisition Proposal, or (3) resolved to do any of the
foregoing or (B) if the Special Meeting shall not have been held by July 31,
1998 as a result of a breach by Mystech of its obligations described in "--
Mystech Shareholders Meeting"; or (vi) by Sterling Software or Mystech, if (A)
the other party shall have failed to comply in any material respect with any of
the material covenants and agreements contained in the Merger Agreement to be
complied with or performed by such party at or prior to such date of
termination, and such failure continues for 20 business days after the actual
receipt by such party of a written notice from the other party setting forth in
detail the nature of such failure, or (B) the representations and warranties of
the
25
<PAGE>
other party contained in the Merger Agreement, which representations and
warranties are deemed not to include any qualification or limitation with
respect to materiality (whether by reference to a Material Adverse Effect or
otherwise), shall have been untrue in any respect on the date when made (or in
the case of any representations and warranties that are made as of a different
date, as of such different date) and the matters in respect of which such
representations and warranties shall have been untrue, in the aggregate, have
had or could reasonably be expected to have a Material Adverse Effect on such
other party.
If the Merger Agreement is terminated based upon an event described in clause
(iv) of the immediately preceding paragraph, Mystech will be required to pay to
Sterling Software a fee in an amount equal to: (i) $1,246,282, if the closing
price per share of Sterling Software Common Stock on the trading day immediately
prior to the date on which the Special Meeting is held (the "Sterling Software
Stock Price") is equal to or greater than $22.4719; (ii) the product of (A)
$1,246,282, (B) the quotient obtained by dividing the amount by which the
Sterling Software Stock Price exceeds $13.2188 by $26.4375, and (C) 2.85714286,
if the Sterling Software Stock Price is less than $22.4719 but greater than
$13.2188; and (iii) zero, if the Sterling Software Stock Price is equal or less
than $13.2188; whichever is applicable. In addition, if Mystech enters into any
agreement providing for any transaction contemplated by an Acquisition Proposal
within 12 months after such termination, Mystech will be required to pay to
Sterling Software a supplemental fee in an amount equal to the amount by which
$2,492,563 exceeds the amount theretofore paid by Mystech to Sterling Software
as described in the immediately preceding sentence.
If the Merger Agreement is terminated based upon an event described in clause
(v) of the second preceding paragraph, Mystech will be required to pay a fee in
an amount equal to $1,246,282. In addition, if Mystech enters into any
agreement providing for any transaction contemplated by an Acquisition Proposal
within 12 months after such termination, Mystech will be required to pay to
Sterling Software a supplemental fee in an amount equal to the amount by which
$2,492,563 exceeds the amount theretofore paid by Mystech to Sterling Software
as described in the immediately preceding sentence.
The Merger Agreement provides that in the event of the termination thereof as
described in the first paragraph under "The Merger--The Merger Agreement--
Termination; Effects of Termination," the Merger Agreement (except for the
provisions described in the two immediately preceding paragraphs and certain
other specified provisions thereof) will cease to have any force or effect
without any liability on the part of any party thereto. However, the provision
of the Merger Agreement described in the immediately preceding sentence would
not relieve any party to the Merger Agreement from liability for any willful or
intentional breach of the Merger Agreement.
Mystech Shareholders Meeting. The Merger Agreement provides that Mystech will
take all action necessary, in accordance with the Connecticut Act, the Exchange
Act (to the extent applicable) and other applicable law and the Mystech
Certificate and the Mystech Bylaws, to convene and hold a special meeting of
Mystech shareholders as promptly as practicable after the date of the Merger
Agreement for the purpose of considering and voting upon the Merger Agreement
and to solicit proxies in connection therewith. The Merger Agreement also
provides that, subject to the right of the Mystech Board to withdraw or modify
its recommendation as described in the second paragraph under the caption "--No
Solicitation" above, the Mystech Board will recommend that the holders of shares
of Mystech Common Stock vote in favor of the approval of the Merger Agreement at
the Special Meeting and cause such recommendation to be included in this Proxy
Statement/Prospectus.
Consents, Approvals and Filings. The Merger Agreement provides that each of
the parties to the Merger Agreement will (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act
and the Exchange Act, with respect to the Merger and the other transactions
contemplated by the Merger Agreement and (ii) use all reasonable efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement, including without limitation
using all reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental entities
and parties to contracts with Mystech and its subsidiaries as are necessary for
the consummation of the Merger and the other transactions contemplated by the
Merger Agreement and to fulfill the conditions to the Merger, except that in no
event will Sterling Software or any of its subsidiaries be required to agree or
commit to divest, hold separate, offer for sale, abandon, limit its operation of
or take similar action with respect to any assets (tangible or intangible) or
any business interest of it or any of its subsidiaries (including without
limitation
26
<PAGE>
the Surviving Company after consummation of the Merger) in connection with or as
a condition to receiving the consent or approval of any governmental entity
(including without limitation under the HSR Act). See "The Merger--Regulatory
Approvals."
Employee Benefit Matters. The Merger Agreement provides that, from and after
the Effective Time, Sterling Software will, and will cause its subsidiaries
(including the Surviving Company) to, honor and provide for payment of all
accrued obligations and benefits under all employee benefit plans of Mystech and
employment or severance agreements between Mystech and any persons who are or
had been employees of Mystech or any of its subsidiaries at or prior to the
Effective Time ("Covered Employees"), all in accordance with their respective
terms.
The Merger Agreement further provides that, from and after the Effective Time,
Sterling Software will, and will cause its subsidiaries (including the Surviving
Company) to, provide Covered Employees who remain in the employ of Sterling
Software or any such subsidiary employee benefits that are reasonably comparable
to the employee benefits provided to similarly situated employees of Sterling
Software or any such subsidiary who are not Covered Employees. The Merger
Agreement also provides that, to the extent Covered Employees are included in
any benefit plan of Sterling Software or its subsidiaries, Covered Employees
will receive credit under such plan (other than any such plan providing for
sabbaticals) for service prior to the Effective Time with Mystech to the same
extent such service was counted under similar Mystech employee benefit plans for
purposes of eligibility, vesting, eligibility for retirement (but not for
benefit accrual) and, with respect to vacation, disability and severance,
benefit accrual. The Merger Agreement also provides that, to the extent that
Covered Employees are included in any medical, dental or health plan other than
the plan or plans they participated in at the Effective Time, any such plans
will not include pre-existing condition exclusions, except to the extent such
exclusions were applicable under the similar Mystech employee benefit plan at
the Effective Time, and will provide credit for any deductibles and co-payments
applied or made with respect to each Covered Employee in the calendar year of
the change.
The Merger Agreement provides that Sterling Software will take all actions
necessary to effect the merger (the "Plan Merger") of the Mystech ESOP and the
Mystech Associates, Inc. 401(k) Plan with and into the Sterling Software, Inc.
Savings and Security Plan.
Fees and Expenses. The Merger Agreement provides that each party will pay its
own expenses incident to preparing for, entering into and carrying out the
Merger Agreement and the consummation of the transactions contemplated thereby,
except that each of Sterling Software and Mystech will bear and pay one-half of
the costs and expenses incurred in connection with filing, printing and mailing
of the Registration Statement and this Proxy Statement/Prospectus and the filing
of the premerger notification and report forms under the HSR Act. If the Merger
is ultimately consummated, Sterling Software (directly or through its ownership
of the Surviving Company) will bear all costs of such transactions.
Amendment. Subject to the applicable provisions of the Connecticut Act, at
any time prior to the Effective Time the parties to the Merger Agreement may
modify or amend the Merger Agreement by written agreement executed and delivered
by duly authorized officers of the respective parties, except that after
approval of the Merger Agreement at the Special Meeting, no amendment will be
made which would reduce the amount or change the type of consideration into
which each share of Mystech Common Stock will be converted upon consummation of
the Merger.
STOCK EXCHANGE LISTING
The Merger Agreement provides that Sterling Software will use all reasonable
efforts to cause the shares of Sterling Software Common Stock to be issued in
connection with the Merger to be approved for listing on the NYSE, subject to
official notice of issuance. It is a condition to the parties' obligations to
consummate the Merger that such shares will have been approved for listing,
subject to official notice of issuance. See "--The Merger Agreement--Conditions
to the Merger." The shares of Sterling Software Common Stock are traded on the
NYSE under the symbol "SSW."
ACCOUNTING TREATMENT
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<PAGE>
It is expected that the Merger will be accounted for under the pooling of
interests method of accounting. It is a condition to the obligations of each of
Sterling Software and Mystech under the Merger Agreement that Sterling Software
shall have received a letter from Ernst & Young setting forth the concurrence of
Ernst & Young with the conclusion of Sterling Software's management that the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and the applicable rules and regulations of the
Commission if consummated in accordance with the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences of the Merger and is based on the Code, the final, proposed and
temporary Treasury Regulations promulgated thereunder, administrative rulings
and interpretations, and judicial decisions, in each case as in effect as of the
date hereof. All of the foregoing are subject to change at any time, possibly
with retroactive effect. The discussion set forth below does not address all
aspects of federal income taxation that may be relevant to a shareholder in
light of such shareholder's particular circumstances or to shareholders subject
to special rules under the federal income tax laws, such as non-United States
persons, financial institutions, tax-exempt organizations, insurance companies,
dealers in securities or shareholders who acquired their shares of Mystech
Common Stock pursuant to the exercise of employee stock options, pursuant to the
Mystech ESOP or otherwise as compensation, nor any consequences arising under
the laws of any state, locality or foreign jurisdiction. This discussion assumes
that holders of Mystech Common Stock hold their respective shares as capital
assets within the meaning of Section 1221 of the Code.
Neither Sterling Software or Mystech intends to secure a ruling from the
Internal Revenue Service with respect to the tax consequences of the Merger.
Jones Day has delivered to Sterling Software an opinion, dated ______, 1998, a
copy of which is filed as Exhibit 8.1 to the Registration Statement, to the
effect (based upon and subject to the assumptions and other matters referred to
therein) that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, that each of
Mystech, Sterling Software and Merger Sub will be a party to that reorganization
within the meaning of Section 368(b) of the Code, that no gain or loss will be
recognized by Mystech, Sterling Software or Merger Sub upon consummation of the
Merger, and that no gain or loss will be recognized by the shareholders of
Mystech upon their exchange of shares of Mystech Common Stock for Sterling
Software Common Stock under Section 354 of the Code (except with respect to
receipt of cash in lieu of fractional shares). Hunton & Williams has delivered
to Mystech an opinion, dated ______, 1998, a copy of which is filed as Exhibit
8.2 to the Registration Statement, to the same effect (and based upon and
subject to the assumptions and other matters referred to therein).
Cash received in lieu of fractional share interests will be treated as
received in exchange for a fractional share of Sterling Software Common Stock
deemed to have been received in the Merger. In general, such exchange will
result in the recognition of gain or loss measured by the difference between the
amount of cash received and the tax basis in the shares of the Mystech Common
Stock surrendered that is allocable to the fractional share of Sterling Software
Common Stock deemed to have been exchanged for cash. Such gain or loss will be
capital gain or loss and, in the case of an individual shareholder, any gain
will generally be taxed at a maximum rate of 20% if such Mystech Common Stock is
considered to have been held for more than 18 months at the Effective Time, or
at a maximum rate of 28% if Mystech Common Stock is considered to have been held
for more than one year but not more than 18 months at the Effective Time.
Because the Mystech ESOP is exempt from federal income tax, any such gain
recognized by the Mystech ESOP in connection with the Merger will not be subject
to such tax.
The aggregate tax basis of Sterling Software Common Stock received as a result
of the Merger will be the same as the shareholder's aggregate tax basis in the
Mystech Common Stock surrendered in the exchange, decreased by the basis
allocable to fractional shares for which cash is received in the Merger. The
holding period of the Sterling Software Common Stock held by former holders of
Mystech Common Stock as a result of the exchange will include the period during
which such shareholders held the Mystech Common Stock exchanged.
HOLDERS OF MYSTECH COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTION, INCLUDING THE
28
<PAGE>
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY APPROVALS
Sterling Software and Mystech must observe the notification and waiting period
requirements of the HSR Act before the Merger may be consummated. The HSR Act
provides for an initial 30-calendar day waiting period following the filing with
the Antitrust Division and the FTC of certain Notification and Report Forms by
Sterling Software and Mystech. The HSR Act further provides that if, within the
initial 30-calendar day waiting period, the FTC or the Antitrust Division issues
a request for additional information or documents, the waiting period will be
extended until 11:59 p.m. on the twentieth day after the date of substantial
compliance by the filing parties with such request. Only one such extension of
the initial waiting period is permitted under the HSR Act; however, the filing
parties may voluntarily extend the waiting period.
Sterling Software and Mystech have made the requisite initial filings under
the HSR Act in connection with the Merger. The initial waiting period with
respect to such filings will expire at 11:59 p.m. on June ___, 1998.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Effective Time, the FTC or the Antitrust Division could, among other
things, seek under the antitrust laws to enjoin the Merger or to cause Sterling
Software to divest itself, in whole or in part, of Mystech or of other
businesses conducted by Sterling Software. Under certain circumstances, private
parties and state governmental authorities may also bring legal action under the
antitrust laws challenging the Merger. See "--The Merger Agreement--Conditions
to the Merger" and "--Consents, Approvals and Filings."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of Mystech's management and the Mystech Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as shareholders of Mystech generally. Such interests relate to, among
other things, provisions in the Merger Agreement regarding the treatment of
outstanding Mystech Options and the performance and provision of obligations and
benefits under existing benefit plans. The Mystech Board was aware of these
interests and considered them, among other matters, in adopting the Merger
Agreement. See "The Merger--The Merger Agreement--Treatment of Mystech Stock
Options" and "--Employee Benefit Matters."
Mystech Stock Option Plan. Under the Mystech Stock Option Plan, Mystech has
granted Mystech Options to selected officers and employees. As a result of the
Merger, outstanding Mystech Options will be assumed by Sterling Software and
will constitute options to acquire Sterling Software Common Stock. See "The
Merger--The Merger Agreement--Treatment of Mystech Stock Options."
The following table sets forth, with respect to each of the executive officers
of Mystech (the "Mystech Executive Officers"), the number of shares of Mystech
Common Stock subject to Mystech Options held by such officer as of May 27, 1998
and the estimated aggregate immediately realizable value of Substitute Options
which will be received in respect thereof, upon the consummation of the Merger
(before deduction for applicable withholding taxes), based on the price of
Sterling Software Common Stock at the close of business on May 27, 1998 of
$26 5/16 and determined by subtracting the aggregate exercise price of such
Substitute Options from the total value of the shares of Sterling Software
Common Stock subject to such Substitute Options.
<TABLE>
<CAPTION>
ESTIMATED
NUMBER OF AGGREGATE
SHARES VALUE
------------- ------------
<S> <C> <C>
David L. Young.......................... 3,300 $ 309,637
Robert J. Cotter, Jr.................... 2,800 263,276
Steven P. Bracci........................ 2,700 272,726
John C. McGlone......................... 2,800 230,277
</TABLE>
29
<PAGE>
DISSENTERS' RIGHTS
Under the Connecticut Act, holders of Mystech Common Stock are entitled to
dissenters' rights under Sections 33-855 to 33-872 of the Connecticut Act in
connection with the Merger. Any holder of Mystech Common Stock who objects to
the Merger may elect to exercise his dissenters' rights under the procedures set
forth in Sections 33-855 to 33-872 of the Connecticut Act and be paid the fair
value of his shares, which will be the value of the shares immediately before
the effectuation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger. An appraisal proceeding may result in a
determination of fair value less or greater than the value of the consideration
payable in respect of such shares pursuant to the Merger.
Any holder of Mystech Common Stock contemplating the exercise of dissenters'
rights is urged to review carefully the provisions of Sections 33-855 to 33-872
of the Connecticut Act (which sections are attached as Appendix C hereto),
particularly with respect to the procedural steps required to perfect the right
to dissent. The right to dissent may be lost if the procedural requirements of
Sections 33-855 to 33-872 of the Connecticut Act are not followed exactly. Set
forth below, to be read in conjunction with the full text of Sections 33-855 to
33-872 of the Connecticut Act attached as Appendix C hereto, is a summary of the
procedures relating to exercise of the right to dissent. The following
discussion is not intended to be complete and is qualified in its entirety by
reference to Sections 33-855 to 33-872 of the Connecticut Act.
Under the Connecticut Act, a record shareholder may assert dissenters' rights
as to fewer than all the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter are determined as
if the shares as to which he dissents and his other shares were registered in
the names of different shareholders. A beneficial shareholder may assert
dissenters' rights as to shares held on his behalf only if: (i) he submits to
the corporation the record shareholders' written consent to the dissent not
later than the time the beneficial shareholder asserts dissenters' rights; and
(ii) he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
If a proposed corporate action creating dissenters' rights is submitted to a
vote at a shareholders' meeting, the meeting notice must state that shareholders
are or may be entitled to assert dissenters' rights under Sections 33-855 to 33-
872 of the Connecticut Act and be accompanied by a copy of said sections. This
Proxy Statement/Prospectus constitutes such a meeting notice.
If a proposed corporate action creating dissenters' rights is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (i) must deliver to the corporation, before the vote upon such corporate
action is taken, written notice of his intent to demand payment for his shares
and (ii) must not vote his shares in favor of such corporate action. A
shareholder who does not satisfy such requirements is not entitled to payment
for his shares under Sections 33-855 to 33-872 of the Connecticut Act. A proxy
or vote against the approval of the Merger Agreement, or an abstention or broker
non-vote, will not constitute a written notice of intent to demand payment. A
shareholder electing to deliver to Mystech written notice of intent to demand
payment for his shares of Mystech Common Stock should deliver such written
notice to Richard T. Dreghorn, Secretary, Mystech Associates, Inc., Skyline One,
5205 Leesburg Pike, Suite 1200, Falls Church, Virginia 22041, before the vote
upon the proposal to approve the Merger Agreement at the Special Meeting.
If a proposed corporate action creating dissenters' rights is authorized at a
shareholders' meeting, the corporation must deliver a written dissenters' notice
to all shareholders who satisfied the requirements set forth in the immediately
preceding paragraph. The dissenters' notice must be sent no later than 10 days
after the corporate action was taken and must: (i) state where the payment
demand must be sent and where and when certificates for certificated shares must
be deposited; (ii) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date; (iii) set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60 days after
the date the written dissenters' notice is delivered; and (iv) be accompanied by
a copy of Sections 33-855 to 33-872 of the Connecticut Act.
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<PAGE>
A shareholder to whom a dissenters' notice described in the immediately
preceding paragraph is sent must demand payment, certify whether he acquired
beneficial ownership of the shares before the date specified in the dissenters'
notice and deposit his certificates in accordance with the terms of the notice.
A shareholder who does not demand payment or deposit his share certificates
where required, each by the date set in the dissenters' notice, will not be
entitled to payment for his shares under Sections 33-855 to 33-872.
Except as provided below, as soon as the proposed corporate action is taken,
or upon receipt of a payment demand, the corporation must pay each dissenter who
complied with the provisions set forth above the amount the corporation
estimates to be the fair value of his shares plus accrued interest. The payment
must be accompanied by: (i) the corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year and the latest available interim financial statements, if any; (ii) a
statement of the corporation's estimate of the fair value of the shares; (iii)
an explanation of how the interest was calculated; (iv) a statement of the
dissenter's right to demand payment; and (iv) a copy of Sections 33-855 to 33-
872.
If the corporation does not take the proposed action within 60 days after the
date set for demanding payment and depositing share certificates, the
corporation must return the deposited certificates. If, after returning
deposited certificates, the corporation takes the proposed action, it must send
a new dissenters' notice and repeat the payment demand procedure.
A corporation may elect to withhold payment from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action. To the extent the corporation
elects to withhold payment after taking the proposed corporate action, it must
estimate the fair value of the shares, plus accrued interest, and must pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation must send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated
and a statement of the dissenter's right to demand payment.
A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate, less any payment previously made by the corporation, or reject the
corporation's offer and demand payment of the fair value of his shares and
interest due, if: (i) the dissenter believes that the amount previously paid by
the corporation or offered by the corporation is less than the fair value of his
shares or that the interest due is incorrectly calculated; (ii) the corporation
fails to make payment within 60 days after the date set for demanding payment;
or (iii) the corporation, having failed to take the proposed action, does not
return the deposited certificates within 60 days after the date set for
demanding payment. A dissenter will waive his right to demand payment pursuant
to the immediately preceding sentence unless he notifies the corporation of his
demand in writing within 30 days after the corporation made or offered payment
for his shares.
If a demand for payment remains unsettled, the corporation must commence a
proceeding within 60 days after receiving the payment demand and petition a
court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the 60-day period, it must
pay each dissenter whose demand remains unsettled the amount demanded. The
corporation must commence the proceeding in the superior court for the judicial
district where the corporation's principal office in Connecticut is located or,
if no such office exists in Connecticut, where its registered office is located.
The corporation must make all dissenters, whether or not residents of
Connecticut, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. The jurisdiction of the court in which the
proceeding is commenced will be plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers will have the powers described in
the order appointing them, or in any amendment to it. The dissenters will be
entitled to the same discovery rights as parties in other civil proceedings.
Each dissenter made a party to the proceeding is entitled to judgment (i) for
the amount, if any, by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by the corporation or (ii) for the fair value,
plus accrued interest, of his after-acquired shares for which the corporation
elected to withhold payment.
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The court in an appraisal proceeding commenced under the immediately preceding
paragraph must determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court must
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (i)
against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements described
above; or (ii) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith. If
the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
THE STOCKHOLDER AGREEMENT
The following is a summary of the material terms of the Stockholder Agreement.
This summary is not a complete description of the terms and conditions of the
Stockholder Agreement and is qualified in its entirety by reference to the full
text of the Stockholder Agreement, a copy of which is filed as Exhibit 2.2 to
the Registration Statement.
As a condition to its willingness to enter into the Merger Agreement, Sterling
Software required that, simultaneously with the execution thereof, the Principal
Shareholders enter into the Stockholder Agreement.
VOTING OF SHARES
The Stockholder Agreement provides that, during the period (the "Restricted
Period") from and including the date of the Stockholder Agreement through and
including the earlier of (i) the Effective Time and (ii) the date that is one
year after the date on which the Merger Agreement is terminated (or, if later,
the latest date on which the consummation of a Subject Transaction (as defined
below) remains a possibility), at any meeting of the shareholders of Mystech
called to consider and vote upon the approval of the Merger Agreement, or the
termination of the Mystech Stock Ownership Agreement, and in connection with any
action to be taken in respect of the approval of the Merger Agreement or the
termination of the Mystech Stock Ownership Agreement by written consent, each
Principal Shareholder will vote, or instruct the trustees of the Mystech ESOP to
vote, all of such Principal Shareholder's Subject Shares in favor of the
approval of the Merger Agreement and the termination of the Mystech Stock
Ownership Agreement, and in favor of any other matter necessary for the
consummation of the transactions contemplated by the Merger Agreement. The
Stockholder Agreement also provides that, during the Restricted Period, at any
meeting of the shareholders of Mystech called to consider and vote upon any
Adverse Proposal (as defined below) and in connection with any action to be
taken in respect of any Adverse Proposal by written consent, each Principal
Shareholder will vote, or instruct the ESOP Trustees to vote, all of such
Principal Shareholder's Subject Shares against such Adverse Proposal. For
purposes of the Stockholder Agreement, the term "Adverse Proposal" means any (i)
Acquisition Proposal or (ii) other action which is intended or could reasonably
be expected to impede, interfere with, delay or materially and adversely affect
the contemplated economic benefits to Sterling Software of the Merger or any of
the other transactions contemplated by the Merger Agreement or the Stockholder
Agreement.
Under the Stockholder Agreement, each Principal Shareholder has appointed
Sterling Software such Principal Shareholder's proxy and attorney-in-fact
pursuant to the provisions of the Connecticut Act.
OTHER MATTERS
The Stockholder Agreement provides that if any transaction contemplated by an
Acquisition Proposal is consummated (i) within one year after the date on which
the Merger Agreement is terminated or (ii) pursuant to any agreement that is
entered into by Mystech prior to the expiration of the one-year period referred
to in clause (i) of this sentence (any such transaction being a "Subject
Transaction"), then, in such event, each Principal Shareholder will pay to
Sterling Software an amount equal to the amount (the "Profit Amount"), if any,
by which (x) the fair value of all
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cash, securities and other property received, receivable or retained by such
Principal Shareholder in respect of his or her Subject Shares from and after the
date of the Stockholder Agreement and prior to, or as a result of, the
consummation of such Subject Transaction exceeds (y) the product of (A) $145.22
(the "Strike Price") and (B) the number of Subject Shares beneficially owned by
such Principal Shareholder as of the time and date used to determine the persons
entitled to receive or retain cash, securities or other property as a result of
the consummation of such Subject Transaction. The Merger Agreement also
provides that in the event of any change in the capital stock of Mystech, the
type and number of shares, securities or other property subject to the
provisions, and the Strike Price will be adjusted appropriately so that Sterling
Software receives the same Profit Amount that it would have received in respect
of each Principal Shareholder's Subject Shares if the event causing Sterling
Software to be entitled to a Profit Amount had occurred immediately prior to
such change in the capital stock of Mystech.
The Stockholder Agreement provides that it will terminate upon the termination
of the Merger Agreement by mutual consent of the parties thereto or as a result
of a material breach thereof by Sterling Software, and that the provisions of
the Stockholder Agreement relating to the voting of Subject Shares will
terminate upon the termination of the Merger Agreement pursuant to the
provisions thereof described in clauses (ii) and (iii) of the first sentence of
the first paragraph under "The Merger--The Merger Agreement--Termination;
Effects of Termination." See "The Merger--The Merger Agreement--Termination;
Effects of Termination."
BUSINESSES OF STERLING SOFTWARE AND MYSTECH
STERLING SOFTWARE
Sterling Software 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: systems management,
applications management and federal systems. See "Available Information" and
"Incorporation of Certain Documents by Reference."
MYSTECH
Mystech was founded in 1971. Mystech provides specialized information
technology services to the federal government and its prime contractors under
numerous multi-year contracts. The services provided by Mystech to its
customers include software engineering, systems development and support,
technical training and other support services. Mystech specializes in
simulation, modeling and training automation applications and database and
systems design for command and control and other military applications.
OWNERSHIP OF CERTAIN SECURITIES OF MYSTECH
The following table sets forth information, as of May 27, 1998, regarding the
beneficial ownership of Mystech Common Stock (which includes shares held of
record, shares held through the Mystech ESOP and shares which may be acquired
within 60 days pursuant to the exercise of options) by each director of Mystech,
each of the Mystech Executive Officers, the directors and Mystech Executive
Officers as a group and each person known by Mystech to own 5% or more of the
outstanding shares of Mystech Common Stock. The persons named in the table have
sole voting and investment power with respect to all shares of Mystech Common
Stock owned by them, except as otherwise noted.
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<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED BENEFICIALLY
------------------------
PERCENT OF
NAME NUMBER CLASS
- ---- ------ -----
<S> <C> <C>
David L. Young (1)................................................................ 21,776.486 15.20
Robert J. Cotter, Jr. (2)......................................................... 12,304.738 8.62
Mary Tamucci (3).................................................................. 3,923.950 2.79
John C. McGlone (4)............................................................... 3,792.003 2.66
Steven P. Bracci (5).............................................................. 3,498.457 2.45
Stephen Dan James (6)............................................................. 3,181.329 2.26
Robert M. Mann.................................................................... - -
Sidney Thomas Weinstein........................................................... - -
All current directors and Mystech Executive Officers as a group (8 persons) (7)... 48,476.963 31.71
Joseph Tamucci(8)................................................................. 10,726.804 7.57
Ann E. Wohlleber.................................................................. 7,500.000 5.36
Richard I. Broadbent (9).......................................................... 7,119.122 5.08
Richard T. Dreghorn (10).......................................................... 7,094.690 5.01
</TABLE>
_______________________
(1) Includes 15,952 shares owned of record, 2,524.486 shares owned beneficially
through the Mystech ESOP and 3,300 shares which may be acquired upon
exercise of Mystech Options.
(2) Includes 7,323 shares owned of record, 2,181.738 shares owned beneficially
through the Mystech ESOP and 2,800 shares which may be acquired upon
exercise of Mystech Options.
(3) Includes 2,754 shares owned of record, 619.950 shares owned beneficially
through the Mystech ESOP and 550 shares which may be acquired upon
exercise of Mystech Options. Does not include 7,190 shares owned of record,
1,786.804 shares owned beneficially through the Mystech ESOP and 1,750
shares which may be acquired upon exercise of Mystech Options by Joseph
Tamucci, the husband of Mary Tamucci. Mary Tamucci disclaims beneficial
ownership of the shares described in the immediately preceding sentence.
(4) Includes 6 shares owned of record, 986.003 shares owned beneficially
through the Mystech ESOP and 2,800 shares which may be acquired upon
exercise of Mystech Options.
(5) Includes 378 shares owned of record, 420.457 shares owned beneficially
through the Mystech ESOP and 2,700 shares which may be acquired upon
exercise of Mystech Options.
(6) Includes 1,367 shares owned of record, 1,014.329 shares owned beneficially
through the Mystech ESOP and 800 shares which may be acquired upon exercise
of Mystech Options.
(7) Includes 27,780 shares owned of record, 7,746.963 shares owned beneficially
through the Mystech ESOP and 12,950 shares which may be acquired upon
exercise of Mystech Options.
(8) Includes 7,190 shares owned of record, 1,786.804 shares owned beneficially
through the Mystech ESOP and 1,750 shares which may be acquired upon
exercise of Mystech Options. Does not include 2,754 shares owned of record,
619.950 shares owned beneficially through the Mystech ESOP and 550 shares
which may be acquired upon the exercise of Mystech Options by Mary Tamucci,
the wife of Joseph Tamucci. Joseph Tamucci disclaims beneficial ownership
of the shares described in the immediately preceding sentence.
(9) Includes 5,250 shares owned of record, 1,669.122 shares owned beneficially
through the Mystech ESOP and 200 shares which may be acquired upon the
exercise of Mystech Options.
(10) Includes 3,681 shares owned of record, 1,663.690 shares owned beneficially
through the Mystech ESOP and 1,750 shares which may be acquired upon
exercise of Mystech Options.
RESTRICTIONS ON RESALES OF
STERLING SOFTWARE COMMON STOCK BY CERTAIN PERSONS
The shares of Sterling Software Common Stock to be issued to the holders of
Mystech Common Stock in the Merger are being registered under the Securities Act
pursuant to the Registration Statement. However, because some holders of
Mystech Common Stock are or may be "affiliates" of Mystech at the time of the
Special Meeting, such persons will not be able to resell the Sterling Software
Common Stock received by them in the Merger unless such Sterling Software Common
Stock is registered for resale under the Securities Act, is sold in compliance
with an applicable exemption from the registration requirements of the
Securities Act or is sold in compliance with Rule 145 under the Securities Act.
Rule 145 permits holders of securities received in a merger or other exchange
to sell such securities without registration under the Securities Act provided
such sale is made in compliance with certain provisions of Rule 144 or certain
holding period requirements have been satisfied. The applicable provisions of
Rule 144 allow a holder of such securities to sell, without registration, within
any three month period a number of shares of such securities that does not
exceed the greater of 1% of the number of outstanding securities in question or
the average weekly trading volume in the securities in question during the four
calendar weeks preceding a specified date subject to the satisfaction of certain
other requirements regarding the manner of sale and the availability of current
public information regarding the issuer. Rule 145 also permits a holder of such
securities to sell such securities without registration if: (i) such holder is
not an affiliate of the issuer and a period of at least one year has elapsed
since the date such securities were
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acquired from the issuer in the transaction, and the issuer meets the
requirements of Rule 144 regarding the availability of current public
information, or (ii) such holder is not, and has not been for at least three
months, an affiliate of the issuer and a period of at least two years has
elapsed since the date such securities were acquired from the issuer in the
transaction.
COMPARISON OF RIGHTS OF HOLDERS OF
MYSTECH COMMON STOCK AND STERLING SOFTWARE COMMON STOCK
As a result of the Merger, the holders of Mystech Common Stock will become
holders of Sterling Software Common Stock and their rights will be governed by
the Sterling Software Certificate, the Sterling Software Bylaws and the Delaware
Act. The following is a summary of certain differences between the rights of
holders of Mystech Common Stock and holders of Sterling Software Common Stock.
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the Mystech Certificate, the Mystech Bylaws, the
Sterling Software Certificate and the Sterling Software Bylaws, copies of which
are filed as Exhibits 3.2.1, 3.2.2, 3.1.1 and 3.1.2, respectively, to the
Registration Statement, to the Mystech Stock Ownership Agreement, a copy of
which is filed as Exhibit 99.1 to the Registration Statement and to the
Connecticut Act and Delaware Act, as appropriate.
AUTHORIZED CAPITAL
Sterling Software. The total number of authorized shares of capital stock of
Sterling Software is 135,000,000 shares, consisting of 125,000,000 shares of
Sterling Software Common Stock and 10,000,000 shares of Sterling Software
Preferred Stock.
Mystech. The total number of authorized shares of capital stock of Mystech is
500,000 shares, consisting of 500,000 shares of Mystech Common Stock.
RESTRICTIONS ON TRANSFERS OF SHARES
Sterling Software. Neither the Sterling Software Certificate or the Sterling
Software Bylaws, nor any agreement to which Sterling Software is a party, impose
any restrictions on transfers of shares of Sterling Software Common Stock.
Mystech. Holders of shares of Mystech Common Stock are subject to
restrictions on transfer contained in the Mystech Stock Ownership Agreement,
which provides that ownership of shares of capital stock of Mystech will
generally be limited to employees of Mystech and provides that Mystech and the
Mystech ESOP will generally have the right to purchase the shares of Mystech
Common Stock owned by any Mystech shareholder who ceases to be an employee of
Mystech or who desires to sell or dispose of any of his or her shares of Mystech
Common Stock. The Mystech Stock Ownership Agreement further provides that any
such purchase by Mystech or the Mystech ESOP will generally be at a price per
share of Mystech Common Stock based on the most recent independent appraisal
that at the time of such sale shall have been accepted by the Mystech Board.
This summary of the Mystech Stock Ownership Agreement is not a complete
description of the terms and conditions of the Mystech Stock Ownership Agreement
and is qualified in its entirety by reference to the full text of the Mystech
Stock Ownership Agreement, a copy of which is filed as Exhibit 99.1 to the
Registration Statement.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Sterling Software. Under the Delaware Act, an amendment to a corporation's
certificate of incorporation generally requires the approval of the board of
directors and the holders of a majority of the outstanding stock entitled to
vote thereon. The holders of the outstanding shares of a class are entitled to
vote as a separate class on a proposed amendment that would increase or decrease
the aggregate number of authorized shares of such class, increase or decrease
the par value of the shares of such class, or alter or change the powers,
preferences, or special rights of the shares of such class so as to affect them
adversely. The Sterling Software Certificate provides that any change to the
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provisions therein regarding the number, election and term of directors (as
described below), and the notice to be given in connection with certain
nominations for the election of directors must be approved by the holders of 75%
of the voting power of all shares entitled to be voted generally in the election
of directors, voting together as a single class.
Mystech. Under the Connecticut Act, an amendment to a corporation's
certificate of incorporation generally requires (i) the recommendation of the
amendment by the corporation's board of directors and (ii) the approval of the
amendment by a majority of the votes of shareholders entitled to be cast on the
amendment, unless a greater vote is required by the certificate of incorporation
or other provisions of the Connecticut Act. If the corporation was incorporated
prior to January 1, 1997 and has fewer than 100 shareholders of record, an
amendment must be approved by two-thirds of the votes of shareholders entitled
to be cast on the amendment. The holders of the outstanding shares of a class
are entitled to vote as a separate voting group on a proposed amendment if the
amendment would (i) increase or decrease the aggregate number of authorized
shares of the class, (ii) effect an exchange or reclassification of all or part
of the shares of the class into shares of another class, (iii) effect an
exchange or reclassification, or create the right of exchange, of all or part of
the shares of another class into shares of the class, (iv) change the
designation, rights preferences or limitations of all or part of the shares of
the class, (v) change the shares of all or part of the class into a different
number of shares of the same class, (vi) create a new class of shares having
rights or preferences with respect to distributions or to dissolution that are
prior, superior or substantially equal to the shares of the class, (vii)
increase the rights, preferences or number of authorized shares of any class
that, after giving effect to the amendment, has rights or preferences with
respect to distributions or to dissolution that are prior, superior or
substantially equal to the shares of the class, (viii) limit or deny an existing
preemptive right of all or part of the shares of the class, or (ix) cancel or
otherwise affect rights to distributions or dividends that have accumulated but
not yet been declared on all or part of the shares of the class.
AMENDMENT OF BYLAWS
Sterling Software. Under the Delaware Act, only the stockholders of a
corporation may amend the bylaws, unless the certificate of incorporation
confers the power to adopt, amend or repeal bylaws upon the directors. The
Sterling Software Certificate confers such power upon the directors.
Mystech. Under the Connecticut Act, a corporation's board of directors may
amend or repeal the corporation's bylaws unless (i) the certificate of
incorporation or other provisions of the Connecticut Act reserve the power
exclusively to the shareholders or (ii) the shareholders, in amending or
repealing a particular bylaw, expressly provide that the board of directors may
not amend or repeal that bylaw. A corporation's shareholders may amend or
repeal the corporation's bylaws even though the bylaws may also be amended or
repealed by its board of directors. The Mystech Certificate does not reserve
the power to amend or repeal the Mystech Bylaws exclusively to the shareholders
of Mystech and no shareholder-approved amendment to the Mystech Bylaws precludes
the Mystech Board from amending or repealing the Mystech Bylaws.
SPECIAL MEETINGS
Sterling Software. Under the Delaware Act, special meetings of the
stockholders of a corporation may be called by the board of directors or by such
person or persons as may be authorized by the certificate of incorporation or by
the bylaws. The Sterling Software Bylaws provide that special meetings of the
stockholders may be called by the President of Sterling Software or by the
Sterling Software Board, and must be called by the President or Secretary of
Sterling Software upon the written request of the holders who are entitled to
cast one-fifth of the votes which all stockholders are entitled to cast at the
particular meeting.
Mystech. Under the Connecticut Act, a corporation must hold a special meeting
of shareholders (i) on the call of its board of directors or the person or
persons authorized to do so by the certificate of incorporation or bylaws or
(ii) if the holders of at least 10% of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date and
deliver to the corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held. The
Mystech Bylaws provide that a special meeting may also be called by the Chairman
of the Mystech Board or the President of Mystech.
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ACTION WITHOUT A MEETING
Sterling Software. Under the Delaware Act, unless otherwise provided in the
certificate of incorporation, any action required or permitted to be taken at a
stockholders' meeting may be taken without a meeting pursuant to the written
consent of holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize the action at a meeting where all
shares entitled to vote thereon were present and voted. The Sterling Software
Certificate prohibits the taking of action by written consent.
Mystech. Under the Connecticut Act, any action which may be taken at a
meeting of shareholders may be taken without a shareholder meeting (i) by the
written consent of all persons who would be entitled to vote upon the action at
a meeting or (ii) if the certificate of incorporation so provides, by the
written consent of persons holding such designated portion, not less than a
majority, of the voting power of shares entitled to vote thereon. The Mystech
Certificate does not provide that action may be taken without a shareholder
meeting by the written consent of less than all persons entitled to vote upon
the action at a meeting.
DIRECTORS
Sterling Software. Under the Delaware Act, a board of directors shall consist
of one or more members, with the number fixed by, or in the manner provided in,
the bylaws, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate of incorporation. The directors of a
corporation may, by the certificate of incorporation or by an initial bylaw, or
by a bylaw adopted by a vote of the stockholders, be divided into one, two or
three classes. The Sterling Software Bylaws provide that the number of
directors shall be determined by resolution of the Sterling Software Board. The
number of directors of Sterling Software is currently fixed at nine. The
directors are divided into three classes, with directors in each class serving a
staggered term of three years or until his or her earlier death, resignation or
removal, with or without cause, by the holders of a majority. Vacancies on the
Sterling Software Board may be filled by a majority of the remaining directors,
although less than a quorum, or by a sole remaining director. Directors of
Sterling Software are elected by plurality of the votes of shares of Sterling
Software capital stock entitled to vote thereon present in person or by proxy at
the meeting at which directors are elected. There is no cumulative voting in
the election of Sterling Software directors.
Mystech. Under the Connecticut Act, a board of directors shall consist of one
or more individuals, with the number specified in or fixed in accordance with
the certificate of incorporation or bylaws. The certificate of incorporation
may provide for staggering the terms of directors by dividing the total number
of directors into up to five groups, with each group containing approximately
the same percentage of the total. The Mystech Bylaws provide that the number of
directors may not be less than two nor more than seven, and may be nominated and
elected from two groups, employee/shareholders and non-employee/non-
shareholders. At least two, but no more than four, of the directors may be
employee/shareholders, and as few as zero, but no more than three, directors may
be non-employee/non-shareholders. In no event, however, may the number of non-
employee/non-shareholder directors exceed the number of employee/shareholder
directors. Employee/shareholders and non-employee/non-shareholders are also
required to meet certain qualifications described in the Mystech Bylaws. Each
director on the Mystech Board holds office until his death, resignation or
removal, or until the next annual meeting of shareholders at which directors are
nominated and elected. Any vacancy occurring on the Mystech Board may be filled
only by the affirmative vote of a majority of the remaining directors, except
that any vacancy on the Mystech Board created by reason of an increase in the
number of directors may be filled only by election at an annual meeting of
shareholders or at a special meeting of shareholders called for that purpose.
Election to the Mystech Board requires the affirmative vote of a majority of the
shares outstanding and eligible to vote at the time of the meeting.
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REMOVAL OF DIRECTORS
Sterling Software. Under the Delaware Act, any director or the entire board
of directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors, except (i)
unless the certificate of incorporation otherwise provides, in the case of a
corporation whose board is classified, stockholders may effect such removal only
for cause and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors, or, if
there be classes of directors, at an election of the class of directors of which
he is a part. The Sterling Software Bylaws provide that directors may be
removed, with or without cause, at any annual or special meeting of stockholders
by the affirmative vote of a majority in number of shares of stockholders
present at the meeting, in person or by proxy, and entitled to vote for the
election of such directors.
Mystech. Under the Connecticut Act, the shareholders may remove one or more
directors with or without cause unless the certificate of incorporation provides
that directors may be removed only for cause. If a director is elected by a
voting group of shareholders only the shareholders of that voting group may
participate in the vote to remove him. If cumulative voting is authorized, a
director may not be removed if the number of votes sufficient to elect him under
a cumulative voting is voted against his removal. If cumulative voting is not
authorized, a director may be removed only if the number of votes cast to remove
him exceeds the number of votes cast not to remove him. In addition, a superior
court may, in certain circumstances, remove a director in a proceeding commenced
either by the corporation or by its shareholders holding at least 10% of the
outstanding shares. The Mystech Certificate does not provide that directors may
be removed only for cause. The Mystech Bylaws provide that any individual
director may be removed from office, with or without cause, by the shareholders
at any special meeting by a majority vote of the issued and outstanding shares.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Sterling Software. Under the Delaware Act, (i) a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit, or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was unlawful
and (ii) a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought determines upon applicable that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court deems proper.
Under the Delaware Act, to the extent that a present or former director or
officer of a corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in the immediately
preceding sentence, or in defense of any claim, issue, or matter referred to
therein, such person must be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection therewith.
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The Delaware Act provides that any indemnification under the provisions
described in the second preceding paragraph (unless ordered by a court) will be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer,
employee, or agent is proper in the circumstances because the person has met the
applicable standard of conduct, which determination will be made, with respect
to a person who is a director or officer at the time of such determination, (i)
by a majority vote of the directors who are not parties to such action, suit, or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (iii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iv) by the stockholders.
Under the Delaware Act, expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation. Such expenses (including
attorneys' fees) incurred by former directors and officers or other employees
and agents may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
Under the Delaware Act, a corporation has power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
Delaware Act.
The Sterling Software Certificate provides that the personal liability of
directors of Sterling Software to Sterling Software is eliminated to the maximum
extent permitted by the Delaware Act. The Sterling Software Certificate and
Sterling Software Bylaws provide for the indemnification of the directors,
officers, employees and agents of Sterling Software and its subsidiaries to the
fullest extent that may be permitted by the Delaware Act from time to time, and
the Sterling Software Bylaws provide for various procedures relating thereto.
Mystech. Under the Connecticut Act, a corporation may indemnify an individual
who is a party to a proceeding because he is a director against liability
incurred in the proceeding if: (i)(A) he conducted himself in good faith; (B) he
reasonably believed (1) in the case of conduct in his official capacity, that
his conduct was in the best interests of the corporation and (2) in all other
cases, that his conduct was at least not opposed to the best interests of the
corporation; and (C) in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful; or (ii) he engaged in
conduct for which broader indemnification has been made permissible or
obligatory under a provision of the certificate of incorporation. Unless
ordered by a court, a corporation may not indemnify a director: (i) in
connection with a proceeding by or in the right of the corporation except for
reasonable expenses incurred in connection with the proceeding if it is
determined that the director has met the relevant standard of conduct; or (ii)
in connection with any proceeding with respect to conduct for which he was
adjudged liable on the basis that he received a financial benefit to which he
was not entitled, whether or not involving action in his official capacity. A
corporation which was incorporated prior to January 1, 1997, such as Mystech,
must, except to the extent that the certificate of incorporation expressly
provides otherwise, indemnify a director to the same extent the corporation is
permitted to indemnify a director as described above, subject to certain
exceptions.
Under the Connecticut Act, a corporation must indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
The Connecticut Act provides that a corporation may, before final disposition
of a proceeding, advance funds to pay for or reimburse the reasonable expenses
incurred by a director who is party to a proceeding because he is a director if
he delivers to the corporation (i) a written affirmation of his good faith
belief that he has met the relevant standard of conduct, or that the proceeding
involves conduct for which liability has been eliminated under a provision of
the certificate of incorporation, and (ii) his written undertaking to repay any
funds advanced if he is not entitled to mandatory indemnification, and it is
ultimately determined that he has not met the relevant standard of conduct.
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<PAGE>
Under the Connecticut Act, a corporation may not indemnify a director unless
authorized for a specific proceeding after a determination has been made that
indemnification of the director is permissible because he has met the relevant
standard of conduct. The determination is to be made (i) if there are two or
more disinterested directors, by the board of directors by a majority vote of
all the disinterested directors, a majority of whom shall for such purpose
constitute a quorum, or by a majority of the members of a committee of two or
more disinterested directors appointed by such a vote, (ii) by special legal
counsel (A) selected in the manner prescribed in clause (i) or (B) if there are
fewer than two disinterested directors, selected by the board of directors, in
which selection directors who do not qualify as disinterested directors may
participate, or (iii) by the shareholders, except that shares owned by or voted
under the control of a director who at the time does not qualify as a
disinterested director may not be voted on the determination. Authorization of
indemnification is to be made in the same manner as the determination that
indemnification is permissible, except that if there are fewer than two
disinterested directors, authorization of indemnification is to be made by those
directors entitled to select special legal counsel.
The Connecticut Act provides that a corporation may indemnify and advance
expenses to an officer, employee or agent of the corporation who is a party to a
proceeding because he is an officer, employee or agent of the corporation (i) to
the same extent as a director and (ii) if he is an officer, employee or agent
but not a director, to such further extent, consistent with public policy, as
may be provided by contract, the certificate of incorporation, the bylaws or a
resolution of the board of directors. A corporation may delegate to its general
counsel or other specified officer or officers the ability to determine that
indemnification or advancement of expenses to such officer, employee or agent is
permissible and the ability to authorize payment of such indemnification or
advancement of expenses. A corporation which was incorporated prior to January
1, 1997, such as Mystech, must, except to the extent that the certificate of
incorporation expressly provides otherwise, indemnify each officer, employee or
agent of the corporation who is not a director to the same extent as the
corporation is permitted to indemnify a director as described above, subject to
certain exceptions.
Under the Connecticut Act, a corporation may purchase and maintain insurance
on behalf of an individual who is a director, officer, employee or agent of the
corporation, or who, while a director, officer, employee or agent of the
corporation, serves at the corporation's request as a director, officer,
partner, trustee, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan or other entity,
against liability asserted against or incurred by him in that capacity or
arising from his status as a director, officer, employee or agent, whether or
not the corporation would have power to indemnify or advance expenses to him
against the same liability.
The Mystech Certificate does not address indemnification. The Mystech Bylaws
provide that Mystech must indemnify and reimburse each director, officer,
employee and agent that acted in good faith and in a manner reasonably believed
to be in the best interests of Mystech or a related enterprise against and for
any and all claims and liability to which he may become subject, and any expense
necessarily incurred in connection with the defense or reasonable settlement of
any legal or administrative proceedings to which he is made a party, by reason
of his being or having been a director, officer, employee or agent of Mystech,
except in relation to matters as to which he shall be finally adjudged to be
liable for negligence or misconduct in the performance of his official duties
and except as specifically prevented or limited by applicable legislation or
controlling judicial precedent.
LIMITATION OF LIABILITY
Sterling Software. Under the Delaware Act, a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of directors
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except that such provision cannot eliminate or
limit the liability of a director: (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) statutory liability for unlawful payment of dividends or unlawful
stock purchase or redemption; or (iv) for any transaction from which the
director derived an improper personal benefit. The Sterling Software
Certificate provides that to the fullest extent permitted by the Delaware Act, a
director of Sterling Software will not be liable to Sterling Software or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Mystech. Under the Connecticut Act, a corporation may include in its
certificate of incorporation a provision limiting personal liability for a
director to the corporation or its shareholders for monetary damages for breach
of duty
40
<PAGE>
as a director to an amount that is not less than the compensation received by
the director for serving the corporation during the year of the violation if
such breach did not (i) involve a knowing and culpable violation of law by the
director, (ii) enable the director or an associate to receive an improper
personal economic gain, (iii) show a lack of good faith and a conscious
disregard for the duty of the director to the corporation under circumstances in
which the director was aware that his conduct or omission created an
unjustifiable risk of serious injury to the corporation, (iv) constitute a
sustained and unexcused pattern of inattention that amounted to an abdication of
the director's duty to the corporation, or (v) create liability for improper
distributions. The Mystech Certificate contains no provisions limiting the
personal liability of directors.
DIVIDENDS
Sterling Software. Under the Delaware Act, the board of directors of a
corporation may, subject to any restrictions contained in its certificate of
incorporation, declare and pay dividends upon the shares of its capital stock
either (i) out of its surplus or (ii) if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the proceeding
fiscal year, provided that if the capital of the corporation is less than the
aggregate amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of the assets of the
corporation, then the directors may not declare and pay dividends out of net
profits.
Mystech. Under the Connecticut Act, a board of directors may authorize and
the corporation may make distributions subject to restriction by the certificate
of incorporation. No distribution may be made if, after giving effect thereto,
(i) the corporation would not be able to pay its debts as they become due in the
usual course of business or (ii) the corporation's total assets would be less
than the sum of its total liabilities plus, unless the certificate of
incorporation permits otherwise, the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.
STOCKHOLDER PROPOSAL PROCEDURES
Sterling Software. The Sterling Software Bylaws provide that a stockholder's
notice to propose business to be brought before an annual meeting must be
received in writing by the Secretary of Sterling Software not less than 60
calendar days prior to the applicable meeting. However, if the public
disclosure of such meeting is not made at least 67 calendar days before the date
of such meeting, the stockholder must make a request not later than seven
calendar days after the disclosure of the meeting. The Sterling Software Bylaws
also provide that a stockholder's notice of intention to nominate a director (i)
in the case of an annual meeting, must be received in writing 90 calendar days
prior to the anniversary date of the immediately preceding annual meeting and
(ii) in the case of a special meeting, must be received in writing no later than
seven days after the announcement of the meeting.
Mystech. The Mystech Bylaws do not provide procedures for the introduction of
business before annual meetings, but do provide procedures for the nomination of
directors. Nomination of individuals to be employee/shareholder directors or
non-employee/non-shareholder directors who meet the minimum qualifications set
forth in the Mystech Bylaws must be made by the Mystech Board acting as a
nominating committee at least 90, but not more than 120 days, in advance of the
annual meeting. Notice of the Mystech Board slate of director nominees,
including any vacant seats, must be sent to all shareholders within 10 days of
their nomination. Additional qualified nominations may be made by a petition
signed by shareholders owning an aggregate of at least 10% of the outstanding
shares of Mystech. The Secretary of Mystech must be provided any additional
shareholder nomination petitions at least 45 days, but no more than 90 days, in
advance of the annual meeting.
BUSINESS COMBINATION STATUTES
Sterling Software. Under the Delaware Act, a merger, consolidation,
dissolution, or sale or other disposition of substantially all of a
corporation's assets generally requires the approval of the board of directors
and holders of a majority of the outstanding stock entitled to vote thereon.
However, the Delaware Act provides that no vote of the stockholders of the
surviving corporation is required, unless the certificate of incorporation
provides otherwise, to approve a merger if (i) the agreement of merger does not
amend in any respect the corporation's certificate of incorporation, (ii) each
share of the corporation's stock outstanding immediately prior to the merger is
to be an identical
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outstanding or treasury share of the surviving corporation after the merger, and
(iii) either (A) no shares of common stock of the surviving corporation and no
shares, securities, or obligations convertible into such stock are to be
issuable as a result of the merger or (B) the increase in the outstanding shares
as a result of the merger does not exceed 20% of the shares of common stock of
the surviving corporation outstanding immediately prior to the effective date of
the merger.
Under the Delaware Act, a corporation is prohibited from engaging in any
business combination with a person who, together with his affiliates or
associates owns (or within a three-year period did own) 15% or more of the
corporation's voting stock (an "interested stockholder"), unless (i) prior to
the date on which such person became an interested stockholder, the board of
directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) the
interested stockholder acquired 85% of the voting stock of the corporation
(excluding specified shares) upon consummation of the transaction, or (iii) on
or subsequent to the date on which such person became an interested stockholder
the business combination is approved by the board of directors of such
corporation and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) by at least 66 2/3% of the outstanding
voting shares of such corporation (excluding shares held by such interested
stockholder). A "business combination" includes (i) mergers, consolidations and
sales or other dispositions of 10% or more of the assets of a corporation to or
with an interested stockholder, (ii) certain transactions resulting in the
issuance or transfer to an interested stockholder of any stock of such
corporation or its subsidiaries, and (iii) other transactions resulting in a
disproportionate financial benefit to an interested stockholder. This provision
of the Delaware Act does not apply to a corporation if the certificate of
incorporation or bylaws contains a provision expressly electing not to be
governed by this provision. The Sterling Software Certificate does not address
the "business combination" provision of the Delaware Act. Accordingly, the
"business combination" provision of the Delaware Act applies to Sterling
Software.
Mystech. Under the Connecticut Act, a merger, share exchange or sale of
assets other than in the regular course of business generally requires the
recommendation of the board of directors and the approval of a majority of the
votes of shareholders entitled to be cast with respect thereto. In the case of a
corporation that was incorporated prior to January 1, 1997, such as Mystech,
such a transaction must be approved by the affirmative vote of at least two-
thirds of the votes of shareholders entitled to be cast with respect thereto.
Action by shareholders of the surviving corporation on a plan of merger is not
required if (i) the certificate of incorporation of the surviving corporation
will not differ, except for certain limited exceptions, from its certificate of
incorporation before the merger, (ii) each shareholder of the surviving
corporation whose shares were outstanding immediately before the effective date
of the merger will hold the same number of shares, withdrawal designations,
preferences, limitations and relative rights, immediately after the merger,
(iii) the number of voting shares outstanding immediately after the merger, plus
the number of voting shares issuable as a result of the merger, either by the
conversion of securities issued pursuant to the merger or the exercise of rights
and warrants issued pursuant to the merger, will not exceed by more than 20% the
total number of voting shares of the surviving corporation outstanding
immediately before the merger, and (iv) the number of participating shares
(defined generally as shares that entitle the holder thereof to participate
without limitation in distributions) outstanding immediately after the merger,
plus the number of participating shares issuable as a result of the merger,
either by the conversion of securities issued pursuant to the merger or the
exercise of rights and warrants issued pursuant to the merger, will not exceed
by more than 20% the total number of participating shares outstanding
immediately before the merger.
Under the Connecticut Act, certain additional voting requirements are placed
on business combinations with interested shareholders (defined generally as
holders of 10% of the voting power of a corporation). Such voting requirements,
however, do not apply to corporations, such as Mystech, which are not required
to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Additional
restrictions are also placed on the ability of a corporation to enter into a
business combination without prior approval of the business combination by its
board of directors. Such restrictions, however, do not apply to corporations,
such as Mystech, which do not have a class of voting stock registered pursuant
to Section 12 of the Exchange Act, unless the certificate of incorporation of
the corporation provides that such restrictions shall apply to the corporation.
The Mystech Certificate does not provide that such restrictions shall apply to
Mystech.
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APPRAISAL/DISSENTERS' RIGHTS
Sterling Software. Under the Delaware Act, a stockholder is generally
entitled to exercise appraisal rights upon a merger or consolidation of the
corporation effected pursuant to the Delaware Act if the holder complies with
the requirements of Section 262 thereof. However, the Delaware Act does not
provide appraisal rights for stockholders of a corporation upon such a merger or
consolidation if the stock of the corporation is listed on a national securities
exchange or designated as a national market system security on the Nasdaq or
held by more than 2,000 holders and stockholders are not required by the terms
of the merger or consolidation to accept for their stock anything except (i)
shares of stock of the corporation surviving or resulting from such merger or
consolidation, or depository receipt in respect thereof, (ii) shares of stock of
any other corporation, or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or designated as a national market system security on the Nasdaq or held of
record by more than 2,000 holders, (iii) cash in lieu of fractional shares or
fractional depository receipts, or (iv) any combination of the shares of stock,
depository receipts, and cash in lieu of fractional shares or fractional
depository receipts.
Mystech. Under the Connecticut Act, a shareholder is generally entitled to
dissent from, and obtain the fair value of his shares in the event of, a merger,
share exchange, sale or exchange of all, or substantially all, of the property
of the corporation other than in the usual and regular course of business or
amendment to the certificate of incorporation that materially and adversely
affects a shareholder's rights in respect of his shares. See "The Merger--
Dissenters' Rights."
DERIVATIVE ACTIONS
Sterling Software. Under the Delaware Act, derivative actions may be brought
by a stockholder on behalf of, and for the benefit of, the corporation. The
Delaware Act provides that a stockholder must aver in the complaint that he or
she was a stockholder of the corporation at the time of the transaction of which
he complains. However, no action may be brought by a stockholder unless he
first seeks remedial action on his claim from the corporation's board of
directors, unless such a demand for redress is excused. The board of directors
of a Delaware corporation can appoint an independent litigation committee to
review a stockholder's request for a derivative action and the litigation
committee, acting reasonably and in good faith, can terminate the stockholder's
action subject to a court's review of such committee's independence, good faith,
and reasonable investigation. Under the Delaware Act, the court in a derivative
action may apply a variety of legal and equitable remedies on behalf of the
corporation which vary depending on the facts and circumstances of the case and
the nature of the claim brought.
Mystech. Under the Connecticut Act, derivative proceedings may be brought by
a shareholder in the right of a corporation. A shareholder may not commence or
maintain a derivative proceeding unless the shareholder (i) was a shareholder of
the corporation at the time of the act or omission complained of or became a
shareholder through transfer by operation of law from one who was a shareholder
at that time and (ii) fairly and adequately represents the interests of the
corporation in enforcing the rights of the corporation. No shareholder may
commence a derivative proceeding until (i) a written demand has been made upon
the corporation to take suitable action and (ii) 90 days have expired from the
date the demand was made unless the shareholder has earlier been notified that
the demand has been rejected by the corporation or unless irreparable injury to
the corporation would result by waiting for the expiration of the 90-day period.
A derivative proceeding must be dismissed by the court on motion by the
corporation if (i) the independent directors (if the independent directors
constitute a quorum), (ii) a committee consisting of two or more independent
directors appointed by a majority vote of independent directors present at a
meeting of the board of directors (whether or not such independent directors
constituted a quorum), or (iii) a panel of one or more persons appointed by the
court upon motion by the corporation, has determined in good faith, after
conducting a reasonable inquiry upon which its conclusions are based, that the
maintenance of the derivative proceeding is not in the best interests of the
corporation.
RIGHTS PLAN
Sterling Software. Pursuant to the Rights Agreement, 1,250,000 shares of
Sterling Software Preferred Stock, designated as Series A Junior Participating
Preferred Stock ("Junior Preferred Shares"), are reserved for issuance. One
Right is attached to each issued and outstanding share of Sterling Software
Common Stock, including the shares of
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Sterling Software Common Stock to be issued in the Merger. Subject to certain
conditions, each Right entitles the holder to purchase 1/100th of a Junior
Preferred Share (structured so as to be substantially the equivalent of a share
of Sterling Software Common Stock) at a price (the "Purchase Price") of $100.00
per 1/100th of a Junior Preferred Share (subject to adjustment).
In general, the Rights will not become exercisable, or transferable apart from
the shares of Sterling Software Common Stock, unless a person or group of
affiliates or associated persons becomes the beneficial owner of, or commences a
tender offer that would result in beneficial ownership of, 15% or more of the
outstanding shares of Sterling Software Common Stock (any such person or group
of persons being referred to in the Rights Agreement as an "Acquiring Person").
Thereafter, under certain circumstances, each Right (other than any Rights that
are or were beneficially owned by such Acquiring Person, which Rights will be
void) could become exercisable to purchase at the Purchase Price a number of
shares of Sterling Software Common Stock (or, in certain circumstances, the
common stock of a company into which Sterling Software is merged or consolidated
or to which Sterling Software sells all or substantially all of its assets)
having a market value equal to two times the Purchase Price. The Rights will
expire on December 31, 2006, unless earlier redeemed by Sterling Software at a
redemption price of $.01 per Right (subject to adjustment), or otherwise
exchanged or amended in accordance with the terms of the Rights Agreement.
Mystech. Mystech has not issued rights to purchase shares of capital stock of
Mystech under any arrangement similar to the Rights Agreement.
LEGAL MATTERS
The validity of the Sterling Software Common Stock to be issued in connection
with the Merger will be passed upon for Sterling Software by Jones, Day, Reavis
& Pogue, Dallas, Texas. Michael C. French, a consultant to Jones, Day, Reavis &
Pogue, is a director of Sterling Software.
EXPERTS
The consolidated financial statements of Sterling Software at September 30,
1997 and 1996, and for each of the years in the three-year period ended
September 30, 1997 appearing in Sterling Software's Annual Report on Form 10-K
for the year ended September 30, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Mystech at June 30, 1997 and June 30,
1996, and for each of the years in the two-year period ended June 30, 1997, have
been included herein in reliance upon the report of Argy, Wiltse & Robinson,
P.C., independent accountants, appearing elsewhere in this Proxy
Statement/Prospectus, and upon the authority of said firm as experts in
accounting and auditing.
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INDEX TO HISTORICAL FINANCIAL INFORMATION
OF MYSTECH
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTORY NOTE............................................................................................................ F-2
Management's Discussion and Analysis of Operations and Financial Condition
as of and for the Fiscal Year Ended June 30, 1997............................................................................ F-3
Report of Independent Accountants............................................................................................ F-5
Audited Financial Statements:
Balance Sheets
June 30, 1996 and June 30, 1997......................................................................................... F-6
Statements of Income
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997.............................................................. F-7
Statements of Stockholders' Equity
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997.............................................................. F-8
Statements of Cash Flows
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997.............................................................. F-9
Notes to Financial Statements........................................................................................... F-10
Management's Discussion and Analysis of Operations and Financial Condition
as of and for the Three Months and Nine Months Ended March 31, 1998.......................................................... F-17
Unaudited Financial Statements:
Balance Sheets March 31, 1998 and June 30, 1997......................................................................... F-19
Statements of Income
Three Months and Nine Months Ended March 31, 1998 and March 31, 1997.................................................... F-20
Statements of Stockholders' Equity
Nine Months Ended March 31, 1998........................................................................................ F-21
Statements of Cash Flows
Nine Months Ended March 31, 1998 and March 31, 1997 ................................................................... F-22
</TABLE>
F-1
<PAGE>
INTRODUCTORY NOTE
The historical financial information relating to Mystech set forth in
the following pages, including the information set forth under the caption
"Management's Discussion and Analysis of Operations and Financial Condition,"
has been substantially derived from Mystech's 1997 Annual Report and internal
unaudited consolidated financial statements for the three and nine-month periods
ended March 31, 1998. Consequently, such information is not necessarily current
as of the date hereof, and shall be deemed modified or superseded, as
applicable, by the information contained elsewhere in this Proxy
Statement/Prospectus.
F-2
<PAGE>
MYSTECH ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 1997
Once again revenues reached an all-time high as Mystech continued its strong
growth and the diversification of contract base. Positioned by its operational,
technological and generally strong financial condition, Mystech should continue
its recent pattern of significant revenue growth and achieve increased
profitability in the future. During 1996 and 1997, Mystech has aggressively
pursued many opportunities to diversify and solidify its position in new and
existing markets. These efforts required the investment of significant funds in
commercial software, services and products, and in the capability to compete for
business in new areas, both internationally and in the United States.
FISCAL 1997 COMPARED WITH FISCAL 1996
Results of Operations. Revenues exceeded $30 million for the first time,
amounting to $31.1 million, a 15% increase over 1996. Mystech has moved
significantly into the acquisition community programs of the Defense Department
through teaming with major government contractors. Significant future revenues
will result from this previously untapped market.
Increased volume efficiencies resulted in operating income increasing by over
33% from $702 thousand in 1996 to $936 thousand in 1997 which is equivalent to
3% of revenues for 1997 as compared to 2.6% of revenues for 1996. This was
achieved while Mystech, an employee-owned company, contributed $270 thousand in
1997 to the Employee Stock Ownership Plan ("ESOP"). The ESOP contribution
resulted in the distribution of over 6% of Mystech's outstanding common stock to
the ESOP's participants. The stock had a market value of $650,000.
Interest expense decreased even though the use of short-term borrowing increased
during the year. The decrease is due primarily to slightly lower market interest
rates and significantly lower long-term debt. As a result, earnings before
income taxes and loss from equity investment increased by 42% over 1996 to $827
thousand. This illustrates the significant growth of Mystech's core government
contracting operations. The after tax net income from Mystech's core operations
was approximately $507 thousand for 1997 as compared to $384 thousand for 1996.
During 1996, Mystech formed a joint venture called Telemedicine Applications
Company ("TMAC") to market its software product Teleprovider. Mystech acquired a
50% interest in the venture by assigning the rights to the Teleprovider software
to TMAC, while retaining marketing rights to the U.S. Government. Mystech
contributed an additional $1 million during 1997 before ceasing funding to
support the operations of TMAC, making its total contribution to TMAC
approximately $1.5 million.
As of June 30, 1997, the operations of TMAC yielded a loss. Mystech has
accounted for its investment in TMAC under the equity method and reported a pre-
tax loss of $1.2 million in 1997. This equates to an after tax loss of $704
thousand and results in a 1997 net loss of $197 thousand.
Financial Condition. Mystech's financial condition continues to be generally
strong. Working capital dropped to $1.4 million from $2.2 million in 1996. The
current ratio is 1.3 to 1 for 1997 as compared to 1.8 to 1 in 1996. The decrease
in these financial measures is primarily due to the additional borrowing of $1.4
million on the company's revolving credit agreement. These funds were used to
support Mystech's working capital needs as it invested significantly in TMAC
during 1997.
The acquisition of $575 thousand of fixed assets brings the total acquisition of
fixed assets over the last three years to almost $1.6 million. This has and will
continue to be a significant use of funds and cash as Mystech is dedicated to
maintaining and increasing its technical capabilities. Deferred software costs
for Teleprovider with a value of $409 thousand were allocated to the investment
in TMAC.
During 1997, Mystech reduced its total debt by 80% to $62 thousand. Mystech
expects to retire all current long-term debt by the end of 1998. As mentioned
previously, Mystech made significant use of its revolving credit agreement
during the year and will continue to use this facility to fund working capital
needs in 1998.
F-3
<PAGE>
Mystech is entirely owned by its employees and 50% of its outstanding stock is
held by its ESOP as compared to 43% in 1996. The change is primarily due to
merging the stock ownership of Mystech's 401(k) plan, which held 7% of the
outstanding stock in 1996, into the ESOP.
Due to the loss reported for the equity investment in TMAC, Mystech's equity
decreased by 8.3% to $3.1 million. This yields a very sound debt to equity ratio
of 1.4 to 1 as compared to the excellent 1.1 to 1 for 1996. Additionally, the
resultant net book value per common share in 1997 is $22 as compared to $24 in
1996.
FISCAL 1996 COMPARED WITH FISCAL 1995
Revenues increased 25% to over $27 million despite significant government
budgetary problems characterized by delays and reduced funding for government
contracts. The expansion in revenue was largely the result of Mystech expansion
into the command and control arena and growth in existing business areas.
Mystech contributed over $560 thousand to the ESOP, a 280% increase over the
1995 contribution of $200 thousand. As a result, operating income decreased to
2.6% of revenues from 5.9% in 1995. Interest expense as a percentage of revenue
decreased primarily due to a negotiated interest rate reduction and aggressive
debt repayment, offset partially by increased borrowing under the Mystech's
revolving credit agreement. Earnings before income taxes totaled $584 thousand
and net income totaled $384 thousand as compared to $1.1 million and $699
thousand respectively in 1995, attributable primarily to Mystech's investment
for future growth.
Mystech had over $2.2 million of working capital available as compared to $2.7
million at the end of fiscal 1995. The current ratio remained strong at 1.8 to 1
in 1996, compared to 2.4 to 1 in 1995. Mystech invested $700 thousand in
additional property and equipment to improve its resources and capabilities by
acquiring new technology and equipment. Mystech expended over $410 thousand on
research and development and deferred software costs increased by $254 thousand
to over $359 thousand in 1996. These costs were primarily incurred in the
development Teleprovider.
Debt was reduced 35% to $413 thousand. Stockholders' equity increased by 28% to
$3.4 million, in 1996, compared to $2.6 million in 1995. This resulted in a debt
to equity ratio of less than 1 to 1 for 1996; an improvement over 1995. The
resultant net book value in 1996 was $24 per outstanding common share, a 26%
increase over the $19 for 1995. 43% of Mystech's stock was held by its ESOP in
1995 as compared to 44% in the prior year.
FISCAL 1995 COMPARED WITH FISCAL 1994
1995 revenues grew 26% to more than $21 million, up from $17.1 million in 1994.
Operating income totaled $1.2 million in 1995 as compared to $871 thousand in
1994. Earnings before taxes in 1995 were $1.1 million, a 47.8% increase, and net
income was $699 thousand, up 34% over 1994. Mystech generated a 1995 cash flow
from operations of over $1.4 million, compared to less than $800 thousand in
1994.
Mystech's working capital increased by $330 thousand to $2.7 million in 1995, up
14% over the previous year. As a start of Mystech's long-term plan to improve
its resources and capabilities, it invested $300 thousand in new property and
equipment in 1995. Over $275 thousand was spent for development of commercial
software and products, and Mystech deferred $105 thousand of that as software
development costs.
Debt decreased by over $640 thousand, or 50%, to $637 thousand by the end of
fiscal 1995, while equity rose 65% to over $2.6 million. This resulted in a debt
to equity ratio of approximately 1 to 1 for 1995, as compared to 2.3 to 1 in the
prior year. The net book value per outstanding common share of $19 at the end of
1995 was a 59% increase over 1994 when the value was $12. In 1995, the ESOP's
percentage of ownership was 44% as compared to 47% in 1994.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
August 13, 1997
To the Board of Directors and Stockholders of Mystech Associates, Inc.
In our opinion, the accompanying balance sheets and the related
statements of income, of stockholders' equity, and of cash flows present fairly,
in all material respects, the financial position of Mystech Associates, Inc. at
June 30, 1997 and 1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The financial statements of Mystech Associates, Inc. for the year
ended June 30, 1995 was audited by other independent accountants whose report
dated August 5, 1995 expressed an unqualified opinion on those statements.
/s/ Argy, Wiltse & Robinson, P.C.
F-5
<PAGE>
MYSTECH ASSOCIATES, INC.
BALANCE SHEETS
June 30, 1996 and June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................ $ 45 $ 94
Accounts receivable, net............................................................. 5,229 4,694
Employee advances and other receivables.............................................. 204 220
Prepaid expenses..................................................................... 122 157
----------- -----------
Total current assets............................................................... 5,600 5,165
----------- -----------
Property and equipment, net............................................................ 960 860
Deferred software development costs.................................................... 359
Investment in and advances to joint venture - at equity................................ 306
Investments in land.................................................................... 133 133
Deferred income taxes.................................................................. 236
Other assets........................................................................... 116 108
----------- -----------
Total assets....................................................................... $ 7,351 $ 6,625
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable........................................................................ $ 1,581 $ 351
Accounts payable..................................................................... 745 1,124
Accrued payroll and related benefits................................................. 1,801 1,296
Income taxes payable................................................................. 106 142
----------- -----------
Total current liabilities.......................................................... 4,233 2,913
Notes payable.......................................................................... 62
Deferred income taxes.................................................................. 253
----------- -----------
Total liabilities.................................................................. 4,233 3,228
----------- -----------
Stockholders' equity...................................................................
Common stock......................................................................... 40 40
Additional paid-in-capital........................................................... 635 605
Treasury stock, at cost.............................................................. (2,161) (1,923)
Debt guaranteed for ESOP............................................................. (126)
Retained earnings.................................................................... 4,604 4,801
----------- -----------
Total stockholders' equity......................................................... 3,118 3,397
Commitments............................................................................
----------- -----------
Total liabilities and stockholders' equity......................................... $ 7,351 $ 6,625
----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF INCOME
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenue.................................................................. $ 31,123 $ 27,001 $ 21,566
Costs and expenses....................................................... 30,187 26,299 20,285
------------- ------------ ------------
Operating income......................................................... 936 702 1,281
Interest expense, net.................................................... (109) (118) (134)
------------- ------------ ------------
Income before income taxes and loss from equity investment............... 827 584 1,147
Income tax benefit (provision)........................................... 140 (200) (448)
------------- ------------ ------------
Income before loss from equity investment................................ 967 384 699
Loss from equity investment.............................................. (1,164)
------------- ------------ ------------
Net (loss) income........................................................ $ (197) $ 384 $ 699
------------- ------------ ------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock at Cost Debt
--------------- Paid-In ---------------------- Guaranteed Retained
Shares Amount Capital Shares Amount for ESOP Earnings Total
------ ------ ---------- ------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June, 1994 200,950 $40 $ 382 (68,339) $(2,059) $ (480) $3,718 $ 1,601
Purchase of treasury stock,
at cost..................... (1,088) (40) (40)
Issuance of treasury stock
as compensation, at $37
a share..................... 45 2,000 29 74
Issuance of treasury stock
for exercised options
at $29.40 to $37.00
a share..................... 80 4,541 78 158
Repayments of debt of
employee stock
ownership plan.............. 156 156
Net income..................... 699 699
------ ------ ---------- ------ ------ ---------- -------- --------
Balance - June 30, 1995........ 200,950 40 507 (62,886) (1,992) (324) 4,417 2,648
Purchase of treasury
stock, at cost.............. (2,603) (138) (138)
Issuance of treasury stock
for exercised options
at $37 to $53 a share....... 98 8,221 207 305
Repayments of debt of
employee stock
ownership plan.............. 198 198
Net income..................... 384 384
------ ------ ---------- ------ ------ ---------- -------- --------
Balance - June 30, 1996........ 200,950 40 $ 605 (57,268) (1,923) (126) 4,801 3,397
Purchase of treasury stock,
at cost..................... (3,996) (280) (280)
Issuance of treasury stock
for exercised options
at $37 to $70 a share....... 30 1,267 42 72
Repayment of debt of
employee stock
ownership plan.............. 126 126
Net loss....................... (197) (197)
------ ------ ---------- ------ ------ ---------- -------- --------
Balance - June 30, 1997........ 200,950 $ 40 $ 635 (59,997) $(2,161) $ - $4,604 $ 3,118
------ ------ ---------- ------ ------ ---------- -------- --------
</TABLE>
See accompanying notes.
F-8
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, June 30, 1996 and June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ (197) $ 384 $ 699
---------- ---------- ----------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization..................... 479 301 205
Loss of investment in joint venture............... 1,164 - -
Write-off of deferred software costs.............. 36 - -
Deferred income taxes............................. (489) (117) (23)
Employee compensation............................. - - 74
Provision for bad debts........................... (17) 27 42
Employee stock ownership loan contribution........ 126 198 156
Decrease (increase) in:
Accounts receivable........................... (518) (1,457) 642
Employee advances and other receivables....... 16 (80) 8
Prepaid expenses.............................. 35 58 (130)
Inventory..................................... - - 20
Increase (decrease) in:
Accounts payable.............................. (379) 581 (53)
Accrued payroll and related benefits.......... 505 264 (30)
Income taxes payable.......................... (36) 142 (211)
---------- ---------- ----------
Total adjustments......................................... 922 (83) 700
---------- ---------- ----------
Net cash provided by operating activities................... 725 301 1,399
---------- ---------- ----------
Cash flows used for investing activities:
Capital expenditures........................................ (575) (697) (303)
Deferred software costs capitalized......................... (86) (254) (105)
Investments in and advances to joint venture................ (1,061) - -
Increase in other assets.................................... (12) (70) (6)
---------- ---------- ----------
Net cash provided by (used in) investing activities......... (1,734) (1,021) (414)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under demand note............... 1,419 100 (100)
Principal payments under notes payable...................... (251) (323) (542)
Issuance of treasury stock.................................. 72 305 158
Purchase of treasury stock.................................. (280) (138) (40)
---------- ---------- ----------
Net cash used in financing activities....................... 960 (56) (524)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents............ (49) (776) 461
Cash and cash equivalents - beginning of year................... 94 870 409
---------- ---------- ----------
Cash and cash equivalents - end of year......................... $ 45 $ 94 $ 870
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-9
<PAGE>
MYSTECH ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING AND REPORTING POLICIES
Business and Major Customer
---------------------------
Mystech provides a broad range of services including engineering services,
system development and support software engineering, technical training, and
other support services. Mystech performs a majority of its services for the
federal government and its prime contractors. Additionally, 51% for 1997, 61%
for 1996, and 61% for 1995 of Mystech's revenue resulted from a single
contract with the federal government. This contract is scheduled to continue
through September 1998.
Revenue Recognition
-------------------
Substantially all the revenue from contract services is earned under cost
reimbursement and time and materials type contracts. Revenue from these
contracts includes applicable fees and estimated profits and are recorded
concurrently with costs when incurred. Revenue under fixed price contracts is
recognized using the percentage of completion method. Losses on contracts are
provided for in the period in which they are first determined.
Federal government contract costs for 1994 through 1997, including indirect
expenses, are subject to audit and adjustment by the government. Contract
revenue has been recorded in amounts which are expected to be realized upon
final settlement.
Cash and Cash Equivalents
-------------------------
All highly liquid investments with a maturity of three months or less when
purchased are classified as cash equivalents. At June 30, 1997 and 1996,
Mystech had cash balances on deposit with financial institutions in excess of
the federally insured limit.
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation. The
cost and accumulated depreciation applicable to property and equipment
retired or otherwise disposed of are eliminated from the related accounts and
any gain or loss on disposal is reflected in earnings.
Expenditures for maintenance and repairs which do not materially prolong the
useful lives of the assets are charged to expense as incurred. Depreciation
is provided over the estimated useful lives of the assets which range from
three to ten years, using primarily the straight-line method. Leasehold
improvements are amortized on a straight-line basis over the terms of the
respective leases.
Software Development Costs
--------------------------
Mystech capitalizes costs related to the development of certain software
products. In accordance with Statement of Financial Accounting Standards
No.86, capitalization of costs begins when technological feasibility has been
established and ends when the product is available for general release.
Amortization is computed on an individual product basis using the straight-
line method over the estimated economic life of the product.
Investment Equity Method
------------------------
Investments in unconsolidated subsidiaries, jointly owned companies, and
other investees in which Mystech has a 20% to 50% interest of, or otherwise
exercises significant influence, are carried at cost, adjusted for Mystech's
proportionate share of their undistributed earnings or losses.
F-10
<PAGE>
Income Taxes
------------
Mystech files consolidated income tax returns. Income taxes are provided for
the tax effects of transactions reported in the financial statements and
consist of taxes currently payable and deferred taxes. Deferred taxes are
recognized for the differences between the basis of assets and liabilities
for financial statement and income tax purposes. The deferred tax assets and
liabilities represent the future tax consequences of those differences, which
will be either taxable or deductible when the assets and liabilities are
recovered or settled.
Use of Estimates
----------------
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the
date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
Concentrations of Credit Risk
-----------------------------
Mystech is subject to credit risk concentrations from cash and cash
equivalents and accounts receivable. Mystech believes the risk of loss
associated with cash and cash equivalents is very low since cash and cash
equivalents are maintained in a financial institution. Mystech's accounts
receivable balance consists primarily of amounts due under contracts with the
federal government and subcontracts with commercial companies who perform a
significant amount of work with the federal government. Mystech assesses the
financial strength of the commercial companies for whom significant contracts
are performed and reviews the account receivable balances as a whole to
determine the adequacy of its allowance for doubtful accounts.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Billed receivables $ 4,432 $ 4,055
Allowance for doubtful accounts (40) (57)
Unbilled receivables:
Indirect rate variances, net 400
Retainage 264 474
Unbilled recoverable costs and
accrued profit 139 55
Contractually determined milestones 34 167
------- -------
$ 5,229 $ 4,694
------- -------
</TABLE>
Retainage under contracts or subcontracts with the federal government
consisted of fees and costs being withheld until contract completion and
audit by the Defense Contract Audit Agency (DCAA).
Unbilled recoverable costs and accrued profit represented amounts of revenue
on contracts for which billings had not been presented to the customer or
amounts that were not billable at the balance sheet date. It is anticipated
that such amounts will be billed within one year.
F-11
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30 (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Equipment $ 1,979 $ 1,576
Furniture and fixtures 271 223
Leasehold improvements 279 171
Automobiles 21 17
------- -------
2,550 1,987
Less: accumulated depreciation and
amortization 1,590 1,127
------- -------
$ 960 $ 860
------- -------
</TABLE>
Depreciation expense was $474,816 for 1997, $293,972 for 1996, and $189,548
for 1995.
4. SOFTWARE DEVELOPMENT COSTS
Mystech expensed $410,376 in 1996, and $173,241 in 1995 of software
development costs as research and development costs and capitalized $49,451
in 1997, $254,256 in 1996, and $105,348 in 1995 of software development
costs. In 1997, Mystech contributed the developed software to a joint venture
(Note 5). No amounts have been expensed for amortization of deferred software
development costs in 1997, 1996, or 1995 as these products had not been
placed in service; however Mystech wrote off capitalized software costs of
$35,577 during the year ended June 30, 1997.
5. INVESTMENT IN AND ADVANCES TO JOINT VENTURE AND RELATED PARTY TRANSACTIONS
In August 1996, Mystech contributed internally developed software with a book
value of $409,055 in exchange for a 50% interest in Telemedicine Applications
Company, LLC (TMAC). This investment is accounted for under the equity
method. During the year ended June 30, 1997, Mystech contributed an
additional cash investment of $655,497, unreimbursed services of $55,956, and
cash advances of $350,000 to sustain TMAC operations. For the year ended June
30, 1997, Mystech recognized a loss of $1,108,242 for its share of TMAC's
losses and $55,956 for the aforementioned unreimbursed costs incurred by
Mystech. A summary of the financial position and results of operations of
TMAC for the eleven month period ended June 30, 1997 is as follows (dollars
in thousands):
<TABLE>
<S> <C>
Current Assets $ 846
Software and equipment, net 809
Other assets, net 56
-------
Total assets $ 1,711
-------
Current liabilities $ 472
Notes payable 1,233
-------
Total liabilities $ 1,705
-------
Members' equity $ 6
-------
Sales $ 145
-------
Net Income $(2,216)
-------
</TABLE>
The investment in and advances to joint venture at June 30, 1997 of $306,310
is considered fully recoverable by management of Mystech. Management of
Mystech believes the sales in TMAC will expand rapidly and provide the
financial resources to allow Mystech to recover at least the existing asset
balance at June 30, 1997.
During the year end June 30, 1997, Mystech was reimbursed $591,059 by TMAC
for consulting and support services rendered.
F-12
<PAGE>
6. NOTES PAYABLE
Notes payable consisted of the following at June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Note payable under a bank line-of-credit agreement (maximum
amount equal to the lesser of 85% of Mystech's eligible billed
receivables and $500,000 of unbilled receivables, or
$3,500,000). The note is payable on demand and interest is
payable monthly at the bank's loan pricing rate less 0.25%
(8.25% at June 30, 1997). This note is secured by substantially
all of Mystech's assets. $ 1,519 $ 100
Note payable to former stockholder due in equal quarterly
principal payments plus interest at the prime rate plus 1%
(9.5% at June 30, 1997). Final payment due December 31,
1997. The note is unsecured. 62 188
Note payable to bank by ESOP, guaranteed by Mystech, due in
increasing monthly principal payments plus interest at 87% of
the bank's loan pricing rate (7.18% at June 30, 1996). Final
payment due January 1997. Secured by 4,174 shares of
Mystech's stock. 91
Note payable to bank by ESOP, guaranteed by the Mystech,
due in increasing monthly principal payments plus interest at
the bank's loan pricing rate plus 1% (9.5% at June 30, 1997).
Final payment due January 1997. Secured by 2,045 shares of
Mystech's stock. 35
---------- -------
Total notes payable 1,581 414
Less: current portion (1,581) (351)
--------- ------
Noncurrent portion $ -- $ 63
--------- ------
</TABLE>
The provisions of the loan agreements with the bank contain various covenants
pertaining to maintenance of working capital, net worth and dividend
restrictions. At June 30, 1997, Mystech is in compliance with all of the
covenants.
7. INCOME TAXES
The income tax benefit (provision) consisted of the following for years ended
June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
Current provision
<S> <C> <C> <C>
Federal $ (253) $ (260) $ (385)
State (53) (57) (86)
Deferred Benefit
Federal 368 96 19
State 78 21 4
------ ------ ------
Total benefit (provision) $ 140 $ (200) $ (448)
------ ------ ------
</TABLE>
The income tax benefit generated from the loss from equity investment of
approximately $460,000 is included in the income tax benefit for the year
ended June 30, 1997.
F-13
<PAGE>
During 1994, in accordance with provisions available under the Internal
Revenue Code, Mystech elected to change its method of accounting for income
tax purposes from the cash to the accrual method. As a result, Mystech will
include an equal portion of the effect of this change in its taxable income
through 1999.
Deferred income taxes reflect temporary differences in the recognition of
revenue and expenses for tax reporting and financial statement purposes. The
temporary differences giving rise to the net deferred tax liability consist
primarily of the aforementioned change in accounting method, employee
benefits reported differently for financial reporting and tax purposes,
excess of depreciation for financial reporting purposes over the amount for
tax purposes, and accruals in excess of deductible write-offs. Total deferred
tax liabilities of $258,000 in 1997 and $383,000 in 1996 have been offset by
deferred tax assets of $494,000 in 1997 and $130,000 in 1996.
8. COMMON STOCK
Description of Common Stock
---------------------------
Common stock is composed of one class and is described as follows at June 30:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Par Value $ 0.20 $ 0.20
Shares Authorized 500,000 500,000
Shares Issued 200,950 200,950
Shares Held in Treasury (59,997) (57,268)
-------- --------
Shares Outstanding 140,953 143,682
</TABLE>
On October 14, 1994 Mystech amended its by-laws and entered into an agreement
with its stockholders that restricts ownership of the Company's stock to
active employees of Mystech. The agreement also provides Mystech a right of
first refusal on the sale of stock by its stockholders and sets the purchase
price per share at fair value as determined by the Board of Directors.
Fair Value of Common Stock
--------------------------
The fair value Mystech's common stock is determined by the Board of Directors
based primarily on annual valuations performed by an independent valuation
company.
Common Stock Transactions
-------------------------
In June 1995, Mystech issued 2,000 shares of common stock to key employees in
recognition of their contributions to Mystech.
Mystech repurchased common stock from the Mystech Associates, Inc. 401(k)
Retirement Plan at a cost of $109,830 in 1997 and $26,765 in 1996 to fund
distributions to former participants of the plan.
Stock Option Plan
-----------------
In 1995, Mystech established a Stock Option Plan (the "1995 Plan") to provide
officers and employees with qualified or non-qualified incentive stock
options to purchase shares of common stock, not to exceed 15% of the shares
outstanding as of the beginning of the fiscal year. The 1995 Plan provides
that qualified incentive stock options (as defined in the Internal Revenue
Code) have an exercise price equal to fair market value of the common stock
on the date of the option grant. Non-qualified incentive stock options have
exercise prices as determined by the Board of Directors. Options granted
pursuant to the 1995 Plan vest immediately and expire up to six years and one
day after the date of the option grant. Treasury shares of common stock have
been used upon exercise of stock options. Differences between the cost of the
treasury stock used and the total option price of shares exercised have been
reflected in additional paid-in capital. The fair value of each option
granted is estimated on the grant date using the Black-Scholes Option Pricing
Model. The following assumptions were made in estimating fair value: dividend
yield of 0.0%, risk-free interest rate of 5.5%, expected volatility of 30.0%.
F-14
<PAGE>
A summary of incentive stock option transactions for the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 18,120 $ 41.61 12,560 $ 36.24
Granted 15,460 70.00 16,705 42.60
Exercised (1,075) 54.65 (8,221) 37.08
Expired (1,735) 70.00 (2,924) 37.00
------ ------- ------- -------
Outstanding at end of year 30,770 $ 53.82 18,120 $ 41.61
------ ------- ------- -------
Options exercisable at year end 30,770 18,120
------ -------
Weighted average fair value of
options granted during year of
shares $ 24.86 $ 19.23
------- -------
</TABLE>
At June 30, 1997, the exercise price for all outstanding stock options
range from $29.40 to $70 with a weighted average remaining contractual life
of 42 months.
Prior stock option plans have been superseded and all but 1,250 options
granted (at $29.40 per share) have been exercised or have expired.
Mystech applies APB Opinion 25 in accounting for its stock option plan.
Accordingly, no additional compensation cost has been recognized for the
years ended June 30, 1997 and 1996. Had compensation costs been determined on
the basis of fair value pursuant to F ASB No. 123, net income for the years
ended June 30, 1997 and 1996 would have been reduced by approximately
$196,000 and $67,000, respectively.
9. EMPLOYEE BENEFIT PLANS
Mystech sponsors a leveraged employee stock ownership plan ("ESOP") that
covers all employees who have worked 1,000 or more hours in a year. Mystech
makes annual contributions to the ESOP at least equal to the ESOP's debt
service. The ESOP's shares are pledged as collateral for its debt. As the
debt is repaid, shares are released from collateral and allocated to active
employees, based on the proportion of debt service paid in the year. The ESOP
bank loan has been reflected as a liability and a reduction in stockholders'
equity in the accompanying financial statements in accordance with Generally
Accepted Accounting Principles since Mystech has guaranteed the debt. Total
contributions to the ESOP were $270,000 for 1997, $560,150 for 1996, and
$200,000 for 1995, which includes $129,509 for 1997, $218,150, and $187,608
of debt service, respectively.
The ESOP shares consisted of the following at June 30:
<TABLE>
<CAPTION>
SHARE ACCOUNTS 1997 1996
-------------- ------ ------
<S> <C> <C>
Allocated shares 64,033 45,250
Shares released for allocation 6,219 10,300
Unreleased shares 6,219
------ ------
Total 70,252 61,769
------ ------
</TABLE>
Mystech maintains a defined contribution 401(k) plan (the "Plan") for all
employees who are over the age of 21 and have completed one year of service.
Under the provisions of the Plan, Mystech has agreed to match 50% of the
employees' contributions up to a maximum of 3% of their compensation. Mystech
contributions to the Plan vest immediately to the participants. Mystech's
matching contributions to the Plan were $401,091 for 1997, $323,920 for 1996,
and $251,173 for 1995.
F-15
<PAGE>
10. COMMITMENTS
Mystech leases facilities and equipment under the terms of noncancellable
operating leases which expire at various dates through December 1998. Rental
costs incurred were $1,251,325 for 1997, $1,176,019 for 1996, and $982,389
for 1995. The following is a schedule of the future minimum lease payments
under operating leases which have initial or remaining terms in excess of
one year as of June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDING JUNE 30,
----------------------------
<S> <C>
1998 $ 868
1999 472
2000 474
2001 432
2002 14
-------
$ 2,260
-------
</TABLE>
Certain operating leases provide for renewal options for periods from one to
two years at either stated or fair rental value at the time of renewal. In
the normal course of business, operating leases are generally renewed or
replaced by other leases.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for (dollars In thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Interest $ 135 $ 115 $ 119
Income Taxes 400 99 686
</TABLE>
Noncash investing activity:
Mystech contributed $409,055 in deferred software development costs as part
of its investment in joint venture (Note 5).
F-16
<PAGE>
MYSTECH ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
AS OF AND FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1998
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For purposes of the following discussion, all references to "the third
quarter of 1998" and "the third quarter of 1997" are references to the three
months ended March 31, 1998 and the three months ended March 31, 1997,
respectively.
Revenue for the third quarter of 1998 was $80 thousand less than revenue for the
third quarter of 1997 due to timing issues regarding contract revenue
recognition. Operating income of $399 thousand for the third quarter of 1998
represents a 48% increase over operating income for the third quarter of 1997.
Operating income for the third quarter of 1998 was 4.7% of revenue, as compared
to operating income equal to 3.2% of revenue for the third quarter of 1997.
Interest expense was virtually unchanged between the third quarter of 1998 and
the third quarter of 1997 as a result of long-term debt outstanding during the
third quarter of 1997 (but not during the third quarter of 1998) being offset by
increased borrowing under Mystech's revolving credit facility during the third
quarter of 1998. Mystech's after-tax net income from core operations for the
third quarter of 1998 was approximately $235 thousand as compared to $138
thousand for the third quarter of 1997. This represents a return on sales of
2.8% for the third quarter of 1998 as compared to 1.6% for the third quarter of
1997.
Residual costs and expenses associated with Mystech's withdrawal from TMAC,
discussed below, of $60 thousand were recorded against income during the third
quarter of 1998 as an additional loss from equity investment. This yields a net
income of $175 thousand for Mystech as a whole for the third quarter of 1998,
which represents a 2.1% return on sales for the period.
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
For purposes of the following discussion, all references to "1998" and
"1997" are references to the nine months ended March 31, 1998 and the nine
months ended March 31, 1997, respectively.
Revenue for 1998 were $24 million as compared to revenues for 1997 of $23
million, a 4% increase. Mystech continues to expand its operations in the
acquisition community programs of the Department of Defense through teaming with
major government contractors. It has additionally established an increased
contractual presence with other agencies and prime contractors of the US
Government. The revenue from Mystech's largest contract constituted 50% of
Mystech's revenues for 1998.
Increased volume and other operating efficiencies resulted in operating income
increasing by 33% from $623 thousand for 1997 to $830 thousand for 1998. This is
equivalent to 3.5% of revenue for 1998 as compared to 2.7% of revenue for 1997.
The results for 1998 include a contribution of $270 thousand to the Mystech
Employee Stock Ownership Plan (ESOP). This represents 75% of the approved
contribution for the 1998 fiscal year of $360 thousand and will result in the
distribution to ESOP participants of over 6,000 shares of Mystech common stock
as of June 30, 1998.
Interest expense increased though the use of increased short-term borrowing
during 1998 to fund operational working capital needs. Earnings before income
taxes for the period increased by 29% over 1997 to $677 thousand. The after-tax
net income from Mystech's core operations was approximately $407 thousand for
1998 as compared to $314 thousand for 1997.
During 1998 Mystech withdrew from the joint venture called Telemedicine
Applications Company (TMAC), which marketed a telemedicine software product and
systems called Teleprovider. The loss on equity investment of $366 for 1998
represents Mystech's share of pretax loss through the date of withdrawal from
TMAC. This equates to an after-tax loss of $220 thousand for 1998 for the
equity investment. The total pretax loss Mystech has recorded as a result of
the joint venture is approximately $1.5 million.
F-17
<PAGE>
FINANCIAL CONDITION
Mystech's financial condition improved as working capital increased to
approximately $1.8 million as of March 31, 1998 as compared to approximately
$1.4 million at June 30, 1997. The current ratio as of each such date held
constant at 1.4 to 1. The improvement in working capital was primarily due to
decreased borrowing and increased profitability during 1998.
The acquisition of $369 thousand of capital equipment continued Mystech's
investment in its technical capabilities and brings Mystech's total investment
in capital equipment to over $2 million in the past four years. Mystech will
continue to use significant funds to maintain and increase its technical
capabilities.
During 1998 Mystech retired all outstanding long-term debt while increasing the
availability of funds under its revolving credit facility to $4.5 million to
fund working capital needs.
Mystech is an employee owned company and 50% of its outstanding stock continues
to be held by its ESOP as of March 31, 1998. Mystech's stockholders' equity
increased minimally as compared to June 30, 1997 as a result of purchasing 4,567
shares of its common stock into treasury during the period and recognizing the
loss reported for the equity investment in TMAC.
The reduction in liabilities results in an improved debt-to-equity ratio of 1.3
to 1 as compared to 1.4 to 1 as of June 30, 1997. Additionally, the resultant
net book value per common share as March 31, 1998 is $23 as compared to $22 as
of June 30, 1997.
F-18
<PAGE>
MYSTECH ASSOCIATES, INC.
BALANCE SHEETS
March 31, 1998 and June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................ $ 58 $ 45
Accounts receivable, net............................................................. 5,510 5,229
Employee advances and other receivables.............................................. 190 204
Prepaid expenses..................................................................... 164 122
---------- ----------
Total current assets............................................................... 5,922 5,600
Property and equipment, net............................................................ 942 960
Investment in and advances to joint venture - at equity................................ 306
Investments in land.................................................................... 133 133
Deferred income taxes.................................................................. 217 236
Other assets........................................................................... 38 116
---------- ----------
Total assets....................................................................... $ 7,252 $ 7,351
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable........................................................................ $ 1,634 $ 1,581
Accounts payable..................................................................... 852 745
Accrued payroll and related benefits................................................. 1,613 1,801
Income taxes payable................................................................. 106
---------- ----------
Total current liabilities.......................................................... 4,099 4,233
Stockholders' equity...................................................................
Common stock......................................................................... 40 40
Additional paid-in-capital........................................................... 688 635
Treasury stock, at cost.............................................................. (2,366) (2,161)
Retained earnings.................................................................... 4,791 4,604
---------- ----------
Total stockholders' equity......................................................... 3,153 3,118
Commitments............................................................................
---------- ----------
Total liabilities and stockholders' equity......................................... $ 7,252 $ 7,351
---------- ----------
</TABLE>
F-19
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF INCOME
Three Months and Nine Months Ended March 31, 1998 and March 31, 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31 Ended March 31
-------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue....................................................... $ 8,423 $ 8,503 $ 24,038 $ 23,179
Costs and expenses............................................ 8,024 8,234 23,208 22,556
--------- --------- --------- ---------
Operating income.............................................. 399 269 830 623
Interest expense, net......................................... (48) (41) (153) (99)
--------- --------- --------- ---------
Income before income taxes and loss from
equity investment......................................... 351 228 677 524
Income tax benefit (provision)................................ (116) (90) (124) (210)
--------- --------- --------- ---------
Income before loss from equity investment..................... 235 138 553 314
Loss from equity investment................................... (60) -- (366) --
--------- --------- --------- ---------
Net (loss) income............................................. $ 175 $ 138 $ 187 $ 314
--------- --------- --------- ---------
</TABLE>
F-20
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN TREASURY STOCK AT COST RETAINED
-------------------- -----------------------
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
-------- ------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1997..... 200,950 $ 40 $ 635 (59,997) $ (2,161) $ 4,604 $ 3,118
Purchase of treasury stock,
at cost................... (4,567) (324) (324)
Issuance of treasury stock
for exercised options
at $37 to $70 a share..... 53 3,538 119 172
Net income................. 187 187
---------- ------- -------- -------- -------- -------- ---------
Balance - March 31, 1998... 200,950 $ 40 $ 688 (61,026) $ (2,366) $ 4,791 $ 3,153
========== ======= ======== ======== ======== ======== =========
</TABLE>
F-21
<PAGE>
MYSTECH ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1998 and March 31, 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................... $ 187 $ 314
--------- ---------
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization..................... 387 206
Loss of investment in joint venture............... 366 -
Deferred income taxes............................. 19 (75)
Provision for bad debts........................... - -
Employee stock ownership loan contribution........ - 126
Decrease (increase) in:
Accounts receivable........................... (341) 114
Employee advances and other receivables....... 14 (22)
Prepaid expenses.............................. (42) (386)
Increase (decrease) in:
Accounts payable............................... 107 (350)
Accrued payroll and related benefits........... (188) 557
Income taxes payable........................... (106) 260
--------- ---------
Total adjustments......................................... 216 430
--------- ---------
Net cash provided by (used in) operating activities......... 403 744
--------- ---------
Cash flows used for investing activities:
Capital expenditures........................................ (369) (462)
Deferred software costs capitalized......................... - -
Investments in and advances to joint venture................ - (690)
Increase in other assets.................................... 78 -
--------- ---------
Net cash provided by (used in) investing activities......... (291) (1,152)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under demand note............... 116 685
Principal payments under notes payable...................... (63) (190)
Issuance of treasury stock.................................. 170 38
Purchase of treasury stock.................................. (322) (209)
--------- ---------
Net cash used in financing activities....................... (99) 324
--------- ---------
Net (decrease) increase in cash and cash equivalents............ 13 (84)
Cash and cash equivalents - beginning of period................. 45 94
--------- ---------
Cash and cash equivalents - end of period....................... $ 58 $ 10
========= =========
</TABLE>
F-22
<PAGE>
APPENDIX A
----------
======================================================
AGREEMENT AND PLAN OF MERGER
among
STERLING SOFTWARE, INC.
STERLING SOFTWARE (CONNECTICUT), INC.
and
MYSTECH ASSOCIATES, INC.
dated as of May 27, 1998
======================================================
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER...........................................................2
Section 1.1 The Merger..................................................2
Section 1.2 Closing.....................................................2
Section 1.3 Effective Time..............................................2
Section 1.4 Effects of the Merger.......................................2
Section 1.5 Certificate of Incorporation; Bylaws........................2
Section 1.6 Directors; Officers.........................................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS......................................3
Section 2.1 Effect on Capital Stock.....................................3
Section 2.2 Stock Options...............................................4
ARTICLE III EXCHANGE OF CERTIFICATES...........................................5
Section 3.1 Exchange of Certificates....................................5
ARTICLE IV REPRESENTATIONS AND WARRANTIES......................................8
Section 4.1 Representations and Warranties of Company...................8
Section 4.2 Representations and Warranties of Parent and Merger Sub....21
ARTICLE V CONDUCT OF BUSINESS OF COMPANY......................................24
Section 5.1 Conduct of Business of Company.............................24
ARTICLE VI ADDITIONAL COVENANTS...............................................26
Section 6.1 Preparation of the Proxy Statement and the Form S-4........26
Section 6.2 Accountants' Letters, Etc..................................27
Section 6.3 Stockholders Meeting.......................................28
Section 6.4 Access to Information; Confidentiality.....................28
Section 6.5 Reasonable Efforts.........................................29
Section 6.6 Public Announcements.......................................29
Section 6.7 No Solicitation; Acquisition Proposals.....................29
Section 6.8 Consents, Approvals and Filings............................30
Section 6.9 Board Action Relating to Stock Option Plan.................31
Section 6.10 Employee Benefit Matters...................................31
Section 6.11 Treatment of Certain Company Plans.........................32
Section 6.12 Affiliates and Certain Stockholders........................33
Section 6.13 NYSE Listing...............................................33
Section 6.14 Tax Treatment..............................................33
Section 6.15 Pooling of Interests.......................................33
</TABLE>
i
A-2
<PAGE>
<TABLE>
Page
----
<S> <C>
ARTICLE VII CONDITIONS PRECEDENT.................................................33
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger....33
Section 7.2 Conditions to Obligations of Parent and Merger Sub............34
Section 7.3 Conditions to Obligation of Company...........................35
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................................36
Section 8.1 Termination...................................................36
Section 8.2 Effect of Termination.........................................38
Section 8.3 Amendment.....................................................38
Section 8.4 Extension; Waiver.............................................38
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.....38
ARTICLE IX GENERAL PROVISIONS....................................................38
Section 9.1 Nonsurvival of Representations and Warranties.................38
Section 9.2 Fees and Expenses.............................................38
Section 9.3 Definitions...................................................39
Section 9.4 Notices.......................................................40
Section 9.5 Interpretation................................................41
Section 9.6 Entire Agreement; Third-Party Beneficiaries...................41
Section 9.7 Governing Law.................................................41
Section 9.8 Assignment....................................................41
Section 9.9 Enforcement...................................................41
Section 9.10 Severability..................................................42
Section 9.11 Counterparts..................................................42
</TABLE>
EXHIBIT A - Form of Certificate of Incorporation of Surviving Corporation
EXHIBIT B - Form of Bylaws of Surviving Corporation
EXHIBIT C - Form of Affiliate Letter
ii
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 27, 1998 (this
"Agreement"), is made and entered into among Sterling Software, Inc., a Delaware
corporation ("Parent"), Sterling Software (Connecticut), Inc., a Connecticut
corporation and wholly owned subsidiary of Parent ("Merger Sub"), and Mystech
Associates, Inc., a Connecticut corporation ("Company").
RECITALS:
A. The Executive Committee of the Board of Directors of Parent and the
respective Boards of Directors of Merger Sub and Company have determined that it
would be advisable and in the best interests of their respective stockholders
for Parent to acquire Company, by means of a merger of Merger Sub with and into
Company (the "Merger"), on the terms and subject to the conditions set forth in
this Agreement.
B. For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
C. For financial accounting purposes, it is intended that the Merger will
be accounted for as a pooling of interests transaction.
D. Concurrently with the execution and delivery of this Agreement and as
a condition to Parent's and Merger Sub's willingness to enter into this
Agreement, Parent has entered into a Stockholder Agreement, dated as of the date
hereof (the "Stockholder Agreement"), with each of the Principal Stockholders
(as hereinafter defined), pursuant to which each Principal Stockholder has
agreed, among other things, to vote all shares of capital stock of Company owned
by such Principal Stockholder in favor of the approval of this Agreement.
E. Parent, Merger Sub and Company desire to make certain representations,
warranties and covenants in connection with the Merger and to prescribe various
conditions to the consummation of the Merger.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:
A-4
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. On the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the Connecticut Business
Corporation Act (the "CBCA"), the Merger shall be effected and Merger Sub shall
be merged with and into Company at the Effective Time (as hereinafter defined).
At the Effective Time, the separate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation").
Section 1.2 Closing. Unless this Agreement shall have been terminated
-------
and the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver of all of the conditions
set forth in Article VII, the closing of the Merger (the "Closing") will take
place as soon as practicable, but in no event later than 10:00 a.m. on the
second Business Day (the "Closing Date") following satisfaction or waiver of all
of the conditions set forth in Article VII, other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the fulfillment
or waiver of those conditions, at the offices of Jones, Day, Reavis & Pogue,
2300 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas, unless another date,
time or place is agreed to in writing by the parties hereto.
Section 1.3 Effective Time. The parties hereto shall file with the
--------------
Secretary of State of the State of Connecticut (the "Connecticut State
Secretary") on the Closing Date (or on such other date as Parent and Company may
agree) a certificate of merger and any other appropriate documents, executed in
accordance with the relevant provisions of the CBCA, and make all other filings
or recordings required under the CBCA in connection with the Merger. The Merger
shall become effective upon the filing of the certificate of merger with the
Connecticut State Secretary, or at such later time as is specified in the
certificate of merger (the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects
---------------------
set forth in the applicable provisions of the CBCA. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all
property of Company and Merger Sub shall vest in the Surviving Corporation, and
all liabilities of Company and Merger Sub shall become the liabilities of the
Surviving Corporation.
Section 1.5 Certificate of Incorporation; Bylaws. At the Effective
------------------------------------
Time, (a) the certificate of incorporation of the Surviving Corporation shall be
amended to be in the form set forth in Exhibit A, until thereafter changed or
amended in accordance with the provisions thereof and applicable law and (b) the
bylaws of the Surviving Corporation shall be amended to be in the form set forth
in Exhibit B, until thereafter changed or amended in accordance with the
provisions thereof and applicable law.
Section 1.6 Directors; Officers. From and after the Effective Time, (a)
-------------------
the directors of Merger Sub shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, and (b) the
officers of Merger Sub shall be the officers of the Surviving Corporation,
2
A-5
<PAGE>
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue
-----------------------
of the Merger and without any action on the part of any holder of shares of
Company's common stock, par value $0.20 per share ("Shares"), or any other
capital stock of Company or any shares of capital stock of Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par value
--------------------------
$0.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each
-------------------------------------------------------
Share issued and outstanding immediately prior to the Effective Time that is
owned by Company or any Subsidiary (as hereinafter defined) of Company or by
Parent, Merger Sub or any other Subsidiary of Parent (other than shares in trust
accounts, managed accounts, custodial accounts and the like that are
beneficially owned by third parties) shall automatically be cancelled and
retired and shall cease to exist, and no cash or other consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding
--------------------
immediately prior to the Effective Time (other than Shares to be cancelled and
retired in accordance with Section 2.1(b) and any Dissenting Shares (as
hereinafter defined)) shall be converted into the right to receive 5.49313 fully
paid and nonassessable shares of the common stock, par value $0.10 per share
("Common Stock"), of Parent (the "Merger Consideration"), upon surrender of the
certificate formerly representing such Share in accordance with this Agreement.
Consistent with and pursuant to Parent's existing Rights Agreement, dated as of
December 18, 1996, as amended (the "Rights Agreement"), between Parent and
BankBoston N.A., as rights agent, one right issuable pursuant to the Rights
Agreement or any other right issued in substitution thereof (a "Right"), shall
be issued together with and shall attach to each share of Common Stock issued
pursuant to this Section 2.1(c), unless the Rights shall have expired or been
redeemed prior to the Effective Time.
(d) Anti-Dilution. In the event of any stock dividend, stock split,
-------------
reclassification, recapitalization, combination or exchange of shares with
respect to, or rights issued in respect of, Common Stock on or after the date
hereof and prior to the Effective Time, the Merger Consideration shall be
adjusted accordingly.
3
A-6
<PAGE>
(e) Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, Shares issued and outstanding immediately prior to the Effective
Time held by a holder (if any) who has perfected the right to obtain payment of
the fair value of his Shares in accordance with Sections 33-855 to 33-872 of the
CBCA (or any successor provisions) ("Dissenting Shares") shall not be converted
into the right to receive the Merger Consideration unless such holder fails to
perfect or otherwise loses such holder's right to obtain payment of the fair
value of his Shares. If, after the Effective Time, such holder fails to perfect
or loses any such right to obtain payment of the fair value of his Shares, each
such Share of such holder shall be treated as a Share that had been converted as
of the Effective Time into the right to receive the Merger Consideration in
accordance with this Section 2.1. At the Effective Time, any holder of
Dissenting Shares shall cease to have any rights with respect thereto, except
the rights provided in Sections 33-855 to 33-872 of the CBCA (or any successor
provisions) and as provided in the immediately preceding sentence. Company
shall give prompt notice to Parent of any demands received by Company for
payment of the fair value of Shares, and Parent shall have the right to
participate in and direct all negotiations and proceedings with respect to such
demands. Company shall not, except with the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle, any such
demands.
Section 2.2 Stock Options. (a) At the Effective Time, each then-
-------------
outstanding option to purchase Shares (collectively, the "Options") under the
Mystech Associates, Inc. Stock Option Plan (the "Stock Option Plan"), whether or
not then exercisable or fully vested, shall be assumed by Parent and shall
constitute an option (a "Substitute Option") to acquire, on substantially the
same terms and subject to substantially the same conditions as were applicable
under such Option, including without limitation term, vesting, exercisability,
status as an "incentive stock option" under Section 422 of the Code (if
applicable) or as an employee stock purchase plan option under Section 423 of
the Code (if applicable), and termination provisions, the number of shares of
Common Stock, rounded down to the nearest whole share, determined by multiplying
the number of Shares subject to such Option immediately prior to the Effective
Time by 5.49313 (the "Conversion Factor"), at an exercise price per share of
Common Stock (increased to the nearest whole cent) equal to the exercise price
per share of Shares subject to such Option divided by the Conversion Factor;
provided, however, that in the case of any Option to which Section 421 of the
Code applies by reason of its qualification as an incentive stock option under
Section 422 of the Code or as an employee stock purchase plan option under
Section 423 of the Code, the conversion formula shall be adjusted if necessary
to comply with Section 424(a) of the Code.
(b) Company shall use all reasonable efforts to obtain all necessary
waivers, consents or releases from holders of Options under the Stock Option
Plan and take any such other action as may be reasonably necessary to give
effect to the transactions contemplated by this Section 2.2.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Common Stock for delivery upon
exercise of Substitute Options pursuant to the terms set forth in Section
2.2(a). As soon as practicable after the Effective Time, the shares of Common
Stock subject to Substitute Options will be covered by an effective registration
statement on Form S-8 (or any successor form) or another appropriate form and
Parent shall use all reasonable efforts to maintain the effectiveness of such
registration statement
4
A-7
<PAGE>
for so long as the Substitute Options remain outstanding. In addition, Parent
shall use all reasonable efforts to cause the shares of Common Stock subject to
Substitute Options to be listed on the NYSE (as hereinafter defined) and such
other exchanges as Parent shall determine.
ARTICLE III
EXCHANGE OF CERTIFICATES
Section 3.1 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to or concurrently with the Effective Time,
--------------
Parent shall enter into an agreement with such bank or trust company as may be
designated by Parent (the "Exchange Agent"), which shall provide that Parent
shall deposit with the Exchange Agent as of the Effective Time, for the benefit
of the holders of Shares, for exchange in accordance with this Article III,
through the Exchange Agent, certificates representing the shares of Common Stock
(such shares of Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, and any cash
payable in lieu of any fractional shares of Common Stock, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 2.1 in exchange
for outstanding Shares.
(b) Letters of Transmittal; Surrender of Certificates; Lost
-------------------------------------------------------
Certificate Affidavits. As soon as reasonably practicable after the Effective
- ----------------------
Time, Parent shall instruct the Exchange Agent to mail to each holder of record
(other than Company or any of its Subsidiaries or Parent, Merger Sub or any
other Subsidiary of Parent) of a certificate or certificates that, immediately
prior to the Effective Time, evidenced outstanding Shares (the "Certificates"),
(i) a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent, and shall be in such
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Exchange Agent together with such letter of transmittal, duly executed,
and such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Common Stock (and cash in lieu of fractional shares of Common Stock as
contemplated by this Section 3.1) that the aggregate number of Shares previously
represented by such Certificate shall have been converted into the right to
receive pursuant to Section 2.1(c), and the Certificate so surrendered shall
forthwith be cancelled. No interest shall be paid or accrued on any cash
payable upon the surrender of any Certificate. If payment is to be made to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of the surrendered Certificate or established to the satisfaction of
Parent and the Surviving Corporation that such taxes have been paid or are not
applicable. In the event a Certificate shall have been lost, stolen or
destroyed, upon the delivery to the Exchange Agent of an affidavit of that fact
by the holder of record
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claiming such Certificate to be lost, stolen or destroyed, together with such
bond or other surety as Parent and the Exchange Agent may reasonably require as
indemnity against any claim that may be made by any other Person in respect of
the Shares previously represented by the Certificate alleged to have been lost,
stolen or destroyed, and compliance with all of the requirements of this Section
3.1(b) in respect of the Shares previously represented by such Certificate
(other than the physical surrender of such Certificate), such Certificate shall
be deemed for all purposes of this Article III to have been duly surrendered
pursuant to this Section 3.1(b).
(c) Distributions with Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions with respect to Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Common Stock issuable upon the surrender of such
Certificate pursuant to Section 3.1(b), and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 3.1(e),
and all such dividends, other distributions and cash in lieu of fractional
shares of Common Stock shall be paid by Parent to the Exchange Agent and shall
be included in the Exchange Fund, in each case until the surrender of such
Certificate pursuant to Section 3.1(b). Subject to the effect of applicable
escheat or similar laws, following the surrender of any such Certificate
pursuant to Section 3.1(b) there shall be paid to the holder of the certificate
representing the whole shares of Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with respect to such whole shares of Common Stock with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Common Stock, and the amount of any cash payable in lieu of a
fractional share of Common Stock to which such holder is entitled pursuant to
Section 3.1(e), and (ii) at the appropriate payment date, the amount of
dividends or other distributions with respect to such whole shares of Common
Stock with a record date after the Effective Time but prior to such surrender
and with a payment date subsequent to such surrender payable with respect to
such whole shares of Common Stock.
(d) Cancellation and Retirement of Shares; No Further Rights. As of
--------------------------------------------------------
the Effective Time, all Shares (other than Shares to be cancelled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the Effective
Time shall cease to be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of any such Shares shall cease
to have any rights with respect thereto or arising therefrom (including without
limitation the right to vote), except the right to receive the Merger
Consideration, without interest, upon surrender of such Certificate in
accordance with Section 3.1(b), and until so surrendered, each such Certificate
shall represent for all purposes only the right to receive the Merger
Consideration, without interest. The Merger Consideration paid upon the
surrender for exchange of Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Shares theretofore represented by such Certificates.
(e) No Fractional Shares. (i) No certificates or scrip representing
--------------------
fractional shares of Common Stock shall be issued upon the surrender for
exchange of Certificates which have been converted pursuant to Section 2.1(c),
and such fractional share interests shall not entitle the owner thereof to vote
or to any rights of a stockholder of Parent.
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(ii) In lieu of any such fractional shares, each holder of Shares
who would otherwise have been entitled to a fraction of a share of Common Stock
upon surrender of Certificates for exchange pursuant to this Section 3.1 will be
paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (A) the per share closing price on the NYSE of Common
Stock (as reported on the NYSE Composite Transactions List) on the date on which
the Effective Time occurs (or, if Common Stock does not trade on the NYSE on
such date, the first date of trading of Common Stock on the NYSE after the
Effective Time) by (B) the fractional interest to which such holder otherwise
would be entitled. Such amount in cash shall be deemed to be substituted for
any such fractional share and to constitute a portion of the Merger
Consideration with respect to the related Shares.
(f) Investment of Exchange Fund. The Exchange Agent shall invest any
---------------------------
cash included in the Exchange Fund, as directed by Parent, in (i) direct
obligations of the United States of America, (ii) obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of principal and interest, (iii) commercial paper rated the highest
quality by either Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or (iv) certificates of deposit, bank repurchase agreements or
bankers' acceptances of commercial banks with capital exceeding $500 million.
Any net earnings with respect to the Exchange Fund shall be the property of and
paid over to Parent as and when requested by Parent.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the holders of Certificates for 180 days after
the Effective Time shall be delivered to Parent, upon demand, and any holders of
Certificates that have not theretofore complied with this Article III shall
thereafter look only to Parent, and only as general creditors thereof, for
payment of their claim for any Merger Consideration, any cash in lieu of
fractional shares of Common Stock and any dividends or distributions with
respect to Common Stock provided for in Section 3.1(c).
(h) No Liability. None of Parent, Merger Sub, the Surviving
------------
Corporation or the Exchange Agent shall be liable to any Person in respect of
any payments or distributions payable from the Exchange Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered prior to five
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as hereinafter
defined)), any amounts payable in respect of such Certificate shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(i) Withholding Rights. Parent shall be entitled to deduct and
------------------
withhold, or cause to be deducted or withheld, from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares, Options or
Certificates such amounts as are required to be deducted and withheld with
respect to the making of such payment under the Code, or any provision of
applicable state, local or foreign tax law. To the extent that amounts are so
deducted and withheld, such deducted and withheld amounts shall be treated for
all purposes of this
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Agreement as having been paid to such holders in respect of which such deduction
and withholding was made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Company. Company
-----------------------------------------
represents and warrants to Parent and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of Company and
------------------------------------------
each Subsidiary of Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
and each has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Company and each Subsidiary of Company
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed would not
have, individually or in the aggregate, a Material Adverse Effect (as
hereinafter defined) on Company. Company has delivered to Parent true, complete
and correct copies of the certificate of incorporation and bylaws of Company and
each Subsidiary of Company, in each case as amended to the date of this
Agreement. A true, correct and complete list of all Subsidiaries of Company,
together with the jurisdiction of incorporation of each such Subsidiary and the
percentage of each such Subsidiary's capital stock owned by Company or another
Subsidiary, is set forth in Section 4.1(a) of the Disclosure Schedule (as
hereinafter defined).
(b) Authority; Noncontravention. Company has the requisite corporate
---------------------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Company and the consummation by Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Company, subject, in the case of the Merger, to the approval of this
Agreement by its stockholders as contemplated by Section 6.3. This Agreement
has been duly executed and delivered by Company and, assuming that this
Agreement constitutes a valid and binding obligation of Parent and Merger Sub,
constitutes a valid and binding obligation of Company, enforceable against
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity. Except as specified in Section 4.1(b) of the Disclosure Schedule, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, (i) conflict with any of the provisions of the certificate of incorporation
or bylaws of Company or any Subsidiary of Company, in each case as amended to
the date of this Agreement, (ii) subject to the governmental filings and other
matters referred to in Section 4.1(c), conflict with, result in a breach of or
default (with or without notice or lapse of time, or both) under, or give rise
to a material obligation, a right of termination, cancellation or acceleration
of any obligation or a loss of a material benefit under, or require the
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consent of any Person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Company or any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or any of their respective assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in Section
4.1(c), contravene any domestic or foreign law, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except for, in the case of clauses (ii) and (iii) above, such conflicts,
breaches, defaults, obligations, rights (assuming the exercise thereof), losses,
consents (assuming the failure thereof to be obtained) and contraventions as
would not, individually or in the aggregate, have a Material Adverse Effect on
Company.
(c) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration or filing with, or notice to, any domestic or foreign
governmental agency or regulatory authority (a "Governmental Entity") which has
not been received or made is required by or with respect to Company or any of
its Subsidiaries in connection with the execution and delivery of this Agreement
by Company or the consummation by Company of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), with respect to the Merger, (ii) the filing with the Securities and
Exchange Commission (the "SEC") of (A) the Proxy Statement (as hereinafter
defined), and (B) such reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as may be required in connection with this
Agreement and the transactions contemplated hereby, (iii) the filing of the
certificate of merger with the Connecticut State Secretary, (iv) such other
consents, approvals, authorizations, filings or notices as are specified in
Section 4.1(c) of the Disclosure Schedule, and (v) any other consents,
approvals, authorizations, filings or notices the failure of which to be made or
obtained would not, individually or in the aggregate, have a Material Adverse
Effect on Company.
(d) Capital Structure. The authorized capital stock of Company
-----------------
consists solely of 500,000 Shares. At the close of business on the date hereof:
(i) 139,925 Shares were issued and outstanding, (ii) 31,710 Shares were reserved
for issuance pursuant to outstanding Options granted under the Stock Option
Plan, and (iii) 61,026 Shares were held by the Company in its treasury. Except
as set forth in the immediately preceding sentence, at the close of business on
the date hereof, no shares of capital stock or other equity securities of
Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of Company are duly authorized, validly issued, fully
paid and nonassessable. Except as specified above or in Section 4.1(d) of the
Disclosure Schedule, neither Company nor any Subsidiary of Company has or is
subject to or bound by or, at or after the Effective Time will have or be
subject to or bound by, any outstanding option, warrant, call, subscription or
other right (including any preemptive right), agreement or commitment which (i)
obligates Company or any Subsidiary of Company to issue, sell or transfer, or
repurchase, redeem or otherwise acquire, any shares of the capital stock of
Company or any Subsidiary of Company, (ii) restricts the transfer of any shares
of capital stock of Company or any of its Subsidiaries, or (iii) relates to the
voting of any shares of capital stock of Company or any of its Subsidiaries. No
bonds, debentures, notes or other indebtedness of Company or any Subsidiary of
Company having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the stockholders of
Company or any Subsidiary of Company may vote are issued or outstanding. Except
as specified in Section 4.1(d) of the Disclosure Schedule, all the outstanding
shares of capital stock of each
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Subsidiary of Company have been duly authorized, validly issued, fully paid and
nonassessable and are owned by Company, by one or more Subsidiaries of Company
or by Company and one or more such Subsidiaries, free and clear of Liens (as
hereinafter defined).
(e) Financial Statements. Section 4.1(e) of the Disclosure Schedule
--------------------
sets forth true, correct and complete copies of (i) the audited consolidated
balance sheets of Company and its Subsidiaries as of June 30, 1996 and June 30,
1997, and the related consolidated statements of income and cash flow for the
fiscal years ended June 30, 1995, June 30, 1996 and June 30, 1997, together with
the notes thereto and the report of Argy, Wiltse & Robinson thereon
(collectively, the "Annual Financial Statements"), and (ii) the unaudited
consolidated balance sheets of Company and its Subsidiaries as of March 31, 1997
and March 31, 1998, and the related consolidated statements of income and cash
flow for the nine months ended March 31, 1997 and the nine months ended March
31, 1998 (collectively, the "Interim Financial Statements" and, together with
the Annual Financial Statements, the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP (except, in the case of
the Interim Financial Statements, for the omission of comprehensive notes
thereto) applied on a consistent basis during the periods involved (except as
may otherwise be indicated in the notes thereto) and fairly present the
consolidated financial position of Company and its consolidated Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of the Interim Financial
Statements, to normal year-end audit adjustments).
(f) Absence of Certain Changes or Events; No Undisclosed Material
-------------------------------------------------------------
Liabilities. (i) Except as specified in Section 4.1(f) of the Disclosure
- -----------
Schedule, since June 30, 1997, Company and its Subsidiaries have conducted their
businesses only in the ordinary course, and there has not been: (A) any change,
event or occurrence which has had or would have, individually or in the
aggregate, a Material Adverse Effect on Company; (B) any declaration, setting
aside or payment of any dividend or other distribution in respect of shares of
Company's capital stock, or any redemption or other acquisition by Company of
any shares of its capital stock; (C) any increase in the rate or terms of
compensation payable or to become payable by Company or its Subsidiaries to
their directors, officers or key employees, except increases occurring in the
ordinary course of business consistent with past practice; (D) any entry into,
or increase in the rate or terms of, any bonus, insurance, severance, pension or
other employee or retiree benefit plan, payment or arrangement made to, for or
with any such directors, officers or key employees, except increases occurring
in the ordinary course of business consistent with past practices or as required
by applicable law; (E) any entry into any agreement, commitment or transaction
by Company or any of its Subsidiaries which is material to Company and its
Subsidiaries taken as a whole, except for agreements, commitments or
transactions entered into in the ordinary course of business consistent with
past practice; (F) any change by Company in accounting methods, principles or
practices, except as required or permitted by GAAP; (G) any write-off or write-
down of, or any determination to write-off or write-down, any asset of Company
or any of its Subsidiaries or any portion thereof which write-off, write-down or
determination exceeds $50,000 individually or $250,000 in the aggregate; (H) any
announcement or implementation of any reduction in force, lay-off, early
retirement program, severance program or other program or effort concerning the
termination of employment of employees of Company or its Subsidiaries; or (I)
any announcement of or entry into any agreement, commitment or
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transaction by Company or any of its Subsidiaries to do any of the things
described in the preceding clauses (A) through (H) otherwise than as expressly
provided for herein.
(ii) Except as reflected in the Financial Statements or
specified in Section 4.1(f) of the Disclosure Schedule, and liabilities incurred
in the ordinary course of business consistent with past practice since March 31,
1998, there are no liabilities of Company or its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, due, to become due,
determined, determinable or otherwise, having or which would have, individually
or in the aggregate, a Material Adverse Effect on Company.
(g) Certain Information. None of the information (including the
-------------------
Financial Statements) supplied or to be supplied by Company specifically for
inclusion or incorporation by reference in, or which may be deemed to be in
incorporated by reference in, (i) the registration statement on Form S-4 to be
filed with the SEC by Parent in connection with the issuance by Parent of shares
of Common Stock in the Merger (the "Form S-4") will, at the time the Form S-4 is
filed with the SEC, at any time that it is amended or supplemented and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii) the
Proxy Statement will, at the time it is filed with the SEC, at any time that it
is amended or supplemented, at the time it is mailed to the stockholders of
Company and at the time of the Stockholders Meeting referred to in Section 6.3,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(h) Real Property; Other Assets. (i) Section 4.1(h)(i) of the
---------------------------
Disclosure Schedule sets forth all of the real property owned in fee by Company
and its Subsidiaries (the "Owned Real Property").
(ii) Company or one of its Subsidiaries has good and marketable
title to each parcel of Owned Real Property and to each other asset reflected in
the latest balance sheet of Company included in the Financial Statements (other
than any such other asset disposed of or consumed in the ordinary course of
business or as specified in Section 4.1(h)(ii) of the Disclosure Schedule) free
and clear of all Liens except (A) those reflected or reserved against in the
latest balance sheet of Company included in the Financial Statements, (B) taxes
and general and special assessments not in default and payable without penalty
and interest, and (C) other Liens that individually or in the aggregate would
not have a Material Adverse Effect on Company.
(iii) Section 4.1(h)(iii) of the Disclosure Schedule sets forth a
true, correct and complete list of all leases, subleases and other agreements
(the "Real Property Leases") under which Company or any of its Subsidiaries uses
or occupies or has the right to use or occupy, now or in the future, any real
property or facility (the "Leased Real Property"), including all modifications,
amendments and supplements thereto. Prior to the date hereof, Company has made
available to Parent true, correct and complete copies of all of the Real
Property Leases. Except in each case where the failure would not have,
individually or in the aggregate, a Material Adverse Effect on Company: (A)
Company or one of its Subsidiaries has a
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valid and subsisting leasehold interest in each parcel of Leased Real Property
free and clear of all Liens and each Real Property Lease is in full force and
effect, (B) all rent and other sums and charges payable by Company or its
Subsidiaries as tenants thereunder are current in all material respects, (C) no
termination event or condition or uncured default of a material nature on the
part of Company or any such Subsidiary or, to Company's Knowledge, the landlord,
exists under any Real Property Lease, and (D) Company or one of its Subsidiaries
is the sole undisputed lessee of each Leased Real Property, is in actual
possession thereof and is entitled to quiet enjoyment thereof in accordance with
the terms of the applicable Real Property Lease.
(i) Software. (i) Section 4.1(i)(i) of the Disclosure Schedule
--------
sets forth under the caption "Owned Software" a true, correct and complete list
of all material computer programs (source code or object code) owned by Company
or any Subsidiary of Company and currently in use or in the development or
testing phase (collectively, together with all other computer programs (source
code or object code) owned by Company or any Subsidiary of Company, the "Owned
Software"), and Section 4.1(i)(i) of the Disclosure Schedule sets forth under
the caption "Licensed Software" a true, correct and complete list of all
computer programs (source code or object code) licensed to Company or any
Subsidiary of Company by another Person (other than any off-the-shelf computer
program that is so licensed under a shrink wrap license) (collectively, the
"Licensed Software" and, together with the Owned Software, the "Software").
(ii) Except as specified in Section 4.1(i)(ii) of the Disclosure
Schedule and, in the case of all Owned Software produced under a U.S. Government
contract or produced under a subcontract with a prime contractor of the U.S.
Government (either of the foregoing being hereinafter referred to as a
"Government Contract"), subject to the rights of the U.S. Government under
clauses included therein pursuant to the Federal Acquisition Regulation or the
Defense Federal Acquisition Regulation Supplement (collectively, "FAR"),
Company, directly or through its Subsidiaries, has good, marketable and
exclusive title to, and the valid and enforceable power and unqualified right to
sell, license, lease, transfer, use or otherwise exploit, all versions and
releases of the Owned Software and all copyrights thereof, free and clear of all
Liens. Company, directly or through its Subsidiaries, is in actual possession of
the source code and object code for each computer program included in the Owned
Software, and Company, directly or through its Subsidiaries, is in possession of
all other documentation that is reasonably required for the effective use of the
Software as currently used in Company's business or as offered or represented to
Company's customers or potential customers. Company, directly or through its
Subsidiaries, is in actual possession of the object code and user manuals, if
any, for each computer program included in the Licensed Software. The Software
constitutes all of the computer programs necessary to conduct Company's business
as now conducted, and includes all of the computer programs used in the
development, marketing, licensing, sale or support of the products and the
services presently offered by Company. Except as specified in Section
4.1(i)(ii) of the Disclosure Schedule and, in the case of all Owned Software
produced under a Government Contract, except for the rights of the U.S.
Government under clauses included therein pursuant to the FAR, no Person, other
than Company and its Subsidiaries has any right or interest of any kind or
nature in or with respect to the Owned Software or any portion thereof or any
rights to sell, license, lease, transfer, use or otherwise exploit the Owned
Software or any portion thereof.
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(iii) Section 4.1(i)(iii) of the Disclosure Schedule sets forth a
true, correct and complete list, by computer program, of (A) all Persons other
than Company and its Subsidiaries that have been provided with the source code
or have a right to be provided with the source code (including any such right
that may arise after the occurrence of any specified event or circumstance,
either with or without the giving of notice or passage of time or both) for any
of the Owned Software, and (B) all source code escrow agreements relating to any
of the Owned Software (setting forth as to any such escrow agreement the source
code subject thereto and the names of the escrow agent and all other Persons who
are actual or potential beneficiaries of such escrow agreement), and identifies
with specificity all agreements and arrangements pursuant to which the
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby would entitle any third party or parties to
receive possession of the source code for any of the Owned Software or any
related technical documentation. Except as specified in Section 4.1(i)(iii) of
the Disclosure Schedule, no Person (other than Company and its Subsidiaries and
any Person that is a party to a contract referred to in clause (v) of the first
sentence of Section 4.1(l) that restricts such Person from disclosing any
information concerning such source code) is in possession of, or has or has had
access to, any source code for any computer program included in the Owned
Software.
(iv) Except as specified in Section 4.1(i)(iv) of the Disclosure
Schedule, there are no defects in any computer program included in the Owned
Software that would adversely affect the functioning thereof in accordance with
any published specifications therefor. Without limiting the generality of the
foregoing, all of the Owned Software has the following properties and
capabilities: (A) the capability to correctly recognize and accurately process
dates expressed as a four-digit number (or the binary equivalent or other
machine readable iteration thereof) (collectively, the "Four-Digit Dates"); (B)
the capability to accurately execute calculations using Four-Digit Dates; (C)
the functionality (both on-line and batch), including entry, inquiry,
maintenance and update, to support processing involving Four-Digit Dates; (D)
the capability to generate interfaces and reports that support processing
involving Four-Digit Dates; (E) the capability to generate and successfully
transition, without human intervention, into the year 2000 using the correct
system date and to thereafter continue processing with Four-Digit Dates; and (F)
the capability to provide correct results in forward and backward data
calculations spanning century boundaries, including the conversion of pre-2000
dates currently stored as two-digit dates; provided, however, that no
representation or warranty is made as to the effect that defects in computer
programs, hardware or systems provided by third parties (or the inability of
such programs, hardware or systems to properly exchange date data with the Owned
Software), may, when used in conjunction with the Owned Software, have on the
foregoing capabilities. Each computer program included in the Software is in
machine readable form and contains all current revisions. Section 4.1(i)(iv) of
the Disclosure Schedule sets forth a true, correct and complete list of any
current developments or maintenance efforts with respect to the Owned Software,
including without limitation the development of new computer programs,
enhancements or revisions to existing computer programs included in the Owned
Software and software fixes in progress for any Person to whom or to which
Company or a Subsidiary of Company has sold, licensed, leased, transferred or
otherwise furnished Software or related products or services.
(v) Except as specified in Section 4.1(i)(v) of the Disclosure
Schedule, none of the sale, license, lease, transfer, use, reproduction,
distribution, modification or other
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exploitation by Company, any Subsidiary of Company or any of their respective
successors or assigns of any version or release of any computer program included
in the Software obligates or will obligate Company, any Subsidiary of Company or
any of their respective successors or assigns to pay any royalty, fee or other
compensation to any other Person.
(vi) Except as specified in Section 4.1(i)(vi) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries markets, or has marketed,
and none of them has supported or is obligated to support, any Licensed
Software.
(vii) Except as specified in Section 4.1(i)(vii) of the
Disclosure Schedule, no agreement, license or other arrangement pertaining to
any of the Software (including without limitation any development, distribution,
marketing, user or maintenance agreement, license or arrangement) to which
Company or any Subsidiary of Company is a party will terminate or become
terminable by any party thereto as a result of the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(j) Intellectual Property. (i) Section 4.1(j)(i) of the Disclosure
---------------------
Schedule sets forth under the caption "Owned Intellectual Property" a true,
correct and complete list (including, to the extent applicable, registration,
application or file numbers) of all patents and all registered or material
copyrights, trademarks, trade names, service marks and domain names owned by
Company or any Subsidiary of Company and used in connection with the conduct of
Company's business, and all registrations of or applications for registration of
any of the foregoing, including any additions thereto or extensions,
continuations, renewals or divisions thereof (setting forth the registration,
issue or serial number and a description of the same) (collectively, together
with all trade dress, trade secrets, processes, formulae, designs, know-how and
other intellectual property rights that are so owned and used, the "Owned
Intellectual Property"). Company has heretofore made available to Parent true,
correct and complete copies of each registration or application for registration
covering any of the Owned Intellectual Property which is registered with, or in
respect of which any application for registration has been filed with, any
Governmental Entity. Section 4.1(j)(i) of the Disclosure Schedule sets forth
under the caption "Licensed Intellectual Property" a true, correct and complete
list of all patents, trademarks, trade names, service marks, domain names and
material copyrights held by Company or any Subsidiary of Company under a license
or similar arrangement and used in connection with the conduct of the Company's
business (collectively, together with all trade dress, trade secrets, processes,
formulae, designs, know-how and other intellectual property rights that are so
held and used, the "Licensed Intellectual Property" and, together with the Owned
Intellectual Property, the "Intellectual Property").
Except as specified in Section 4.1(j)(ii) of the Disclosure
Schedule, and, in the case of any Intellectual Property included within or
associated with Owned Software produced under a Government Contract, subject to
the rights of the U.S. Government under clauses included therein pursuant to the
FAR, (A) Company, directly or through its Subsidiaries, has good, marketable and
exclusive title to, and the valid and enforceable power and unqualified right to
use, the Intellectual Property free and clear of all Liens and (B) no Person or
entity other than Company and its Subsidiaries has any material right or
interest of any kind or nature in or with respect to the Intellectual Property
or any portion thereof or any rights to use, market or exploit the Intellectual
Property or any portion thereof.
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(k) No Infringement. Except as specified in Section 4.1(k) of the
---------------
Disclosure Schedule, neither the existence nor the sale, license, lease,
transfer, use, reproduction, distribution, modification or other exploitation by
Company, any Subsidiary of Company or any of their respective successors or
assigns of any Software or Intellectual Property, as such Software or
Intellectual Property, as the case may be, is or was, or is currently
contemplated to be, sold, licensed, leased, transferred, used or otherwise
exploited by such Persons, does or did (i) infringe on any patent, trademark,
copyright or other right of any other Person, (ii) constitute a misappropriation
of any trade secret, know-how, process, proprietary information or other right
of any other Person, or (iii) entitle any other Person to any interest therein,
or right to compensation from Company, any Subsidiary of Company or any of their
respective successors or assigns, by reason thereof. Except as specified in
Section 4.1(k) of the Disclosure Schedule, neither Company nor any of its
Subsidiaries has received any complaint, assertion, threat or allegation
involving matters of the type contemplated by the immediately preceding sentence
or has Knowledge of any facts or circumstances that would give rise to any such
lawsuit, claim, demand, proceeding or investigation. Except as specified in
Section 4.1(k) of the Disclosure Schedule and, in the case of any Owned Software
produced under a Government Contract or any Owned Intellectual Property included
within or associated with any such Owned Software, subject to the rights of the
U.S. Government under clauses included in such Government Contract pursuant to
the FAR, there are no restrictions on the ability of Company, any Subsidiary of
Company or any of their respective successors or assigns to sell, license,
lease, transfer, use, reproduce, distribute, modify or otherwise exploit any
Owned Software or Owned Intellectual Property.
(l) Material Contracts. Section 4.1(l) of the Disclosure Schedule
------------------
sets forth a true, correct and complete list of all of the following contracts
to which Company or any of its Subsidiaries is a party or by which any of them
is bound (collectively, the "Material Contracts"): (i) contracts with any
current officer or director of Company or any of its Subsidiaries; (ii)
contracts pursuant to which Company or any of its Subsidiaries licenses other
Persons to use the Software and pursuant to which other Persons license Company
or any of its Subsidiaries to use the Licensed Software; (iii) contracts (A) for
the sale of any of the assets of Company or any of its Subsidiaries, other than
contracts entered into in the ordinary course of business or (B) for the grant
to any Person of any preferential rights to purchase any of its assets; (iv)
contracts which restrict Company or any of its Subsidiaries from competing in
any line of business or with any Person in any geographical area or which
restrict any other Person from competing with Company or any of its Subsidiaries
in any line of business or in any geographical area; (v) contracts which
restrict Company or any of its Subsidiaries from disclosing any information
concerning or obtained from any other Person or which restrict any other Person
from disclosing any information concerning or obtained from Company or any of
its Subsidiaries; (vi) indentures, credit agreements, security agreements,
mortgages, guarantees, promissory notes and other contracts relating to the
borrowing of money; (vii) contracts and purchase orders with agencies and
instrumentalities of the U.S. Government; (viii) subcontracts and purchase
orders with prime contractors of agencies and instrumentalities of the U.S.
Government; and (ix) all other agreements, contracts or instruments entered into
outside of the ordinary course of business or which are material to Company.
Company has heretofore made available to Parent true, correct and complete
copies of all of the Material Contracts. Except as specified in Section 4.1(l)
of the Disclosure Schedule, all of the Material Contracts are in full force and
effect and are the legal,
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valid and binding obligation of Company and/or its Subsidiaries, enforceable
against them in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). Except as specified in Section 4.1(l) of the
Disclosure Schedule, neither Company nor any of its Subsidiaries is in breach or
default in any material respect under any Material Contract nor, to the
Knowledge of Company, is any other party to any Material Contract in breach or
default thereunder in any material respect. Except as specified in Section
4.1(l) of the Disclosure Schedule, neither Company nor any of its Subsidiaries
has received in writing any cure notice, notice of default or notice of
termination for convenience in respect of any Material Contract described in
clauses (vii) or (viii) of the first sentence of this Section 4.1(l).
(m) Litigation, etc. As of the date hereof, except as specified in
---------------
Section 4.1(m) of the Disclosure Schedule, (i) there is no suit, claim, action,
proceeding (at law or in equity) or investigation pending or, to the Knowledge
of Company, threatened against Company or any of its Subsidiaries before any
court or other Governmental Entity, and (ii) neither Company nor any of its
Subsidiaries is subject to any outstanding order, writ, judgment, injunction,
decree or arbitration order or award that, in any such case described in clauses
(i) and (ii), has had or would have, individually or in the aggregate, a
Material Adverse Effect on Company. As of the date hereof, there are no suits,
claims, actions, proceedings or investigations pending or, to the Knowledge of
Company, threatened, seeking to prevent, hinder, modify or challenge the trans
actions contemplated by this Agreement.
(n) Compliance with Applicable Laws. All federal, state, local and
-------------------------------
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for each
of Company and its Subsidiaries to own, lease or operate its properties and
assets and to carry on its business as now conducted have been obtained or made,
and there has occurred no default under any such Permit, except for the lack of
Permits and for defaults under Permits which lack or default would not have,
individually or in the aggregate, a Material Adverse Effect on Company. Except
as disclosed in Section 4.1(n) of the Disclosure Schedule, Company and its
Subsidiaries are in compliance with all applicable statutes, laws, ordinances,
rules, orders and regulations of any Governmental Entity, except for non-
compliance which would not have, individually or in the aggregate, a Material
Adverse Effect on Company.
(o) Environmental Laws. Except as specified in Section 4.1(o) of the
------------------
Disclosure Schedule and as would not have, individually or in the aggregate, a
Material Adverse Effect on Company: (A) neither Company nor any of its
Subsidiaries has violated or is in violation of any Environmental Law; (B) none
of the Owned Real Property or Leased Real Property (including without limitation
soils and surface and ground waters) are contaminated with any Hazardous
Substance in quantities which require investigation or remediation under
Environmental Laws; (C) neither Company nor any of its Subsidiaries is liable
for any off-site contamination; (D) neither Company nor any of its Subsidiaries
has any liability or remediation obligation under any Environmental Law; (E) no
assets of Company or any of its Subsidiaries are subject to pending or
threatened Liens under any Environmental Law; (F) Company and its
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Subsidiaries have all Permits required under any Environmental Law
("Environmental Permits"); and (G) Company and its Subsidiaries are in
compliance with their respective Environmental Permits.
(p) Taxes. Except as specified in Section 4.1(p) of the Disclosure
-----
Schedule:
(i) Except where the failure to do so would not have,
individually or in the aggregate, a Material Adverse Effect on Company, each of
Company and each Subsidiary of Company (and any affiliated or unitary group of
which any such Person was a member) has (A) timely filed all federal, state,
local and foreign returns, declarations, reports, estimates, information returns
and statements ("Returns") required to be filed by or for it in respect of any
Taxes (as hereinafter defined) and has caused such Returns as so filed to be
true, correct and complete, (B) to the extent required by GAAP, established
reserves that are reflected in Company's most recent financial statements
included in the Financial Statements and that as so reflected are adequate for
the payment of all Taxes not yet due and payable with respect to the results of
operations of Company and its Subsidiaries through the date hereof, and (C)
timely withheld and paid over to the proper taxing authorities all Taxes and
other amounts required to be so withheld and paid over. Each of Company and each
Subsidiary of Company (and any affiliated or unitary group of which any such
Person was a member) has timely paid all Taxes that are shown as being due on
the Returns referred to in the immediately preceding sentence.
(ii) (A) There has been no taxable period since 1991 for which a
Return of Company or any of its Subsidiaries has been examined by the Internal
Revenue Service (the "IRS"), (B) all examinations described in clause (A) have
been completed without the assertion of material deficiencies, and (C) except
for alleged deficiencies which have been finally and irrevocably resolved,
Company has not received formal or informal notification that any deficiency for
any Taxes, the amount of which would have, individually or in the aggregate, a
Material Adverse Effect on Company, has been or will be proposed, asserted or
assessed against Company or any of its Subsidiaries by any federal, state, local
or foreign taxing authority or court with respect to any period.
(iii) Neither Company nor any of its Subsidiaries has (A)
executed or entered into with the IRS or any other taxing authority any
agreement or other document that continues in force and effect beyond the
Effective Time and that extends or has the effect of extending the period for
assessments or collection of any federal, state, local or foreign Taxes, (B)
executed or entered into with the IRS or any other taxing authority any closing
agreement or other similar agreement (nor has Company or any of its Subsidiaries
received any ruling, technical advice memorandum or similar determination)
affecting the determination of Taxes required to be shown on any Return not yet
filed, or (C) requested any extension of time to be granted to file after the
Effective Time any Return required by applicable law to be filed by it.
(iv) Neither Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by Company or any of its
Subsidiaries. None of the assets of Company or any of its Subsidiaries is
required to be treated as being owned by any other Person pursuant to the "safe
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harbor" leasing provisions of Section 168(f)(8) of the Internal Revenue Code of
1954 as formerly in effect.
(v) Neither Company nor any of its Subsidiaries is a party to,
is bound by or has any obligation under any tax sharing agreement or similar
agreement or arrangement.
(vi) Company has not agreed to make, nor is it required to
make, any material adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(vii) Neither Company nor any of its Subsidiaries is, or has
been, a United States Real Property Holding Corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(viii) Except for the group of which Company is presently a
member, Company has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code, other than as a common parent
corporation, and each of Company's Subsidiaries has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, except where Company was the common parent of such affiliated group.
(ix) Neither Company nor any Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted, or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
For purposes of this Agreement, "Taxes" shall mean all federal, state,
local, foreign income, property, sales, excise, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies, imposts, duties,
licenses or other assessments of every kind and description, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority.
(q) Benefit Plans. Section 4.1(q) of the Disclosure Schedule sets
-------------
forth a true, correct and complete list of all the employee benefit plans (as
that phrase is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained or contributed to (or to
which Company has any obligation to contribute) for the benefit of any current
or former employee, officer or director of the Company or any of its
Subsidiaries ("Company ERISA Plans") and any other benefit or compensation plan,
program or arrangement maintained or contributed (or to which Company has any
obligation to contribute) to for the benefit of any current or former employee,
officer or director of the Company or any of its Subsidiaries (Company ERISA
Plans and such other plans being referred to as "Company Plans"). Company has
furnished or made available to Parent and its representatives a true, correct
and complete copy of every document pursuant to which each Company Plan is
established or operated (including any summary plan descriptions), a written
description of any Company Plan for which there is no written document, and,
except as specified in Section 4.1(q) of the Disclosure Schedule, the most
recent annual report, financial statements and actuarial valuations
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with respect to each Company Plan. Except as specified in Section 4.1(q) of the
Disclosure Schedule:
(i) none of the Company ERISA Plans is a "multiemployer plan"
within the meaning of ERISA;
(ii) none of the Company Plans promises or provides retiree
health benefits or retiree life insurance benefits to any Person;
(iii) none of the Company Plans provides for payment of a
benefit, the increase of a benefit amount, the payment of a contingent benefit
or the acceleration of the payment or vesting of a benefit by reason of the
execution of this Agreement or the consummation of the transactions contemplated
by this Agreement;
(iv) neither Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new benefit or
compensation plan, program or arrangement or, except as required by law, the
amendment of any Company Plan;
(v) each Company ERISA Plan intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the IRS that it is so qualified and nothing has occurred since the date of such
letter that would affect the qualified status of such Company ERISA Plan;
(vi) each Company Plan has been operated in accordance with its
terms and the requirements of all applicable law, and no prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any Company ERISA Plan;
(vii) neither Company nor any of its Subsidiaries or members of
their "controlled group" has incurred any direct or indirect liability under the
Code or ERISA in connection with the termination of, withdrawal from, or failure
to fund any Company ERISA Plan subject to Title IV of ERISA or other retirement
plan or arrangement, and no fact or event exists that would give rise to any
such liability;
(viii) the aggregate accumulated benefit obligations of each
Company ERISA Plan subject to Title IV of ERISA (as of the date of the most
recent actuarial valuation prepared for such Company ERISA Plan and based on the
discount rate and other actuarial assumptions used in such valuation) do not
exceed the fair market value of the assets of such Company ERISA Plan (as of the
date of such valuation);
(ix) Company is not aware of any claims relating to the Company
Plans, other than routine claims for benefits; and
(x) none of the Company Plans provides for benefits or other
participation therein, and Company has received no claims or demands for
participation in or benefits under any Company Plan, by any individual
classified or treated by the Company as an independent contractor;
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provided, however, that the failure of the representations set forth in clauses
(v), (vi), (vii), (ix) and (x) to be true and correct shall not be deemed to be
a breach of any such representation unless such failures would have,
individually or in the aggregate, a Material Adverse Effect on Company.
(r) Absence of Changes in Benefit Plans. Except as disclosed in
-----------------------------------
Section 4.1(r) of the Disclosure Schedule, since the date of the most recent
Annual Financial Statements, neither Company nor any of its Subsidiaries has
adopted or agreed to adopt any collective bargaining agreement or any Company
Plan.
(s) Labor Matters. (i) Section 4.1(s)(i) of the Disclosure Schedule
-------------
sets forth a true, correct and complete list of all employment, labor or
collective bargaining agreements to which Company or any of its Subsidiaries is
a party. Company has heretofore made available to Parent true, complete and
correct copies of the agreements listed in Section 4.1(s)(i) of the Disclosure
Schedule, together with all amendments, modifications, supplements or side
letters affecting the duties, rights and obligations of any party thereunder.
(ii) No employees of Company or any of its Subsidiaries are
represented by any labor organization and, to the Knowledge of Company, no labor
organization or group of employees of Company or any of its Subsidiaries has
made a pending demand for recognition or certification. There are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and, to the Knowledge of Company, there are no
organizing activities involving Company or any of its Subsidiaries pending with
any labor organization or group of employees of Company or any of its
Subsidiaries.
(iii) Except as specified in Section 4.1(s)(iii) of the
Disclosure Schedule, there are no (A) unfair labor practice charges, grievances
or complaints pending or threatened in writing by or on behalf of any employee
or group of employees of Company or any of its Subsidiaries, or (B) complaints,
charges or claims against Company or any of its Subsidiaries pending, or
threatened in writing to be brought or filed, with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment of any individual by Company or
any of its Subsidiaries.
(t) Tax and Accounting Matters. Neither Company nor any of its
---------------------------
Affiliates has taken or agreed to take any action, and Company is not aware of
any circumstances relating to Company or its Affiliates, that (i) would prevent
the Merger from being accounted for as a pooling of interests or (ii) would
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
(u) Brokers. No broker, investment banker, financial advisor or other
-------
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of Company.
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(v) Written Opinion of Financial Advisor to ESOP. The Mystech
--------------------------------------------
Associates, Inc. Employee Stock Ownership Plan (the "ESOP") has received the
written opinion of Willamette Management Associates, dated May 27, 1998 (a true,
correct and complete copy of which has been delivered to Parent and Company), to
the effect that, based upon and subject to the matters set forth therein and as
of the date thereof, (i) the consideration to be received by the ESOP for the
Shares held by it pursuant to the transactions contemplated hereby is at least
equal to the fair market value of such Shares and (ii) the terms and conditions
of the transactions contemplated hereby are fair to the ESOP from a financial
point of view, and such opinion has not been withdrawn or modified.
(w) Voting Requirements. The affirmative vote of the holders of two-
-------------------
thirds of the outstanding Shares entitled to vote at the Stockholders Meeting
with respect to the approval of this Agreement is the only vote of the holders
of any class or series of Company's capital stock or other securities required
in connection with the consummation by Company of the Merger and the other
transactions contemplated hereby to be consummated by Company. Approximately
50.2% of the outstanding Shares are held of record by the trustees of the ESOP,
and are subject to provisions of the ESOP applicable to the voting thereof. The
restrictions contained in Part XII of the CBCA are not applicable to the
transactions contemplated hereby, including the transactions contemplated by the
Stockholder Agreement.
(x) Disclosure. None of (i) the information contained in the
----------
Disclosure Schedule (other than Section 4.2 thereof), (ii) any other written
information furnished to Parent by Company, or (iii) the representations and
warranties of Company contained in this Section 4.1, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not false or misleading.
Section 4.2 Representations and Warranties of Parent and Merger Sub.
-------------------------------------------------------
Parent and Merger Sub represent and warrant to Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
------------------------------------------
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and each
has the requisite corporate power and authority to carry on its business as it
is now being conducted.
(b) Authority; Noncontravention. Parent and Merger Sub have the
---------------------------
requisite corporate power and authority to enter into this Agreement. The
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly authorized by the respective Boards of Directors of Parent and
Merger Sub (or the Executive Committee thereof) and have been duly approved by
Parent as sole stockholder of Merger Sub, and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of Parent and Merger Sub and, assuming this
Agreement constitutes a valid and binding obligation of Company, constitutes a
valid and binding obligation of each of Parent and Merger Sub, enforceable
against each such party in accordance with its terms, subject to applicable
bankruptcy,
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insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principals of
equity. Except as specified in Section 4.2(b) of the Disclosure Schedule, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions of this
Agreement will not (i) conflict with any of the provisions of the certificate of
incorporation or bylaws of Parent or the certificate of incorporation or bylaws
of Merger Sub, in each case as amended to the date of this Agreement, (ii)
subject to the governmental filings and other matters referred to in Section
4.2(c), conflict with, result in a breach of or default (with or without notice
or lapse of time, or both) under, or give rise to a material obligation, a right
of termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent of any Person under, any
indenture, or other agreement, permit, concession, franchise, license or similar
instrument or undertaking to which Parent or Merger Sub is a party or by which
Parent or Merger Sub or any of their respective assets is bound or affected, or
(iii) subject to the governmental filings and other matters referred to in
Section 4.2(c), contravene any law, rule or regulation, or any order, writ,
judgment, injunction, decree, determination or award currently in effect, except
for, in the case of clauses (ii) and (iii) above, such conflicts, breaches,
defaults, obligations, rights (assuming the exercise thereof), losses, consents
(assuming the failure thereof to be obtained) and contraventions as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
(c) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration or filing with, or notice to, any Governmental Entity which has
not been received or made is required by or with respect to Parent or Merger Sub
in connection with the execution and delivery of this Agreement by Parent or
Merger Sub or the consummation by Parent or Merger Sub, as the case may be, of
any of the transactions contemplated hereby, except for (i) the filing of
premerger notification and report forms under the HSR Act with respect to the
Merger, (ii) the filing with the SEC of the Form S-4 and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (iii) the filing of the certificate of merger
with the Connecticut State Secretary, (iv) such other consents, approvals,
authorizations, filings or notices as are specified in Section 4.2(c) of the
Disclosure Schedule, and (v) any other consents, approvals, authorizations,
filings or notices the failure of which to be made or obtained would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
(d) Capital Structures. The authorized capital stock of Parent
-------------------
consists of (i) 125,000,000 shares of Common Stock, and (ii) 10,000,000 shares
of preferred stock, par value $0.10 per share, of which 1,250,000 shares have
been designated Series A Junior Participating Preferred Stock. At the close of
business on May 22, 1998, (i) 78,263,870 shares of Common Stock were issued and
outstanding, (ii) 2,622,192 shares of Common Stock were held by Parent in its
treasury, (iii) 17,276,370 shares of Common Stock were reserved for issuance
pursuant to outstanding options to purchase shares of Common Stock granted under
Parent's stock option plans, (iv) 3,500,000 shares of Common Stock were reserved
for issuance pursuant to Parent's employee stock purchase plan, and (v)
1,250,000 shares of Series A Junior Participating Preferred Stock were reserved
for issuance pursuant to the Rights. Except as set forth in the immediately
preceding sentence and for the Rights accompanying the issued and outstanding
shares of Common Stock referred to therein and to accompany (subject to the
provisions of the Rights Agreement) each share of Common Stock subsequently
issued by Parent or delivered from
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Parent's treasury, at the close of business on May 22, 1998, no shares of
capital stock or other equity securities of Parent were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Parent are,
and all shares of Common Stock which may be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. The authorized capital stock
of Merger Sub consists of 1,000 shares of common stock, $0.01 par value per
share, 1,000 of which have been validly issued, are fully paid and nonassessable
and are owned by Parent. No bonds, debentures, notes or other indebtedness of
Parent having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the stockholders of
Parent may vote are issued or outstanding. Except as set forth above, Parent
does not have any outstanding option, warrant, subscription or other right,
agreement or commitment which (i) obligates Parent to issue, sell or transfer,
repurchase, redeem or otherwise acquire any shares of the capital stock of
Parent, (ii) restricts the transfer of Common Stock or (iii) relates to the
voting of Common Stock.
(e) SEC Documents. Parent has filed all required reports, schedules,
--------------
forms, statements and other documents with the SEC since September 30, 1994
(such reports, schedules, forms, statements and other documents are hereinafter
referred to as the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents as of such dates contained any
untrue statements of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Parent included in the
Parent SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may
otherwise be indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments).
(f) Absence of Certain Changes or Events. Except as disclosed in the
-------------------------------------
Parent SEC Documents filed and publicly available prior to the date of this
Agreement (the "Filed Parent SEC Documents") or in Section 4.2(f) of the
Disclosure Schedule, since the date of the most recent audited financial
statements included in the Filed Parent SEC Documents, Parent and its
Subsidiaries have conducted their business only in the ordinary course
consistent with past practice, and there has not been any change, event or
occurrence which has had or would have, individually or in the aggregate, a
Material Adverse Effect on Parent.
(g) Certain Information. None of the information supplied or to be
-------------------
supplied by Parent or Merger Sub specifically for inclusion or incorporation by
reference in, or which may be deemed to be incorporated by reference in, (i) the
Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under
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the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Proxy Statement will, at the time
it is filed with the SEC, at any time that it is amended or supplemented, mailed
to the stockholders of Company and at the time of the Stockholders Meeting
referred to in Section 6.3, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 and the Proxy Statement will comply
as to form in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder, to
the extent applicable, except that no representation or warranty is made by
Parent or Merger Sub with respect to statements made or incorporated by
reference in such documents based on information supplied by or on behalf of
Company specifically for inclusion or incorporation by reference therein, or
which may be deemed to be incorporated by reference therein.
(h) Brokers. No broker, investment banker, financial advisor or other
-------
Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Merger
Sub.
(i) Tax and Accounting Matters. Neither Parent nor Merger Sub has
--------------------------
taken or agreed to take any action, and Parent is not aware of any circumstances
relating to Parent or Merger Sub, or any of their respective Affiliates, that
(i) would prevent the Merger from being accounted for as a pooling of interests
or (ii) would prevent the Merger from constituting a reorganization within the
meaning of Section 368(a) of the Code.
(j) Disclosure. None of (i) the information contained in Section 4.2
----------
of the Disclosure Schedule, (ii) any other written information furnished to
Company by Parent, or (iii) the representations and warranties of Parent
contained in this Section 4.2, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
false or misleading.
ARTICLE V
CONDUCT OF BUSINESS OF COMPANY
Section 5.1 Conduct of Business of Company. Except as expressly provided
------------------------------
for herein, during the period from the date of this Agreement to the Effective
Time or the earlier termination of this Agreement as provided herein, Company
shall, and shall cause each of its Subsidiaries to, act and carry on its
business only in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact its current business organizations, keep available the services of its
current key officers and employees and preserve the goodwill of those engaged in
material business relationships with Company, and to that end, without limiting
the generality of the foregoing, Company shall not, and shall not permit any of
its Subsidiaries to, without the prior consent of Parent:
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(i) (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in respect
of, any of its outstanding capital stock (other than, with respect to a
Subsidiary of Company, to its corporate parent), (B) split, combine or
reclassify any of its outstanding capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its outstanding capital stock, or (C) purchase, redeem or
otherwise acquire any shares of outstanding capital stock or any rights,
warrants or options to acquire any such shares, except, in the case of this
clause (C), for the acquisition of Shares from holders of Options in full or
partial payment of the exercise price payable by such holder upon exercise of
Options;
(ii) issue, sell, grant, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible or exchangeable securities, other
than upon the exercise of Options outstanding on the date of this Agreement;
(iii) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents;
(iv) directly or indirectly acquire, make any investment in, or
make any capital contributions to, any Person other than in the ordinary course
of business consistent with past practice;
(v) directly or indirectly sell, pledge or otherwise dispose of
or encumber any of its properties or assets that are material to its business,
except for sales, pledges or other dispositions or encumbrances in the ordinary
course of business consistent with past practice;
(vi) (A) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another Person, other than indebtedness owing to or
guarantees of indebtedness owing to Company or any direct or indirect wholly
owned Subsidiary of Company or (B) make any loans or advances to any other
Person, other than to Company or to any direct or indirect wholly owned
Subsidiary of Company and other than routine advances to employees consistent
with past practice, except, in the case of clause (A), for borrowings under
existing credit facilities described in the Financial Statements in the ordinary
course of business consistent with past practice;
(vii) grant or agree to grant to any officer, employee or
consultant any increase in wages or bonus, severance, profit sharing,
retirement, deferred compensation, insurance or other compensation or benefits,
or establish any new compensation or benefit plans or arrangements, or amend or
agree to amend any existing Company Plans, except as may be required under
existing agreements or by law and normal, regularly scheduled increases in
respect of non-officer employees consistent with past practices;
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(viii) enter into or amend any employment, consulting, severance
or similar agreement with any individual, except with respect to new hires of
non-officer employees in the ordinary course of business consistent with past
practice;
(ix) adopt or enter into a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other material reorganization or any agreement relating to an Acquisition
Proposal (as hereinafter defined);
(x) make any tax election or settle or compromise any income
tax liability of Company or of any of its Subsidiaries involving on an
individual basis more than $50,000;
(xi) make any change in any method of accounting or accounting
practice or policy, except as required by any changes in GAAP;
(xii) enter into any agreement, understanding or commitment that
restrains, limits or impedes Company's ability to compete with or conduct any
business or line of business, except for any such agreement, understanding or
commitment entered into in the ordinary course of business consistent with past
practice;
(xiii) plan, announce, implement or effect any reduction in
force, lay-off, early retirement program, severance program or other program or
effort concerning the termination of employment of employees of Company or its
Subsidiaries;
(xiv) accelerate the collection of any account receivable or
delay the payment of any account payable, or otherwise reduce the assets or
increase the liabilities of Company or any of its Subsidiaries otherwise than in
the ordinary course of business consistent with past practice, in any such case
with the purpose or effect of using the resulting increase in the cash flow of
Company or any of its Subsidiaries to reduce the total indebtedness of Company
and its Subsidiaries for money borrowed; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 5.1.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1 Preparation of the Proxy Statement and the Form S-4. As soon
---------------------------------------------------
as practic able following the date hereof:
(i) Company and Parent shall jointly prepare for inclusion in
the Form S-4 a proxy statement (the "Proxy Statement") relating to the Merger in
accordance with the Exchange Act and the rules and regulations under the
Exchange Act, to the extent applicable, with respect to the transactions
contemplated hereby. Company, Parent and Merger Sub shall
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cooperate with each other in the preparation of the Proxy Statement. Company and
Parent shall use all reasonable efforts to respond promptly to any comments made
by the SEC with respect to the Proxy Statement, to cause the Form S-4 to be
declared effective under the Securities Act as promptly as practicable after the
filing thereof with the SEC and to cause the Proxy Statement to be mailed to the
stockholders of Company at the earliest practicable date after the Form S-4 is
declared effective by the SEC.
(ii) Parent shall prepare and file with the SEC the Form S-4.
Each of Company and Parent shall use all reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. Parent shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of Common Stock in the Merger, and Company shall furnish all information
concerning Company and the holders of the Shares as may be reasonably requested
in connection with any such action.
(iii) Without limiting the generality of the foregoing, Company
and Parent shall notify each other promptly of the receipt of the comments of
the SEC and of any request by the SEC for amendments or supplements to the Proxy
Statement and Form S-4, or for additional information, and shall supply each
other with copies of all correspondence between them or their respective
representatives, on the one hand, and the SEC or members of its staff, on the
other hand, with respect to the Proxy Statement and Form S-4. If at any time
prior to the Stockholders Meeting (as hereinafter defined) any event should
occur relating to Company or Parent or their respective officers or directors
which is required to be described in an amendment or supplement to the Proxy
Statement and Form S-4, the parties shall promptly inform each other. Whenever
any event occurs which is required to be described in an amendment or a
supplement to the Proxy Statement and Form S-4, Company and Parent shall, upon
learning of such event, cooperate in promptly preparing, filing and (to the
extent applicable) clearing with the SEC and mailing to the stockholders of
Company such amendment or supplement; provided, however, that, prior to such
mailing, (A) Company and Parent shall consult with each other with respect to
such amendment or supplement, (B) Company and Parent shall afford each other
reasonable opportunity to comment thereon, and (C) each such amendment or
supplement shall be reasonably satisfactory to the other.
Section 6.2 Accountants' Letters, Etc. (a) Company shall use all
--------------------------
reasonable efforts to cause to be delivered to Parent a letter of Argy, Wiltse &
Robinson, Company's independent public accountants, dated a date within two
Business Days before the date on which the Form S-4 shall become effective, and
a letter of Argy, Wiltse & Robinson, dated a date within two Business Days
before the Closing Date, each addressed to Company and Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) Company shall deliver or cause to be delivered to Ernst & Young,
LLP, Parent's independent public accountants ("Ernst & Young"), such information
and certifications as Ernst & Young may reasonably request in connection with
the preparation and delivery of the letter described in Section 6.2(d),
including a list of all "affiliates" of Company for purposes of
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Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations (together, in the event such list does not include all officers of
Company, with an opinion of counsel reasonable satisfactory to Ernst & Young to
the effect that all such officers who are affiliates within the meaning of the
federal securities laws are included on such list).
(c) Parent shall use all reasonable efforts to cause to be delivered
to Company a letter of Ernst & Young, dated a date within two Business Days
before the date on which the Form S-4 shall become effective, and a letter of
Ernst & Young, dated a date within two Business Days before the Closing Date,
each addressed to Parent and Company, in form and substance reasonably
satisfactory to Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4.
(d) Parent shall use all reasonable efforts to cause to be delivered
to Company a letter of Ernst & Young, addressed to Parent and dated as of the
Closing Date, setting forth the concurrence of Ernst & Young with Parent's
management's conclusion that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations if consummated in accordance with this Agreement.
Section 6.3 Stockholders Meeting. Company shall take all action necessary,
--------------------
in accordance with the CBCA, the Exchange Act (to the extent applicable) and
other applicable law and its certificate of incorporation and bylaws, to convene
and hold a special meeting of the stockholders of Company (the "Stockholders
Meeting") as promptly as practicable after the date hereof for the purpose of
considering and voting upon this Agreement and to solicit proxies pursuant to
the Proxy Statement in connection therewith. Subject to the provisions of
Section 6.7(b), the Board of Directors of Company shall recommend that the
holders of the Shares vote in favor of the approval of this Agreement at the
Stockholders Meeting and shall cause such recommendation to be included in the
Proxy Statement. At the Stockholders Meeting, Parent and Merger Sub shall vote
any Shares beneficially owned by them (which may be voted by them pursuant to
applicable law) in favor of the approval of this Agreement.
Section 6.4 Access to Information; Confidentiality. Each of Parent and
--------------------------------------
Company shall, and shall cause each of its Subsidiaries to, afford to the other
and its officers, employees, counsel, financial advisors and other
representatives access during normal business hours throughout the period prior
to the Effective Time to all its properties, books, contracts, commitments,
Returns, personnel and records and, during such period, each of Parent and
Company shall, and shall cause each of its Subsidiaries to, furnish as promptly
as practicable to the other such information concerning its business,
properties, financial condition, operations and personnel as the other may from
time to time request. Any such investigation by Parent or Company shall not
affect the representations or warranties contained in this Agreement. Except as
required by law, Parent and Company will hold, and will cause its directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to hold, any non-public information obtained from
the other in confidence to the extent required by, and in accordance with the
provisions of, the letter agreement, dated May 5, 1997, between Parent and
Company with respect to confidentiality and other matters.
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Section 6.5 Reasonable Efforts. On the terms and subject to the
------------------
conditions set forth in this Agreement, each of the parties shall use all
reasonable efforts to take, or cause to be taken, all actions, and do, or cause
to be done, and assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including the satisfaction of the respective conditions set
forth in Article VII.
Section 6.6 Public Announcements. Parent and Merger Sub, on the one
--------------------
hand, and Company, on the other hand, shall consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release, SEC filing (including without limitation the Form S-4 and the
Proxy Statement) or other public statements with respect to the transactions
contemplated hereby, including the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law, by court process or by obligations pursuant
to any listing agreement with any national securities exchange.
Section 6.7 No Solicitation; Acquisition Proposals. (a) During the
--------------------------------------
period from and including the date of this Agreement to and including the
Effective Time, Company shall not, and shall not authorize or permit any of its
Subsidiaries, or any of its or their Affiliates, officers, directors, employees,
agents or representatives (including without limitation any investment banker,
financial advisor, attorney or accountant retained by Company or any of its
Subsidiaries), to, directly or indirectly, initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries, any expression of interest or the making of
any proposal that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal, or enter into or maintain or continue discussions or
negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal or agree to or endorse any Acquisition Proposal; provided,
however, that nothing in this Agreement shall prohibit the Board of Directors of
Company, prior to the time at which this Agreement shall have been approved by
Company's stockholders, from furnishing information to, or entering into,
maintaining or continuing discussions or negotiations with, any Person that
makes an unsolicited, bona fide written Acquisition Proposal after the date
hereof if, and to the extent that, the Board of Directors of Company, after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that (i) such Acquisition Proposal would be more
favorable to Company's stockholders than the Merger, and (ii) the failure to
take such action would result in a breach by the Board of Directors of Company
of its fiduciary duties to Company's stockholders under applicable law, and,
prior to furnishing any non-public information to such Person, Company receives
from such Person an executed confidentiality agreement with provisions no less
favorable to Company than the letter agreement relating to the furnishing of
confidential information of Company to Parent referred to in the last sentence
of Section 6.4. Company shall promptly (and, in any event within 24 hours)
notify Parent after receipt of any Acquisition Proposal or any request for
information relating to Company or any of its Subsidiaries or for access to the
properties, books or records of Company or any of its Subsidiaries by any Person
who has informed Company that such Person is considering making, or has made, an
Acquisition Proposal (which notice shall identify the Person making, or
considering making, such Acquisition Proposal and shall set forth the material
terms of any Acquisition Proposal received), and
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Company shall keep Parent informed in reasonable detail of the terms, status and
other pertinent details of any such Acquisition Proposal.
(b) During the period from and including the date of this Agreement
to and including the Effective Time, neither the Board of Directors of Company
nor any committee thereof shall withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Parent or Merger Sub, the approval of
this Agreement or the transactions contemplated hereby or the recommendation
referred to in the penultimate sentence of Section 6.3; provided, however, that
nothing contained in this Agreement will prohibit the Board of Directors of
Company from withdrawing or modifying the recommendation referred to in the
penultimate sentence of Section 6.3 following the receipt by Company after the
date hereof, under circumstances not involving any breach of the provisions of
Section 6.7(a), of an unsolicited Acquisition Proposal if, and to the extent
that, the Board of Directors of Company, after consultation with and based upon
the advice of independent legal counsel, determines in good faith that (i) the
transactions contemplated by such Acquisition Proposal would be more favorable
to Company's stockholders than the transactions contemplated hereby, and (ii)
the failure to take such action would result in a breach by the Board of
Directors of Company of its fiduciary duties to Company's stockholders under
applicable law.
(c) Nothing in this Section 6.7, and no action taken by the Board of
Directors of the Company pursuant to this Section 6.7, will (i) have any effect
on Company's obligations under the first sentence of Section 6.3, which
obligations shall be absolute and unconditional, (ii) permit Company to
terminate this Agreement, (iii) permit Company to enter into any agreement
providing for any transaction contemplated by an Acquisition Proposal for as
long as this Agreement remains in effect, or (iv) affect in any manner any other
obligation of Company under this Agreement.
(d) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer, proposal or other indication of interest regarding any of the
following (other than the transactions contemplated hereby with Parent or Merger
Sub) involving Company: (i) any merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of Company and its Subsidiaries, taken as a whole,
in a single transaction or series of related transactions; (iii) any tender
offer or exchange offer for 20% percent or more of the outstanding shares of
capital stock of Company or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Section 6.8 Consents, Approvals and Filings. Upon the terms and subject
-------------------------------
to the conditions hereof, each of the parties hereto shall (a) make promptly its
respective filings, and thereafter make any other required submissions, under
the HSR Act and the Exchange Act, with respect to the Merger and the other
transactions contemplated hereby and (b) use all reasonable efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
hereby, including without
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limitation using all reasonable efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Entities and parties to contracts with Company and its Subsidiaries as are
necessary for the consummation of the Merger and the other transactions
contemplated hereby and to fulfill the conditions to the Merger; provided,
however, that in no event shall Parent or any of its Subsidiaries be required to
agree or commit to divest, hold separate, offer for sale, abandon, limit its
operation of or take similar action with respect to any assets (tangible or
intangible) or any business interest of it or any of its Subsidiaries (including
without limitation the Surviving Corporation after consummation of the Merger)
in connection with or as a condition to receiving the consent or approval of any
Governmental Entity (including without limitation under the HSR Act). In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use all reasonable efforts to take all
such action.
Section 6.9 Board Action Relating to Stock Option Plan. As soon as
------------------------------------------
practicable following the date of this Agreement, the Board of Directors of
Company (or, if appropriate, any committee administering the Stock Option Plan)
shall adopt such resolutions and take such actions as may be required to cause
each outstanding Option to be automatically converted, at the Effective Time,
into a Substitute Option in accordance with Section 2.2, and shall make such
other changes to the Stock Option Plan as it deems appropriate to give effect to
the Merger (subject to the approval of Parent, which shall not be unreasonably
withheld).
Section 6.10 Employee Benefit Matters. (a) From and after the Effective
------------------------
Time, Parent shall, and shall cause its Subsidiaries (including the Surviving
Corporation) to, honor and provide for payment of all accrued obligations and
benefits under all Company Plans and employment or severance agreements between
Company and Persons who are or had been employees of Company or any of its
Subsidiaries at or prior to the Effective Time ("Covered Employees"), all in
accordance with their respective terms.
(b) From and after the Effective Time, Parent shall, and shall
cause its Subsidiaries (including the Surviving Corporation) to, provide Covered
Employees who remain in the employ of Parent or any such Subsidiary employee
benefits that are reasonably comparable to the employee benefits provided to
similarly situated employees of Parent or any such Subsidiary who are not
Covered Employees. To the extent that Covered Employees are included in any
benefit plan of Parent or its Subsidiaries, Parent agrees that the Covered
Employees shall receive credit under such plan (other than any such plan
providing for sabbaticals) for service prior to the Effective Time with Company
and its Subsidiaries to the same extent such service was counted under similar
Company Plans for purposes of eligibility, vesting, eligibility for retirement
(but not for benefit accrual) and, with respect to vacation, disability and
severance, benefit accrual. To the extent that Covered Employees are included in
any medical, dental or health plan other than the plan or plans they
participated in at the Effective Time, Parent agrees that any such plans shall
not include pre-existing condition exclusions, except to the extent such
exclusions were applicable under the similar Company Plan at the Effective Time,
and shall provide credit for any deductibles and co-payments applied or made
with respect to each Covered Employee in the calendar year of the change. Parent
shall amend its benefit plans to the extent, if any, necessary to implement the
provisions of this Section 6.10(b).
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(c) Notwithstanding anything in this Agreement to the contrary, from
and after the Effective Time, the Surviving Corporation will have sole
discretion over the hiring, promotion, retention, firing and other terms and
conditions of the employment of employees of the Surviving Corporation. Except
as otherwise provided in this Section 6.10, nothing herein shall prevent Parent
or the Surviving Corporation from amending or terminating any Company Plan in
accordance with its terms.
Section 6.11 Treatment of Certain Company Plans. (a) As promptly as
----------------------------------
practicable (and in no event more than 90 days) after the Effective Time, Parent
shall take, or cause to be taken, all actions necessary to effect the merger
(the "Plan Merger") of the ESOP and the Mystech Associates, Inc. 401(k) Plan
with and into the Sterling Software, Inc. Savings and Security Plan (the "Parent
Plan"). Throughout the period from the Effective Time to the time the Plan
Merger is effected, Parent shall take, or cause to be taken, all actions
necessary to preserve the tax-qualified status of the ESOP. Subsequent to the
Plan Merger, the participants in the Parent Plan who, prior to the Plan Merger,
were participants in the ESOP shall be able to direct the investment of their
vested ESOP account balances among all of the investment options (other than the
Common Stock investment option) offered under the Parent Plan.
(b) In contemplation of the Plan Merger, Parent hereby represents and
warrants to Company as follows:
(i) the Parent Plan complies with the Code and all applicable
laws and has been administered, in form and operation, in compliance with all
applicable laws, and Parent has not received any notice from any relevant
regulatory agency or authority questioning or challenging such compliance;
(ii) to Parent's Knowledge, over the last three years, no event
has occurred which will or could give rise to disqualification of the Parent
Plan under Section 401(a) of the Code or to a tax or liability under any other
provision of the Code;
(iii) there have been no "prohibited transactions" (as defined in
Section 406 of ERISA or Section 4975 of the Code) with respect to the Parent
Plan;
(iv) there have been no acts or omissions by Parent with respect
to the Parent Plan which have given rise to or may give rise to any fines,
penalties, taxes or related charges under Sections 502(c) or 502(i) of ERISA or
Chapter 43 of the Code for which Parent may be liable;
(v) there are no claims (other than routine claims for benefits
or actions seeking qualified domestic relations orders) pending or, to Parent's
Knowledge, threatened involving the Parent Plan or the assets of the Parent
Plan, and, to Parent's Knowledge, no facts exist which could give rise to any
such claims (other than routine claims for benefits or actions seeking qualified
domestic relations orders);
(vi) the Parent Plan is not subject to Title IV of ERISA;
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(vii) the Parent Plan has received a favorable determination
letter from the IRS with respect to the tax-qualified status of the Parent Plan;
and
(viii) the execution, delivery and performance by Parent of this
Agreement and any collateral documents executed or required to be executed by
Parent pursuant hereto and thereto will not involve any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code);
provided, however, that the failure of the representations set forth above to be
true and correct shall not be deemed to be a breach of any such representation
unless such failures would have, individually or in the aggregate, a material
adverse effect on the interests, subsequent to the Plan Merger, of the
participants in the Parent Plan, as participants in such plan, who, prior to the
Plan Merger, were participants in the ESOP.
Section 6.12 Affiliates and Certain Stockholders. To the extent that it
-----------------------------------
has not already done so, Company shall, concurrently with the execution and
delivery of this Agreement, cause each Person who is an "affiliate" of Company
for purposes of Rule 145 under the Securities Act to deliver to Parent a written
agreement substantially in the form attached as Exhibit C hereto. Parent shall
not be required to maintain the effectiveness of the Form S-4 or any other
registration statement under the Securities Act for the purposes of resale of
Common Stock by such affiliates, and the certificates representing Common Stock
received by such affiliates in the Merger shall bear a customary legend
regarding applicable Securities Act restrictions.
Section 6.13 NYSE Listing. Parent shall use all reasonable efforts to
------------
cause the shares of Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
Section 6.14 Tax Treatment. Each of Company and Parent will use all
-------------
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code. Neither Company nor Parent will
voluntarily take any action that would cause such qualification to be
unattainable.
Section 6.15 Pooling of Interests. Each of Company and Parent shall use
--------------------
all reasonable efforts to cause the Merger to be accounted for as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations, and such accounting treatment to be accepted by Ernst &
Young and the SEC. Neither Company nor Parent shall voluntarily take any action
that would cause such accounting treatment to be unattainable.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
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(a) Stockholder Approval. This Agreement shall have been approved by
--------------------
the affirmative vote of the holders of the requisite number of shares of capital
stock of Company in the manner required pursuant to Company's certificate of
incorporation and bylaws, the CBCA and other applicable law.
(b) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the party
invoking this condition shall have complied with its obligations under Section
6.8.
(c) NYSE Listing. The shares of Common Stock issuable to Company's
------------
stockholders pursuant to the Merger shall have been approved for listing on the
NYSE, subject to official notice of issuance.
(d) Form S-4. The Form S-4 shall have been declared effective under
--------
the Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(e) HSR Act. All necessary waiting periods under the HSR Act
-------
applicable to the Merger shall have expired or been earlier terminated.
(f) Pooling Letter. Parent shall have received a letter from Ernst &
--------------
Young, addressed to Parent and dated as of the Closing Date, setting forth Ernst
& Young's concurrence with Parent's management's conclusion that the Merger will
qualify as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations if consummated in
accordance with this Agreement.
Section 7.2 Conditions to Obligations of Parent and Merger Sub. The
--------------------------------------------------
obligation of each of Parent and Merger Sub to effect the Merger is further
subject to satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Company contained in this Agreement, which representations and
warranties shall be deemed for purposes of this Section 7.2 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 as of the
Closing Date, except where the matters in respect of which such representations
and warranties are not true and correct, in the aggregate, have not had and
could not reasonably be expected to have a Material Adverse Effect on Company
(it being understood and agreed, however, that this exception shall not apply to
the representations and warranties contained in Section 4.1 (d)), with the same
effect as though such representations and warranties were made as of the Closing
Date, and Parent and Merger Sub shall have received a certificate signed on
behalf of Company by an authorized officer of Company to such effect.
(b) Performance of Obligations of Company. Company shall have
-------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent and Merger
Sub shall have received a certificate signed on behalf of Company by an
authorized officer of Company to such effect.
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(c) Certain Litigation. There shall not be pending or threatened any
------------------
suit, action or proceeding seeking to restrain or prohibit the Merger or seeking
to obtain from Parent or Company or any of their respective Affiliates in
connection with the Merger any material damages, or seeking any other relief
that, following the Merger, would materially limit or restrict the ability of
Parent and its Subsidiaries to own and conduct both the assets and businesses
owned and conducted by Parent and its Subsidiaries prior to the Merger and the
assets and businesses owned and conducted by Company and its Subsidiaries prior
to the Merger.
(d) Consents. All consents, authorizations, orders and approvals of
--------
(or filings or registrations with) any Governmental Entity or any other Person
required to be obtained or made prior to the Effective Time in connection with
the execution, delivery and performance of this Agreement shall have been
obtained or made, except for the filing of the certificate of merger pursuant to
Section 1.3 and except where the failure to have obtained or made such consents,
authorizations, orders, approvals, filings or registrations could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent or the Surviving Corporation.
(e) Tax Opinion. Parent shall have received from Jones, Day, Reavis &
-----------
Pogue, counsel to Parent, on the Closing Date, an opinion, dated as of the
Closing Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and that Company, Parent and Merger Sub will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, that no gain or
loss will be recognized by Company, Parent or Merger Sub upon the consummation
of the Merger and that no gain or loss will be recognized by the stockholders of
Company upon their exchange of Shares for Common Stock under Section 354 of the
Code (except with respect to the receipt of cash in lieu of fractional shares).
(f) Stock Ownership Agreement. The Mystech Associates, Inc. Corporate
-------------------------
Stock Ownership Agreement shall have been terminated, and shall be of no further
force or effect.
Section 7.3 Conditions to Obligation of Company. The obligation of the
-----------------------------------
Company to effect the Merger is further subject to satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of each of Parent and Merger Sub contained in this Agreement, which
representations and warranties shall be deemed for purposes of this Section 7.3
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 as of the Closing Date, except where the matters in respect of which
such representations and warranties are not true and correct, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect on Parent, with the same effect as though such representations and
warranties were made as of the Closing Date, and Company shall have received a
certificate signed on behalf of Parent and Merger Sub by an authorized officer
of Parent to such effect.
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<PAGE>
(b) Performance of Obligations of Parent and Merger Sub. Each of
---------------------------------------------------
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by an authorized officer of Parent to such effect.
(c) Tax Opinion. Company shall have received from Hunton & Williams,
-----------
counsel to Company, on the Closing Date, an opinion, dated as of the Closing
Date, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
that Company, Parent and Merger Sub will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, that no gain or loss will be
recognized by Company, Parent or Merger Sub upon the consummation of the Merger
and that no gain or loss will be recognized by the stockholders of Company upon
their exchange of Shares for Common Stock under Section 354 of the Code (except
with respect to the receipt of cash in lieu of fractional shares).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. (a) This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of Company,
in any one of the following circumstances:
(i) By mutual written consent duly authorized by the Boards of
Directors of Parent and Company.
(ii) By Parent or Company, if the Effective Time shall not have
occurred on or before August 31, 1998, otherwise than as a result of any
material breach of any provision of this Agreement by the party seeking to
effect such termination.
(iii) By Parent or Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling, or taken any other action permanently restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and non-appealable, provided that neither party
may terminate this Agreement pursuant to this Section 8.1(a)(iii) if it has not
complied with its obligations under Section 6.8.
(iv) By Parent or Company, if the Stockholders Meeting shall
have been held and this Agreement shall not have been approved by the
affirmative vote of the holders of the requisite number of shares of capital
stock of Company, provided that Company may not terminate this Agreement
pursuant to this Section 8.1(a)(iv) unless it shall have paid to Parent the fee
provided for in Section 8.1(b).
(v) By Parent, if (A) the Board of Directors of Company or any
committee thereof shall have (1) withdrawn or modified, in a manner adverse to
Parent or Merger Sub, its
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<PAGE>
approval of this Agreement or the transactions contemplated hereby or the
recommendation referred to in the penultimate sentence of Section 6.3, (2)
approved, endorsed or recommended to its stockholders an Acquisition Proposal,
or (3) resolved to do any of the foregoing or (B) the Stockholders Meeting shall
not have been held by July 31, 1998 as a result of a breach by Company of its
obligations under Section 6.3.
(vi) By Parent or Company, if (A) the other party shall have
failed to comply in any material respect with any of the material covenants and
agreements contained in this Agreement to be complied with or performed by such
party at or prior to such date of termination, and such failure continues for 20
Business Days after the actual receipt by such party of a written notice from
the other party setting forth in detail the nature of such failure, or (B) the
representations and warranties of the other party contained in this Agreement,
which representations and warranties shall be deemed for purposes of this
Section 8.1(a)(vi) not to include any qualification or limitation with respect
to materiality (whether by reference to a "Material Adverse Effect" or
otherwise), shall have been untrue in any respect on the date when made (or in
the case of any representations and warranties that are made as of a different
date, as of such different date) and the matters in respect of which such
representations and warranties shall have been untrue, in the aggregate, have
had or could reasonably be expected to have a Material Adverse Effect on such
other party.
(b) If this Agreement is terminated pursuant to Section 8.1(a)(iv),
then, in such event, Company shall pay to Parent prior to such termination, in
immediately available funds, a fee in an amount equal to (i) $1,246,282, if the
closing price per share of Common Stock, as reported on the NYSE Composite Tape,
on the trading day immediately preceding the day on which the Stockholders
Meeting is held (the "Measurement Price") is equal to or greater than $22.4719,
(ii) the product of (A) $1,246,282, (B) the quotient obtained by dividing (1)
the amount by which the Measurement Price exceeds $13.2188 by (2) $26.4375, and
(C) 2.85714286, if the Measurement Price is less than $22.4719 but greater than
$13.2188, and (iii) zero, if the Measurement Price is equal to or less than
$13.2188, whichever is applicable.
(c) If this Agreement is terminated pursuant to Section 8.1(a)(iv)
and, within 12 months after such termination, Company enters into any agreement
providing for any transaction contemplated by an Acquisition Proposal, then, in
such event, Company shall pay to Parent promptly (and in any event within three
business days) after entering into such agreement, in immediately available
funds, a fee in an amount equal to the amount by which $2,492,563 exceeds the
amount of the fee paid by Company to Parent pursuant to Section 8.1(b).
(d) If this Agreement is terminated pursuant to Section 8.1(a)(v),
then, in such event, Company shall pay to Parent promptly (and in any event
within three business days) after such termination, in immediately available
funds, a fee in an amount equal to $1,246,282.
(e) If this Agreement is terminated pursuant to Section 8.1(a)(v)
and, within 12 months after such termination, Company enters into any agreement
providing for any transaction contemplated by an Acquisition Proposal, then, in
such event, Company shall pay to Parent promptly (and in any event within three
business days) after entering into such agreement, in immediately available
funds, a fee in an amount equal to the amount by which $2,492,563 exceeds the
amount of the fee paid by Company to Parent pursuant to Section 8.1(d).
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<PAGE>
Section 8.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of Section 4.1(u), Section 4.2(h), Section 6.4,
Section 6.6, paragraphs (b), (c), (d) and (e) of Section 8.1, this Section 8.2
and Article IX) shall forthwith become void and cease to have any force or
effect, without any liability on the part of any party hereto or any of its
Affiliates; provided, however, that nothing in this Section 8.2 shall relieve
any party to this Agreement of liability for any willful or intentional breach
of this Agreement.
Section 8.3 Amendment. Subject to any applicable provisions of the
---------
CBCA, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of this Agreement at the Stockholders Meeting, no amendment shall be
made which would reduce the amount or change the type of consideration into
which each Share shall be converted upon consummation of the Merger. This
Agreement may not be modified or amended except by written agreement executed
and delivered by duly authorized officers of each of the respective parties.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in a written instrument executed and delivered by a duly authorized
officer on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.
---------------------------------------------------------
A termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of Parent, Merger Sub
or Company, action by its Board of Directors (or, in the case of Parent, the
Executive Committee thereof) or the duly authorized designee of its Board of
Directors.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
---------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 9.2 Fees and Expenses. Whether or not the Merger shall be
-----------------
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this
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<PAGE>
Agreement and the consummation of the transactions contemplated hereby, except
that each of Company and Parent shall bear and pay one-half of the costs and
expenses incurred in connection with (a) the filing, printing and mailing of the
Form S-4 and the Proxy Statement (including SEC filing fees) and (b) the filing
of the premerger notification and report forms under the HSR Act (including
filing fees). Notwithstanding the foregoing, in the event of the consummation of
the Merger, all reasonable professional service fees of Company incurred in
connection with the Merger, including, without limitation, attorneys' and
accountants' fees, shall be promptly paid by Parent or the Surviving
Corporation.
Section 9.3 Definitions. For purposes of this Agreement:
-----------
(a) an "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) "Business Day" means any day other than Saturday, Sunday or any
other day on which banks in the City of New York are required or permitted to
close;
(c) "Disclosure Schedule" means the disclosure schedule delivered by
each party to the other simultaneously with the execution of this Agreement;
(d) "Environmental Laws" means any federal, state or local law
relating to: (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (iii) otherwise relating to
pollution of the environment or the protection of human health;
(e) "GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time;
(f) "Hazardous Substances" means: (i) those substances defined in or
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act; (ii)
petroleum and petroleum products including crude oil and any fractions thereof;
(iii) natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) any
other contaminant; and (vi) any substance with respect to which any Governmental
Entity requires environmental investigation, monitoring, reporting or
remediation;
(g) "Knowledge" means the actual knowledge of any executive officer of
Company or Parent, as the case may be, and any other knowledge implied or
imputed by applicable law;
(h) "Liens" means, collectively, all pledges, claims, liens, charges,
mortgages, conditional sale or title retention agreements, hypothecations,
collateral assignments, security interests, easements and other encumbrances of
any kind or nature whatsoever;
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(i) a "Material Adverse Effect" with respect to any Person means a
material adverse effect on (i) the ability of such Person to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby or (ii) the condition (financial or otherwise), assets, liabilities
(actual or contingent), results of operations or business of such Person and its
Subsidiaries taken as a whole;
(j) the "NYSE" means the New York Stock Exchange;
(k) a "Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(l) "Principal Stockholders" means David L. Young, Robert J. Cotter,
Jr., Ann E. Wohlleber and Richard I. Broadbent.
(m) a "Subsidiary" of any Person means any other Person of which (i)
the first mentioned Person or any Subsidiary thereof is a general partner, (ii)
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such other Person is held by the first
mentioned Person and/or by any one or more of its Subsidiaries, or (iii) at
least 50% of the equity interests of such other Person is, directly or
indirectly, owned or controlled by such first mentioned Person and/or by any one
or more of its Subsidiaries.
Section 9.4 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent or to Merger Sub, to
Sterling Software, Inc.
300 Crescent Court, Suite 1200
Dallas, Texas 75201-7853
Attention: Don J. McDermett, Jr., Esquire
Telecopy: (214) 981-1265
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen, Esquire
Telecopy: (214) 969-5100
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<PAGE>
if to Company, to
Mystech Associates, Inc.
Skyline One, 5205 Leesburg Pike, Suite 1200
Falls Church, Virginia 22041
Attention: David L. Young
Telecopy: (703) 671-8680
with a copy (which shall not constitute notice) to:
Hunton & Williams
1751 Pinnacle Drive
McLean, Virginia 22102
Attention: Joseph W. Conroy, Esquire
Telecopy: (703) 714-7410
Section 9.5 Interpretation. When a reference is made in this Agreement
--------------
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for convenience of reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
Section 9.6 Entire Agreement; Third-Party Beneficiaries. This Agreement
-------------------------------------------
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the letter agreement referenced in
the last sentence of Section 6.4). This Agreement is not intended to confer
upon any Person (including without limitation any employees or former employees
of Company), other than the parties hereto, any rights or remedies.
Section 9.7 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Connecticut, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 9.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void, except that Parent and/or
Merger Sub may assign this Agreement to any direct wholly owned Subsidiary of
Parent without the prior consent of Company; provided that Parent and/or Merger
Sub, as the case may be, shall remain liable for all of its obligations under
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
Section 9.9 Enforcement. Irreparable damage would occur in the event
-----------
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were
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<PAGE>
otherwise breached. Accordingly, the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any appropriate state or federal
court in Fairfax County in the Commonwealth of Virginia), this being in addition
to any other remedy to which they are entitled at law or in equity. Each of the
parties hereto (i) shall submit itself to the personal jurisdiction of any
appropriate state or federal court in Fairfax County in the Commonwealth of
Virginia in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (iii) shall not bring any action relating to this Agreement or any of the
transactions contemplated hereby in any court other than any appropriate state
or federal court in Fairfax County in the Commonwealth of Virginia.
Section 9.10 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
STERLING SOFTWARE, INC.
By: /s/ Don J. McDermett, Jr.
------------------------------------------
Don J. McDermett, Jr.
Senior Vice President and General Counsel
STERLING SOFTWARE (CONNECTICUT), INC.
By: /s/ Don J. McDermett, Jr.
------------------------------------------
Don J. McDermett, Jr.
Vice President
MYSTECH ASSOCIATES, INC.
By: /s/ David L. Young
------------------------------------------
David L. Young
President and Chief Executive Officer
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<PAGE>
Appendix B
----------
Willamette Management Associates
8201 Greensboro Drive, Suite 817
McLean, Virginia 22102
703-917-6600/(Fax) 703-917-6610
May 27, 1998
Trustees of the Mystech Associates, Inc.
Employee Stock Ownership Plan
Mystech Associates, Inc.
5205 Leesburg Pike
Suite 1200
Falls Church, Virginia 22041
Dear Trustees:
Willamette Management Associates ("Willamette") has been retained by the
trustees (the "Trustees") of the Mystech Associates, Inc. ("Mystech") Employee
Stock Ownership Trust, which forms a part of and implements the Mystech Employee
Stock Ownership Plan (the "ESOP"), to determine, among other things, whether the
transaction described below is fair to the ESOP from a financial point of view.
Except as otherwise noted herein, capitalized terms used in this letter are
defined as set forth in the Agreement and Plan of Merger dated as of May 27,
1998 (the "Merger Agreement") among Sterling Software, Inc. ("Sterling
Software"), Sterling Software (Connecticut), Inc. ("Merger Sub") and Mystech.
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
Mystech with Mystech continuing as the surviving corporation and becoming a
wholly owned subsidiary of Sterling Software. At the effective time of the
Merger, 171,384 then-outstanding shares of Mystech Common Stock (other than any
shares owned by Mystech or any subsidiary of Mystech or by Sterling Software,
Merger Sub or any other subsidiary of Sterling Software, which shares will be
canceled) will be converted into the right to receive 5.49313 shares of Common
Stock of Sterling Software.
In our capacity as your independent financial advisor, you have specifically
asked us to render a written opinion (the "Opinion") as to whether:
1. the consideration to be received by the ESOP for its shares of Mystech
Common Stock pursuant to the Transaction is at least equal to the fair
market value of such shares; and
2. the terms and conditions of the Transaction are fair to the ESOP from
a financial point of view.
In undertaking our engagement, our focus was directed to the valuation issues
arising from ERISA Section 3(18), which defines the term "adequate
consideration" as the fair market value of an asset determined by a fiduciary in
good faith. Pursuant to the Department of Labor Proposed Regulation Section
2510.3-18(b)(2), fair market value is defined as the price at which an asset
would change hands between a willing buyer and a willing seller when the former
is not under any compulsion to buy and the latter is not under any compulsion to
sell and both parties are able, as well as willing, to trade and are well
informed about the asset and the market for that asset.
Willamette is one of the nation's leading independent financial advisory and
business valuation firms. Willamette's principal business is the valuation of
businesses and business interests, including both privately-held and publicly
traded companies, for all purposes, including employee stock ownership plans,
mergers and acquisitions, divestitures, public offerings, gift and estate taxes,
corporate and partnership recapitalizations, dissolutions and other objectives.
Willamette has provided ESOP valuations for over 200 clients. Willamette is
independent of parties to the Transaction (other than the ESOP) within the
meaning of proposed regulation 29 CFR 2510.3-18(b) issued by the U.S. Department
of Labor and section 401(a)(28)(C) of the Internal Revenue Code of 1986, as
amended.
B-1
<PAGE>
Trustees of the Mystech Associates, Inc.
Employee Stock Ownership Plan
May 27, 1998
Page 2
Mystech was founded in 1971. Mystech is a recognized supplier of information
technology services within the federal systems market, specializing in
information operations and command and control systems.
In connection with this Opinion, we have made such reviews, analyses and
inquiries, as we deemed necessary and appropriate under the circumstances. We
visited Mystech's headquarters in Falls Church, Virginia, and held discussions
with executive management. In addition, we reviewed, among other things: (i) a
draft of the Proxy Statement of Mystech Associates, Inc./Prospectus of Sterling
Software, Inc.; (ii) Mystech's audited financial statements for the fiscal years
ending June 30, 1993 through 1997; (iii) Mystech's unaudited financial
statements for the nine month periods ending March 31, 1997 and 1998; (iv)
certain projected financial information prepared by Mystech's management;(v)
Mystech's articles of incorporation and by-laws; (vi) certain of Sterling
Software's SEC reports; (vii) various investment bank's research reports on
Sterling Software; (viii) certain publicly available information and financial
data on publicly traded companies similar to Mystech; and (ix) such additional
studies, analyses, and investigations as we deemed appropriate.
Although our thorough discussions with management and review of supporting
documentation give us comfort that our due diligence efforts are appropriate, we
have not conducted a physical examination of all Mystech's properties or
facilities and we have not obtained or been provided with any independent formal
evaluation of such properties and facilities. We have reviewed the financial
information and other internal data provided to us and other publicly available
information, and while we are unable to verify the accuracy and completeness of
such data and information, we have judged the reasonableness thereof and made
certain adjustments thereto. Our Opinion is necessarily based upon market,
economic and other conditions as they exist on, and can be evaluated as of the
date of this letter.
Management has represented to us that there has been no material adverse change
in the business, financial position or results of operations of Mystech since
March 31, 1998.
Based on the foregoing, and assuming the Transaction closed today, it is our
opinion that:
1. the consideration to be received by the ESOP for its shares of Mystech
Common Stock pursuant to the Transaction is at least equal to the fair
market value of such shares; and
2. the terms and conditions of the Transaction are fair to the ESOP from
a financial point of view.
This Opinion is solely for the use and benefit of the Trustees, and any summary
of or reference to the Opinion or any other reference to Willamette by Mystech
in connection with the Transaction will be subject to Willamette's prior review
and written approval, which shall not be unreasonably withheld. The Opinion
will not be included in, summarized or referred to in any manner in materials
distributed to the public or potential investors of Mystech without Willamette's
prior written consent, which shall not be unreasonably withheld.
In accordance with recognized professional ethics, our professional fees for
this service are not contingent upon the opinion expressed herein, and neither
Willamette, nor any of its employees, has a present or intended financial
relationship with or interest in Mystech.
Very truly yours,
WILLAMETTE MANAGEMENT ASSOCIATES
B-2
<PAGE>
Appendix C
----------
CONNECTICUT BUSINESS CORPORATIONS ACT
SECTIONS 33-855 TO 33-872
33-855 DEFINITIONS.--As used in sections 33-855 to 33-872, inclusive:
(a) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(b) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 33-856 and who exercises that right when and in the manner
required by sections 33-860 to 33-868, inclusive.
(c) "Fair Value", with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action.
(d) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all circumstances.
(e) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the extent
of the rights granted by a nominee certificate on file with a corporation.
(f) "Beneficial Shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(g) "Shareholder" means the record shareholder or the beneficial shareholder.
33-856 RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party (A)
if shareholder approval is required for the merger by section 33-817 or the
certificate of incorporation and the shareholder is entitled to vote on the
merger or (B) if the corporation is a subsidiary that is merged with its parent
under section 33-818;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the certificate of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it: (A)
Alters or abolishes a preferential right of the shares; (B) creates, alters or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (C) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (D) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or (E)
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under section 33-
668; or
(e) Any corporate action taken pursuant to a shareholder vote to the extent
the certificate of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
33-587 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one person and notifies the corporation in writing of the name and address of
each person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has the power to direct the vote.
C-1
<PAGE>
33-858, 33-859 [Reserved for future use.]
33-860 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate action
creating dissenters' rights under section 33-856 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under sections 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
33-861 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate action
creating dissenters' rights under section 33-856 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights (1)
shall deliver to the corporation before the vote is taken written notice of his
intent to demand payment for his shares if the proposed action is effectuated
and (2) shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his shares under sections 33-855 to
33-872, inclusive.
33-862 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under section 33-856 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the first
announcement to new media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment demand, which
date may not be fewer than thirty nor more than sixty days after the date the
subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
33-863 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters' notice
described in section 33-862 must demand payment, certify whether he acquired
beneficial ownership of the shares before the date required to be set forth in
the dissenters' notice pursuant to subdivision (3) of subsection (b) of said
section and deposit his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
33-864 SHARE RESTRICTIONS.--(a) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 33-866.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
33-865 PAYMENT.--(a) Except as provided in section 33-867, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with section 33-863 the amount
the corporation estimates to be the fair value of his shares plus accrued
interest.
(b) The payment shall be accompanied by: (1) The corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before the
date of payment, an income statement for that year, a statement of changes in
shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
C-2
<PAGE>
33-866 FAILURE TO TAKE ACTION.--(a) If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
33-867 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to withhold
payment required by section 33-865 from a dissenter unless he was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the terms of
the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under subsection
(a) of this section, after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate
of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
33-868 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate, less any payment under section 33-865, or reject the corporation's
offer under section 33-867 and demand payment of the fair value of his shares
and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within sixty
days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) of
this section within thirty days after the corporation made or offered payment
for his shares.
33-869, 33-870 [Reserved for future use.]
33-871 COURT ACTION.--(a) If a demand for payment under section 33-868
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for
the judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment (1)
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation, or (2) for the fair
value, plus accrued interest, of his after-acquired shares for which the
corporation elected to withhold payment under section 33-867.
33-872 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under section 33-871 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
C-3
<PAGE>
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable: (1) Against the
corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections 33-
860 to 33-868, inclusive; or (2) against either the corporation or a dissenter,
in favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by sections 33-855 to 33-872,
inclusive.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
C-4
<PAGE>
[FORM OF PROXY FOR USE BY HOLDERS OF MYSTECH COMMON STOCK]
MYSTECH ASSOCIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MYSTECH
ASSOCIATES, INC.
FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY ___, 1998
The undersigned holder of shares of Common Stock of Mystech Associates, Inc.
("Mystech") hereby appoints __________________ and________________, and each of
them, as proxies of the undersigned, with full power of substitution and
resubstitution, to represent and vote as set forth herein all of the shares of
Common Stock of Mystech held of record by the undersigned on June ___, 1998 at
the Special Meeting of Shareholders of Mystech to be held on _________, July
___, 1998, at ____ a.m., Eastern Time, at__________________________________,
_________________________________, ____________, Virginia, and at any and all
postponements and adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
"FOR" THE PROPOSALS SET FORTH ON THE OTHER SIDE HEREOF.
(Continued, and to be dated and signed, on the other side)
<PAGE>
[X] Please mark your
vote as in this example.
- --------------------------------------------------------------------------------
THE DIRECTORS OF MYSTECH ASSOCIATES, INC. UNANIMOUSLY RECOMMEND
A VOTE FOR THE FOLLOWING PROPOSALS
- --------------------------------------------------------------------------------
1. Approval of an Agreement and Plan of Merger, dated as of May 27, 1998,
among Sterling Software, Inc., a Delaware corporation ("Sterling
Software"), Sterling Software (Connecticut), Inc., a Connecticut
corporation and a wholly owned subsidiary of Sterling Software ("Merger
Sub"), and Mystech Associates, Inc., a Connecticut corporation ("Mystech"),
pursuant to which Merger Sub will be merged with and into Mystech, with
Mystech continuing as the surviving corporation and becoming a wholly owned
subsidiary of Sterling Software.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Termination of the Mystech Associates, Inc. Corporate Stock Ownership
Agreement.
FOR [_] AGAINST [_] ABSTAIN [_]
- --------------------------------------------------------------------------------
This proxy should be dated, signed by
the shareholder as his or her name
appears below, and returned promptly
in the enclosed envelope. Joint
owners should each sign personally,
and trustees and others signing in a
representative capacity should
indicate the capacity in which they
sign.
Dated:------------------------------
------------------------------------
Signature of Shareholder
------------------------------------
Signature of Shareholder
USING BLUE OR BLACK INK, PLEASE MARK, SIGN, AND PROMPTLY RETURN
THIS PROXY CARD IN THE ENVELOPE PROVIDED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Sterling Software Certificate provides that the personal liability of
directors of Sterling Software to Sterling Software is eliminated to the maximum
extent permitted by Delaware law. The Sterling Software Certificate and
Sterling Software Bylaws provide for the indemnification of the directors,
officers, employees and agents of Sterling Software and its subsidiaries to the
fullest extent that may be permitted by Delaware law from time to time, and the
Sterling Software Bylaws provide for various procedures relating thereto.
Although the Sterling Software Certificate generally absolves Sterling
Software's directors from personal liability for monetary damages resulting from
breaches of their fiduciary duty of care, Sterling Software's directors remain
liable for breaches of their duty of loyalty to Sterling Software and its
stockholders, as well as for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law and transactions
from which a director derives improper personal benefit. In addition, the
Sterling Software Certificate does not absolve directors of liability under
Section 174 of the Delaware Act, which makes directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect to
such liability.
Under Delaware law, directors, officers, employees, and other individuals may
be indemnified against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action")
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard of conduct is applicable in the case of a
derivative action, but indemnification extends only to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such an
action and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the corporation.
As authorized by the Sterling Software Certificate, Sterling Software has
entered into indemnification agreements with each of its directors and officers.
These indemnification agreements provide for, among other things, (i) the
indemnification by Sterling Software of the indemnitees thereunder to the extent
described above, (ii) the advancement of attorneys' fees and other expenses, and
(iii) the establishment, upon approval by the Sterling Software Board, of trusts
or other funding mechanisms to fund Sterling Software's indemnification
obligations thereunder.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 27, 1998, among Sterling Software, Merger Sub and
Mystech (included as Appendix A to the Proxy Statement/Prospectus forming a part of this
Registration Statement) The disclosure schedule and exhibits relating to the Agreement and Plan of
Merger have been omitted. Sterling Software will furnish supplementally to the Commission such
schedule or exhibits upon request.
2.2 Stockholder Agreement, dated as of May 27, 1998, among Sterling Software and the Principal
Shareholders (1)
3.1.1 Sterling Software Certificate (2)
3.1.2 Sterling Software Bylaws (3)
3.2.1 Mystech Certificate (1)
</TABLE>
II-1
<PAGE>
3.2.2 Mystech Bylaws (1)
4.1 Form of Common Stock Certificate of Sterling Software (4)
4.2 Rights Agreement, dated December 18, 1996, between Sterling Software
and BostonBank, N.A., as Rights Agent (5)
4.3 First Amendment to Rights Agreement, dated as of March 12, 1998,
between Sterling Software and BankBoston, N.A., as Rights Agent (6)
5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of
securities to be issued*
8.1 Opinion of Jones, Day, Reavis & Pogue regarding certain tax matters*
8.2 Opinion of Hunton & Williams regarding certain tax matters*
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibits 5.1 and
8.1)
23.2 Consent of Hunton & Williams (included in Exhibit 8.2)
23.3 Consent of Ernst & Young LLP (1)
23.4 Consent of Argy, Wiltse & Robinson, P.C. (1)
23.5 Consent of Willamette Management Associates (1)
24.1 Powers of Attorney (1)
99.1 Mystech Corporate Stock Ownership Agreement (1)
- -----------------------------
* To be filed by amendment
(1) Filed herewith.
(2) Previously filed as an exhibit to Sterling Software's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated herein
reference.
(3) Previously filed as an exhibit to Sterling Software's Registration Statement
on Form 8-A/A filed on May 27, 1998 and incorporated herein by reference.
(4) Previously filed as an exhibit to Sterling Software's Registration Statement
No. 2-86825 and incorporated herein by reference.
(5) Previously filed as an exhibit to Sterling Software's Current Report on Form
8-K dated December 18, 1996 and incorporated herein by reference.
(6) Previously filed as an exhibit to Sterling Software's Registration Statement
on Form 8-A/A filed April 3, 1998 and incorporated herein by reference.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment will be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus:
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to this Registration Statement and will not
be used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
May 28, 1998.
STERLING SOFTWARE, INC.
By: /s/ Don J. McDermett, Jr.
-------------------------
Don J. McDermett, Jr.
Senior Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on May 28, 1998.
Signatures Title
---------- -----
/s/ Sterling L. Williams* Chief Executive Officer and President; Director
--------------------------
Sterling L. Williams (Principal Executive Officer)
/s/ R. Logan Wray* Senior Vice President and Chief Financial Officer
--------------------------
R. Logan Wray (Principal Financial and Accounting Officer)
/s/ Sam Wyly* Chairman of the Board; Director
- ---------------------------
Sam Wyly
/s/ Charles J. Wyly, Jr.* Vice Chairman of the Board; Director
- ---------------------------
Charles J. Wyly, Jr.
/s/ Evan A. Wyly* Director
- ---------------------------
Evan A. Wyly
/s/ Phillip A. Moore* Director
- ---------------------------
Phillip A. Moore
/s/ Michael C. French* Director
- ---------------------------
Michael C. French
/s/ Donald R. Miller* Director
- ---------------------------
Donald R. Miller
/s/ Robert J. Donachie* Director
- ---------------------------
Robert J. Donachie
/s/ Alan W. Steelman* Director
- ---------------------------
Alan W. Steelman
*The undersigned, by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed on behalf of
the above-named officers and directors and filed herewith.
/s/ Don J. McDermett, Jr.
------------------------
Don J. McDermett, Jr.
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- ----------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of May 27, 1998, among Sterling
Software, Merger Sub and Mystech (included as Appendix A to the Proxy
Statement/Prospectus forming a part of this Registration Statement)
The disclosure schedule and exhibits relating to the Agreement and
Plan of Merger have been omitted. Sterling Software will furnish
supplementally to the Commission such schedule or exhibits upon
request.
2.2 Stockholder Agreement, dated as of May 27, 1998, among Sterling
Software and the Principal Shareholders (1)
3.1.1 Sterling Software Certificate (2)
3.1.2 Sterling Software Bylaws (3)
3.2.1 Mystech Certificate (1)
3.2.2 Mystech Bylaws (1)
4.1 Form of Common Stock Certificate of Sterling Software (4)
4.2 Rights Agreement, dated December 18, 1996, between Sterling Software
and BostonBank, N.A., as Rights Agent (5)
4.3 First Amendment to Rights Agreement, dated as of March 12, 1998,
between Sterling Software and BankBoston, N.A., as Rights Agent (6)
5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of
securities to be issued*
8.1 Opinion of Jones, Day, Reavis & Pogue regarding certain tax matters*
8.2 Opinion of Hunton & Williams regarding certain tax matters*
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibits 5.1 and
8.1)
23.2 Consent of Hunton & Williams (included in Exhibit 8.2)
23.3 Consent of Ernst & Young LLP (1)
23.4 Consent of Argy, Wiltse & Robinson, P.C. (1)
23.5 Consent of Willamette Management Associates (1)
24.1 Powers of Attorney (1)
<PAGE>
99.1 Mystech Corporate Stock Ownership Agreement (1)
________________________
* To be filed by amendment
(1) Filed herewith.
(2) Previously filed as an exhibit to Sterling Software's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated herein
reference.
(3) Previously filed as an exhibit to Sterling Software's Registration
Statement on Form 8-A/A filed on May 27, 1998 and incorporated herein by
reference.
(4) Previously filed as an exhibit to Sterling Software's Registration
Statement No. 2-86825 and incorporated herein by reference.
(5) Previously filed as an exhibit to Sterling Software's Current Report on
Form 8-K dated December 18, 1996 and incorporated herein by reference.
(6) Previously filed as an exhibit to Sterling Software's Registration
Statement on Form 8-A/A filed April 3, 1998 and incorporated herein by
reference.
<PAGE>
EXHIBIT 2.2
-----------
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT, dated as of May 27, 1998 (this "Agreement"), is
made and entered into among Sterling Software, Inc., a Delaware corporation
("Parent"), David L. Young, Robert J. Cotter, Jr., Ann E. Wohlleber and Richard
I. Broadbent (each, a "Stockholder" and, collectively, the "Stockholders").
RECITALS:
A. Parent, Sterling Software (Connecticut), Inc., a Connecticut
corporation and wholly owned subsidiary of Parent ("Merger Sub"), and Mystech
Associates, Inc., a Connecticut corporation ("Company"), propose to enter into
an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which Merger Sub will merge with and into Company (the
"Merger") on the terms and subject to the conditions set forth in the Merger
Agreement. Except as otherwise defined herein, terms used herein with initial
capital letters have the respective meanings ascribed thereto in the Merger
Agreement.
B. As of the date hereof, each Stockholder beneficially owns and is
entitled to vote (or to direct the voting of) the number of shares of common
stock, par value $0.20 per share, of Company ("Common Stock") set forth opposite
such Stockholder's name on Schedule A hereto (such shares of Common Stock,
together with any other shares of capital stock of Company the beneficial
ownership of which is acquired by such Stockholder during the period from and
including the date hereof through and including the earlier of (i) the Effective
Time and (ii) the date that is one year after the date on which the Merger
Agreement is terminated pursuant to Section 8.1 thereof, are collectively
referred to herein as such Stockholder's "Subject Shares").
C. As a condition and inducement to Parent's willingness to enter into
the Merger Agreement, Parent has requested that each Stockholder agree, and each
Stockholder has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement and the Merger Agreement
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
VOTING AGREEMENT
Section 1.1 Agreement to Vote Shares. During the period (the
------------------------
"Restricted Period") from and including the date hereof through and including
the earlier of (i) the Effective Time and
<PAGE>
(ii) the date that is one year after the date on which the Merger Agreement is
terminated pursuant to Section 8.1 thereof (or, if later, the latest date on
which the consummation of a Subject Transaction (as hereinafter defined) remains
a possibility), at any meeting of the stockholders of Company called to consider
and vote upon the approval of the Merger Agreement or the termination of the
Mystech Associates, Inc. Corporate Stock Ownership Agreement (the "Mystech Stock
Ownership Agreement") (and at any and all postponements and adjournments
thereof), and in connection with any action to be taken in respect of the
approval of the Merger Agreement or the termination of the Mystech Stock
Ownership Agreement by written consent of stockholders of Company, each
Stockholder shall vote or cause to be voted (including by written consent, if
applicable) all of such Stockholder's Subject Shares in favor of the approval of
the Merger Agreement and the termination of the Mystech Stock Ownership
Agreement, and in favor of any other matter necessary for the consummation of
the transactions contemplated by the Merger Agreement and considered and voted
upon at any such meeting or made the subject of any such written consent, as
applicable. During the Restricted Period, at any meeting of the stockholders of
Company called to consider and vote upon any Adverse Proposal (as hereinafter
defined) (and at any and all postponements and adjournments thereof), and in
connection with any action to be taken in respect of any Adverse Proposal by
written consent of stockholders of Company, each Stockholder shall vote or cause
to be voted (including by written consent, if applicable) all of such
Stockholder's Subject Shares against such Adverse Proposal. For purposes of this
Agreement, the term "Adverse Proposal" means any (a) Acquisition Proposal (as
defined in the Merger Agreement) or (b) other action which is intended or could
reasonably be expected to impede, interfere with, delay or materially and
adversely affect the contemplated economic benefits to Parent of the Merger or
any of the other transactions contemplated by the Merger Agreement or this
Agreement (including without limitation the profit participation payments
contemplated by Section 2.1 hereof); provided, however, that neither the Merger
nor the termination of the Mystech Stock Ownership Agreement, nor any other
transaction contemplated by the Merger Agreement to be consummated by Company or
Parent in connection with the Merger shall constitute an Adverse Proposal.
Without limiting the generality or effect of the foregoing, each Stockholder
shall instruct the trustees of the Mystech Associates, Inc. Employee Stock
Ownership Plan (the "ESOP") to vote (including by written consent, if
applicable) all Subject Shares allocated to such Stockholder's account under the
ESOP (all such Subject Shares being collectively referred to herein as such
Stockholder's "Subject ESOP Shares") in the manner contemplated by the foregoing
provisions of this Section 1.1.
Section 1.2 Irrevocable Proxy.
-----------------
(a) Grant of Proxy. EACH STOCKHOLDER HEREBY APPOINTS PARENT AND
--------------
ANY DESIGNEE OF PARENT, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S PROXY AND
ATTORNEY-IN-FACT PURSUANT TO THE PROVISIONS OF SECTION 33-706 OF THE CONNECTICUT
BUSINESS CORPORATION ACT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, TO
VOTE OR ACT BY WRITTEN CONSENT WITH RESPECT TO SUCH STOCKHOLDER'S SUBJECT SHARES
(OTHER THAN SUCH STOCKHOLDER'S SUBJECT ESOP SHARES) IN ACCORDANCE WITH SECTION
1.1 HEREOF. THIS PROXY IS GIVEN TO SECURE THE PERFORMANCE OF THE DUTIES OF SUCH
STOCKHOLDER UNDER THIS AGREEMENT. EACH STOCKHOLDER AFFIRMS THAT THIS PROXY IS
COUPLED
2
<PAGE>
WITH AN INTEREST AND SHALL BE IRREVOCABLE. EACH STOCKHOLDER SHALL TAKE SUCH
FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO
EFFECTUATE THE INTENT OF THIS PROXY.
(b) Other Proxies Revoked. Each Stockholder represents that any
---------------------
proxies heretofore given in respect of such Stockholder's Subject Shares are not
irrevocable, and that all such proxies are hereby revoked.
ARTICLE II
PROFIT PARTICIPATION
Section 2.1 Profit Participation. Without limiting the generality or
--------------------
effect of the provisions of Section 4.1(a), if any transaction contemplated by
an Acquisition Proposal is consummated (a) within one year after the date on
which the Merger Agreement is terminated pursuant to Section 8.1 thereof or (b)
pursuant to any agreement that is entered into by Company prior to the
expiration of the period referred to in clause (a) of this sentence (any such
transaction being a "Subject Transaction"), then, in such event, each
Stockholder shall pay to Parent an amount equal to the amount (the "Profit
Amount"), if any, by which (i) the fair value of all cash, securities and other
property received, receivable or retained by such Stockholder in respect of its
Subject Shares (directly or indirectly, including cash, securities and other
property allocated to such Stockholder's account under the ESOP) from and after
the date of this Agreement and prior to, or as a result of, the consummation of
such Subject Transaction exceeds (ii) the product of (A) $145.22 (the "Strike
Price") and (B) the number of Subject Shares beneficially owned by such
Stockholder as of the time and date used to determine the persons entitled to
receive or retain cash, securities or other property as a result of the
consummation of such Subject Transaction. All amounts payable by any
Stockholder to Parent pursuant to this Section 2.1 shall be paid promptly (and
in any event within three Business Days) following the consummation of the
applicable Subject Transaction; provided, however, that no amount so payable in
respect of any cash, securities or other property received, receivable or
retained by such Stockholder need be so paid until the time at which such cash,
securities or other property is actually received or retained, as the case may
be, by such Stockholder.
Section 2.2 Adjustment upon Changes in Capitalization, Etc. In the
-----------------------------------------------
event of any change in the capital stock of Company by reason of a stock
dividend, split-up, merger, recapitalization, combination, exchange of shares or
similar transaction, the type and number of shares, securities or other property
subject to the profit participation provisions of Section 2.1, and the Strike
Price referred to therein, shall be adjusted appropriately so that Parent shall
receive the same Profit Amount that Parent would have received in respect of
each Stockholder's Subject Shares if the event causing Parent to be entitled to
a Profit Amount pursuant to Section 2.1 had occurred immediately prior to such
change in the capital stock of Company. The provisions of this Section 2.1
shall apply in a like manner to successive changes in the capital stock of
Company by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or similar transactions.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Certain Representations and Warranties of the Stockholders.
----------------------------------------------------------
Each Stockholder, severally and not jointly, represents and warrants to Parent
as follows:
(a) Ownership. Such Stockholder is the sole record and beneficial
---------
owner of the number of shares of Common Stock set forth opposite such
Stockholder's name on Schedule A hereto and, subject to the provisions of the
Mystech Associates, Inc. Corporate Stock Ownership Agreement, has full and
unrestricted power to dispose of and to vote such shares of Common Stock. Such
Stockholder does not beneficially own any securities of Company on the date
hereof other than the shares of Common Stock and the options to purchase shares
of Common Stock set forth on Schedule A.
(b) Power and Authority; Execution and Delivery. Such Stockholder
-------------------------------------------
has all requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by such Stockholder and, assuming that this Agreement
constitutes the valid and binding obligation of the other parties hereto,
constitutes a valid and binding obligation of such Stockholder, enforceable
against such Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and to general
principles of equity.
(c) No Conflicts. The execution and delivery of this Agreement do
------------
not, and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, result in a breach or
violation of or default (with or without notice or lapse of time or both) under,
or give rise to a material obligation, a right of termination, cancellation, or
acceleration of any obligation or a loss of a material benefit under, or require
notice to or the consent of any person under any agreement, instrument,
undertaking, law, rule, regulation, judgment, order, injunction, decree,
determination or award binding on such Stockholder, other than any such
conflicts, breaches, violations, defaults, obligations, rights or losses that
individually or in the aggregate would not (i) impair the ability of such
Stockholder to perform such Stockholder's obligations under this Agreement or
(ii) prevent or delay the consummation of any of the transactions contemplated
hereby.
Section 3.2 Representations and Warranties of Parent. Parent hereby
----------------------------------------
represents and warrants to each Stockholder that:
(a) Power and Authority; Execution and Delivery. Parent has all
-------------------------------------------
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent. This Agreement has been duly executed and delivered by
Parent and, assuming that this Agreement constitutes the valid and binding
obligation of each Stockholder, constitutes a valid and binding obligation of
Parent, enforceable against
4
<PAGE>
Parent in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity.
(b) No Conflicts. The execution and delivery of this Agreement do
------------
not, and, the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, result in a
breach or violation of or default (with or without notice or lapse of time or
both) under, or give rise to a material obligation, right of termination,
cancellation, or acceleration of any obligation or a loss of a material benefit
under, or require notice to or the consent of any person under any agreement,
instrument, undertaking, law, rule, regulation, judgment, order, injunction,
decree, determination or award binding on Parent, other than any such conflicts,
breaches, violations, defaults, obligations, rights or losses that individually
or in the aggregate would not (i) impair the ability of Parent to perform its
obligations under this Agreement or (ii) prevent or delay the consummation of
any of the transactions contemplated hereby.
ARTICLE IV
CERTAIN COVENANTS
Section 4.1 Certain Covenants of Stockholders.
---------------------------------
(a) Restriction on Transfer of Subject Shares, Proxies and
------------------------------------------------------
Noninterference. During the Restricted Period, no Stockholder shall directly or
- ---------------
indirectly: (i) except for the conversion of Subject Shares at the Effective
Time pursuant to the terms of the Merger Agreement, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter
into any contract, option or other arrangement or understanding with respect to
or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of such Stockholder's Subject
Shares; (ii) except pursuant to the terms of this Agreement, grant any proxies
or powers of attorney, deposit any of such Stockholder's Subject Shares into a
voting trust or enter into a voting agreement with respect to any of such
Stockholder's Subject Shares; or (iii) take any action that would make any
representation or warranty contained herein untrue or incorrect or have the
effect of impairing the ability of such Stockholder to perform such
Stockholder's obligations under this Agreement or preventing or delaying the
consummation of any of the transactions hereby.
(b) Tax Treatment. No Stockholder shall take any position on any
-------------
federal, state or local income tax return, or take any other action or reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), or with the representations made in this
Agreement, unless otherwise required pursuant to a "determination" (as defined
in Section 1313(a)(1) of the Code).
5
<PAGE>
(c) Cooperation. Each Stockholder shall cooperate fully with Parent
-----------
and Company in connection with their respective efforts to fulfill the
conditions to the Merger set forth in Article VII of the Merger Agreement.
(d) Release. Each Stockholder hereby fully, unconditionally and
-------
irrevocably releases, effective as of the Effective Time, any and all claims and
causes of action that such Stockholder has or may have against Company or any of
its Subsidiaries or any present or former director, officer, employee or agent
of Company or any of its Subsidiaries arising or resulting from or relating to
any act, omission, event or occurrence prior to the Effective Time; provided,
however, that such release shall not apply to any claim or cause of action
insofar as it relates to any entitlement to compensation or benefits earned or
accrued by or for the benefit of such Stockholder prior to the Effective Time in
respect of services performed by such Stockholder to Company, in the ordinary
course of Company's business, as a director, officer or employee of Company.
ARTICLE V
MISCELLANEOUS
Section 5.1 Fees and Expenses. Each party hereto shall pay its own
-----------------
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby.
Section 5.2 Termination; Amendment. This Agreement and the proxies
----------------------
granted pursuant to Section 1.2 shall terminate immediately upon any termination
of the Merger Agreement pursuant to Section 8.1(a)(i) thereof or any termination
of the Merger Agreement by Company pursuant to Section 8.1(a)(vi) thereof. In
addition, the provisions of Section 1.1 and the proxies granted pursuant to
Section 1.2 shall terminate immediately upon any termination of the Merger
Agreement pursuant to Section 8.1(a)(ii) or 8.1(a)(iii) thereof. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
Section 5.3 Extension; Waiver. Any agreement on the part of a party to
-----------------
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 5.4 Legend. Each Stockholder acknowledges and agrees that the
------
legend set forth below shall be placed on certificates representing shares of
Parent Common Stock received by such Stockholder in connection with the Merger,
or held by a transferee of such Stockholder, which legend shall be removed by
delivery of substitute certificates upon the second anniversary of the Effective
Time or upon (a) the earlier sale of such shares of Parent Common Stock (i)
pursuant to an effective registration statement under the Securities Act or (ii)
in conformity with the provisions of SEC Rule 144 or SEC Rule 145, as
applicable, or (b) the receipt by Parent of an opinion in form and substance
reasonably satisfactory to Parent from independent counsel reasonably
satisfactory to Parent to the effect that such legend is no longer required for
purposes of the Securities Act.
6
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933 OR AN EXEMPTION THEREFROM.
Section 5.5 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, and is not intended to confer upon any person
other than the parties any rights or remedies.
Section 5.6 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Connecticut, regardless
of the laws that might otherwise govern under applicable principles of conflict
of laws thereof.
Section 5.7 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, or sent by overnight courier (providing proof of
delivery), in the case of the Stockholders, to the address set forth on Schedule
A hereto or, in the case of Parent, to the address set forth below (or, in each
case, at such other address as shall be specified by like notice).
Sterling Software, Inc.
300 Crescent Court, Suite 1200
Dallas, Texas 75201-7853
Attention: Don J. McDermett, Jr.
Telecopy: (214) 981-1265
with a copy (which shall not constitute notice) to:
Jones, Day, Reavis & Pogue
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mark E. Betzen, Esquire
Telecopy: (214) 969-5100
7
<PAGE>
Section 5.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests, or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by any Stockholder without
the prior written consent of Parent, and any such assignment or delegation that
is not consented to shall be null and void. This Agreement, together with any
rights, interests, or obligations of Parent hereunder, may be assigned or
delegated, in whole or in part, by Parent without the consent of or any action
by any Stockholder upon notice by Parent to each Stockholder affected thereby as
herein provided. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
Section 5.9 Further Assurances. Each Stockholder and Parent shall
------------------
execute and deliver all other documents and instruments and take all other
action that may be reasonably necessary in order to consummate the transactions
provided for herein.
Section 5.10 Enforcement. Irreparable damage would occur in the event
-----------
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any appropriate state or federal court in Fairfax County in the Commonwealth
of Virginia, this being in addition to any other remedy to which they are
entitled at law or in equity. Each of the parties hereto (i) shall submit itself
to the personal jurisdiction of any appropriate state or federal court in
Fairfax County in the Commonwealth of Virginia in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii) shall
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, and (iii) shall not bring any action
relating to this Agreement or any of the transactions contemplated hereby in any
court other than any appropriate state or federal court in Fairfax County in the
Commonwealth of Virginia.
Section 5.11 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 5.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the day and year first written above.
STERLING SOFTWARE, INC.
By: /s/ Don J. McDermett, Jr.
-----------------------------------------------
Don J. McDermett, Jr.
Senior Vice President and General Counsel
STOCKHOLDERS:
/s/ David L. Young
--------------------------------------------------
David L. Young
/s/ Robert J. Cotter, Jr.
--------------------------------------------------
Robert J. Cotter, Jr.
/s/ Ann E. Wohlleber
--------------------------------------------------
Ann E. Wohlleber
/s/ Richard I. Broadbent
--------------------------------------------------
Richard I. Broadbent
9
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Total Number of Shares
of Common Stock
Subject to Options to
Total Number of Shares Total Number of Shares of Purchase Shares of
Name and Address of Common Stock Common Stock Beneficially Common Stock
of Stockholder Beneficially Owned Owned Through the ESOP Beneficially Owned
-------------- ------------------ ---------------------- ------------------
<S> <C> <C> <C>
David L. Young 18,476.486 2,524.486 3,300
Mystech
Associates, Inc.
5205 Leesburg Pike
Suite 1200
Falls Church,
Virginia 22041
Robert J. Cotter, Jr. 9,504.738 2,181.738 2,800
7310 Jenna Road
Springfield,
Virginia 22153
Ann E. Wohlleber 7,500.000 -0- -0-
27 Kingswood
Drive
North Stonington,
Connecticut 06359
Richard I. 6,919.122 1,669.122 200
Broadbent
397 Judson Avenue
Mystic,
Connecticut 06355
</TABLE>
10
<PAGE>
Exhibit 3.2.1
-------------
CERTIFICATE AMENDING OR RESTATING CERTIFICATE OF INCORPORATION
61:38 Rev. 4/89
Stock Corporation
STATE OF CONNECTICUT
SECRETARY OF STATE
30 TRINITY STREET
HARTFORD, CT 06106
- --------------------------------------------------------------------------------
1. Name of Corporation
MYSTECH ASSOCIATES, INC.
- --------------------------------------------------------------------------------
2. The Certificate of Incorporation is: (Check One)
[X] A. Amended only pursuant to Conn. Gen. Stat. (S)33-36C
[_] B. Amended and restated pursuant to Conn. Gen. Stat. (S)33-362(c).
[_] C. Restated only pursuant to Conn. Gen. Stat. (S)33-362(a).
(Set forth here the resolution of amendment and/or restatement.
Use a 8 1/2 x 11 attached sheet if more space is needed).
See attached sheet.
[_] D. Restated and superseded pursuant to Conn. Gen. Stat. (S)33-352(d).
(Set forth here the resolution of amendment and/or restatement.
Use a 8 1/2 x 11 attached sheet if more space is needed).
(If 2A is checked, go to 5 to complete this certificate. If 2B or 2C is
checked, complete 3A or 3B. If 2D is checked, complete 4)
3. (Check one)
[_] A. This certificate purports merely to restate but not to change the
provisions of the original Certificate of Incorporation as
supplemented and amended to date, and there is no discrepancy between
the provisions of the original Certificate of Incorporation as
supplemented and amended to date, and the provisions of this Restated
Certificate of Incorporation. (If 3A is checked, go to 5 to complete
this certificate).
[_] B. This Restated Certificate of Incorporation shall give effect to
the amendment(s) and purports to restate all those provisions now in
effect not being amended by such new amendment(s). (If 3B is checked,
check 4, if true, and go to 5 to complete this Certificate).
4. (Check, if true)
[_] This restated Certificate of Incorporation was adopted by the greatest
vote which would have been required to amend any provision of the
Certificate of Incorporation as in effect before such vote and
supersedes such Certificate of Incorporation.
5. The manner of adopting the resolution was as follows: (Check one A, or B,
---
or C).
[X] A. By the board of directors and shareholders, pursuant to Conn. Gen.
Stat. (S)33-360.
Vote of Shareholders: (Check (i) or (ii), and check (iii) if
applicable).
(i) [X] No shares are required to be voted as a class: the
shareholder's vote was as follows:
Vote Required for Adoption 118,060 Vote Favoring Adoption 173,834
------- -------
(ii) [_] There are shares of more than one class entitled to
vote as a class. The designation of each class required
for adoption of the resolution and the vote of each
class in favor of adoption were as follows:
(Use an 8 1/2 x 11 attached sheet if more space is
needed).
<PAGE>
(iii) [_] Check here if the corporation has 100 or more
recordholders, as defined in Conn. Gen. Stat. (S)33 -
311a(a).
[_] B. By the board of directors acting alone, pursuant to Conn. Gen.
Stat. (S)33 -360(b)(2).
The number of affirmative votes required to adopt such resolution
is: ____________________________________
The number of directors' votes in favor of the resolution was:
_________________________________________
We hereby declare, under the penalties of false statement, that the statements
made in the foregoing certificate are true.
<TABLE>
<CAPTION>
(Print or Type) Signature (Print or Type) Signature
- --------------------------------------------------------------------------
Name of Pres./V. Pres. Name of Sec/Asst. Sec.
Secretary
- --------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------
David L. Young, President Richard T. Dreghorn
/s/ David L. Young /s/ Richard T. Dreghorn
- --------------------------------------------------------------------------
</TABLE>
[_] C. The corporation does not have any shareholders. The resolution was
adopted by vote of at least two-thirds of the incorporators before
the organization meeting of the corporation, and approved in
writing by all subscribers (if any) for shares of the corporation.
We (at least two-thirds of the incorporators) hereby declare, under the
penalties of false statement, that the statements made in the foregoing
certificate are true.
- --------------------------------------------------------------------------
Signed Signed Signed
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Signed Signed Signed
- --------------------------------------------------------------------------
Dated at Groton, Connecticut this 23rd day of February , 1994
------------------- ---- -------- --
Approved by all subscribers. If none, so state: ______________
(Use an 8 1/2 x 11 attached sheet if more space is needed)
FILED
State of Connecticut Rec. CC. GS: (Type or Print)
Feb. 28, 1994
Debra L. Johnson
Secretary of the State 475 Bridge Street
A.M. Groton, CT 06340
By___________ Time _________P.M.
Please provide filer's name and complete
address for mailing receipt
<PAGE>
MYSTECH ASSOCIATES, INC.
Certificate Amending or Restating Certificate of Incorporation
Page 2
Paragraph 2:
- ------------
RESOLVED: That Paragraph 3 of the Certificate of Incorporation of MYSTECH
ASSOCIATES, INC., specifying the designation, authorized number and par value
of each class of shares is hereby amended to read as follows:
"Unclassified Common" 500,000 shares $.20 par value
and that Paragraph 4 of the Certificate of Incorporation specifying the
terms, limitations and relative rights and preferences of each class of
shares is hereby amended to read as follows:
There shall be one class of stock designated "Unclassified" common stock,
twenty cents (20/100) par value with all the rights as provided for
common stock by statute. Unclassified common, twenty cents (20/100) per
share par value stock shall be issued on consecutively numbered
certificates.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AMENDING OR RESTATING CERTIFICATE
OF INCORPORATION BY ACTION OF [_]Incorporators [_] Board of [X] Board of [_] Board of Directors
Directors Directors and and Members
Shareholders (Nonstock
(Stock Corporation) Corporation)
</TABLE>
------------------------
For Office Use Only
STATE OF CONNECTICUT
SECRETARY OF THE STATE ------------------------
Account No.
------------------------
Initials
------------------------
===============================================================================
NAME OF CORPORATION DATE
MYSTECH ASSOCIATES, INC. October 5, 1984
- -------------------------------------------------------------------------------
The Certificate of Incorporation is [X] A. AMENDED ONLY [_] B. AMENDED AND
RESTATED [_] C, RESTATED ONLY by the following resolution
RESOLVED that Paragraph 3 of the Certificate of Incorporation of MYSTECH
ASSOCIATES, INC., specifying the designation, authorized number and par
value of each class of shares is hereby amended to read as follows:
"unclassified" common 500,000 shares $1.00 par value
and that Paragraph 4 of the Certificate of Incorporation specifying the
terms, limitations and relative rights and preferences of each class of
shares is hereby amended to read as follows:
There shall be one class of stock designated "unclassified" common
stock One Dollar par value with all the rights as provided for common
stock by statute. Unclassified common One Dollar par value stock shall be
issued on consecutively numbered certificates.
(Omit if 2A is checked.)
(a) The above resolution merely restates and does not change the provisions of
the original Certificate of Incorporation as supplemented and amended to
date, except as follows: (Indicate amendments made, if any; if none, so
indicate).
(b) Other than as indicated in Par. 3(a), there is no discrepancy between the
provisions of the original Certificate of Incorporation as supplemented to
date, and the provisions of this Certificate Restating the Certificate of
Incorporation.
BY ACTION OF INCORPORATORS
===============================================================================
[_] 4. The above resolution was adopted by vote of at least two-thirds of
the incorporators before the organization meeting of the
corporation, and approved in writing by all subscribers (if any)
for shares of the corporation, (or if nonstock corporation, by all
applicants for membership entitled to vote, if any)
We (at least two-thirds of the incorporators) hereby declare, under the
penalties of false statement that the statements made in the foregoing
certificate are true.
- -------------------------------------------------------------------------------
SIGNED SIGNED SIGNED
- -------------------------------------------------------------------------------
APPROVED
(All subscribers, or if nonstock corporation, all applicants for
membership entitled to vote, if none, so indicate)
- -------------------------------------------------------------------------------
SIGNED SIGNED SIGNED
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
(Continued)
BY ACTION OF BOARD OF DIRECTORS
==================================================================================================================
<S> <C>
[_] 4. (Omit if 2.C is checked.) The above resolution was adopted by the board of directors acting alone,
[_] there being no shareholders or subscribers. [_] the board of directors being so authorized
[_] the corporation being a nonstock corporation pursuant to Section 33-341, Conn. G.S. as amended
and having no members and no applicants for
membership entitled to vote on such resolution
- ------------------------------------------------------------------------------------------------------------------
5. The number of alternative voters 6. The number of directors' votes in favor of the
required to adopt such resolution is: resolution was:
- ------------------------------------------------------------------------------------------------------------------
We hereby declare, under the penalties of false statement that the statements made in the foregoing certificate
are true
- ------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME OF SECRETARY OR ASSISTANT SECRETARY (Print or Type)
- ------------------------------------------------------------------------------------------------------------------
SIGNED (President or Vice President) SIGNED (Secretary or Assistant Secretary)
- ------------------------------------------------------------------------------------------------------------------
BY ACTION OF BOARD OF DIRECTORS AND SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
[_] 4. The above resolution was adopted by the board of directors and by shareholders.
5. Vote of shareholders:
(a) (Use if no shares are required to be voted as a class.)
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES ENTITLED TO VOTE TOTAL VOTING POWER VOTE REQUIRED FOR ADOPTION VOTE FAVORING ADOPTION
3521 3521 2348 3402
- ------------------------------------------------------------------------------------------------------------------
(b) (If the shares of any class are entitled to vote as a class, indicate the designation and number of
outstanding shares of each such class, the voting power thereof, and the vote of each such class for the
amendment resolution)
We hereby declare, under the penalties of false statement that the statements made in the foregoing certificate
are true
- ------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME SECRETARY OR ASSISTANT SECRETARY (Print or Type)
- ------------------------------------------------------------------------------------------------------------------
Siebert Feldman, President Peter B. Perry, Secretary
- ------------------------------------------------------------------------------------------------------------------
SIGNED (President or Vice President) SIGNED (Secretary or Assistant Secretary)
/s/ Siebert Feldman /s/ Peter B. Perry
BY ACTION OF BOARD OF DIRECTORS AND MEMBERS
- ------------------------------------------------------------------------------------------------------------------
[_] 4. The above resolution was adopted by the board of directors and by members.
5. Vote of members:
(a) (Use if no members are required to vote as a class)
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF MEMBERS VOTING TOTAL VOTING POWER VOTE REQUIRED FOR ADOPTION VOTE FAVORING ADOPTION
- ------------------------------------------------------------------------------------------------------------------
(b) (If the members of any class are entitled to vote as a class, indicate the designation and number of members
of each such class, the voting power thereof, and the vote of each such class for the amendment resolution.)
We hereby declare, under the penalties of false statement that the statements made in the foregoing certificate
are true
- ------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME OF SECRETARY OR ASSISTANT SECRETARY (Print or Type)
- ------------------------------------------------------------------------------------------------------------------
SIGNED (President or Vice President) SIGNED (Secretary or Assistant Secretary)
==================================================================================================================
FOR OFFICE USE ONLY
- ------------------------------------------------------------------------------------------------------------------
FILING FEE CERTIFICATION FEE TOTAL FEES
$30.00 1450.00( ) $ 18 ( ) $1498
-----------------------------------------------------------------------------
SIGNED (for Secretary of the State)
-----------------------------------------------------------------------------
CERTIFIED COPY SENT ON (Date) INITIALS
FILED O'Brien, Shafner, , Stuart
State of Connecticut -----------------------------------------------------------------------------
OCT 19 1984 TO Peter F. Stuart, Esq.
P.O. Box 29
Secretary of the State Groton, CT 06340
A.M. -----------------------------------------------------------------------------
By ____________ Time _________P.M. CARD LIST PROOF
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CERTIFICATE
AMENDING OR RESTATING CERTIFICATE
OF INCORPORATION BY ACTION OF [_] Incorporators [_] Board of [X] Board of [_] Board of Directors
61-38 Directors Directors and and Members
Shareholders (Nonstock
(Stock Corporation) Corporation)
</TABLE>
----------------------
For office use only
----------------------
STATE OF CONNECTICUT ACCOUNT NO.
----------------------
VOL. 957 SECRETARY OF THE STATE INITIALS
----------------------
================================================================================
1. NAME OF CORPORATION DATE
MYSTECH ASSOCIATES, INC. June 15, 1979
- --------------------------------------------------------------------------------
2. The Certificate of incorporation is [X] A. AMENDED ONLY [_] B. AMENDED
AND RESTATED
[_] C. RESTATED ONLY by the following resolution
RESOLVED that Paragraph 3 of the Certificate of Incorporation of MYSTECH
ASSOCIATES, INC., specifying the designation, authorized number and par
value of each class of shares is hereby amended to read as follows:
Class A Common 500,000 Shares no par value
Class B Common 500,000 Shares no par value
and that Paragraph 4 of the Certificate of Incorporation specifying the
terms, limitations and relative rights and preferences of each class of
shares is hereby amended to read as follows:
Class A common stock shall have the sole right to vote at all meetings
except as provided by statute. Class A common shall be issued on
consecutively numbered green colored certificates. Class B common stock
shall have no right to vote except as provided by statute and shall be
issued on consecutively numbered orange colored certificates. All other
rights of Class A and Class B Shareholders shall be equal.
3. (Omit if 2A is checked.)
(a) The above resolution merely restates and does not change the provisions
of the original Certificate of Incorporation as supplemented and amended
to date, except as follows: (Indicate amendments made, if any; if none,
so indicate).
(b) Other than as indicated in Par. 3(a), there is no discrepancy between the
provisions of the original Certificate of Incorporation as supplemented
to date, and the provisions of this Certificate Restating the Certificate
of Incorporation.
BY ACTION OF INCORPORATORS
================================================================================
[_] 4. The above resolution was adopted by vote of at least two-thirds of the
incorporators before the organization meeting of the corporation, and
approved in writing by all subscribers (if any) for shares of the
corporation, (or if nonstock corporation, by all applicants for
membership entitled to vote, if any)
We (at least two-thirds of the incorporators) hereby declare, under the
penalties of false statement that the statements made in the foregoing
certificate are true.
- --------------------------------------------------------------------------------
SIGNED SIGNED SIGNED
- --------------------------------------------------------------------------------
APPROVED
(All subscribers, or, if nonstock corporation, all applicants for membership
entitled to vote, if none, so indicate)
- --------------------------------------------------------------------------------
SIGNED SIGNED SIGNED
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
========================================================================================================================
<S> <C>
BY ACTION OF BOARD OF DIRECTORS
[_] 4. (Omit if 2.C is checked.) The above resolution was adopted by the board of directors acting alone,
[_] there being no shareholders or subscribers. [_] the board of directors being so authorized
pursuant to Section 33-341, Conn. G.S. as amended
[_] the corporation being a nonstock corporation and
having no members and no applicants for membership
entitled to vote on such resolution
- ------------------------------------------------------------------------------------------------------------------------
5. The number of affirmative votes required to adopt such resolution is:
6. The number of directors' votes in favor of the resolution was:
- ------------------------------------------------------------------------------------------------------------------------
We hereby declare, under the penalties of false statement that the statements made in the foregoing
certificate are true.
- ------------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME OF SECRETARY OR ASSISTANT SECRETARY (Print or Type)
- ------------------------------------------------------------------------------------------------------------------------
SIGNED (President or Vice President) SIGNED (Secretary or Assistant Secretary)
- ------------------------------------------------------------------------------------------------------------------------
BY ACTION OF BOARD OF DIRECTORS AND SHAREHOLDERS
[X] 4. The above resolution was adopted by the board of directors and by shareholders.
5. Vote of shareholders:
(a) (Use if no shares are required to be voted as a class.)
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES ENTITLED TO VOTE TOTAL VOTING POWER VOTE REQUIRED FOR ADOPTION VOTE FAVORING ADOPTION
3560 3560 2,374 3,560
- ------------------------------------------------------------------------------------------------------------------------
(b) (If the shares of any class are entitled to vote as a class, indicate the designation and number of outstanding
shares of each such class, the voting power thereof, and the vote of each such class for the amendment
resolution)
We hereby declare, under the penalties of false statement that the statements made in the foregoing certificate are true
- ------------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME OF SECRETARY OR ASSISTANT SECRETARY (Print or Type)
Siebert Feldman, President Peter B. Perry, Secretary
- ------------------------------------------------------------------------------------------------------------------------
/s/ Siebert Feldman /s/ Peter B. Perry
- ------------------------------------------------------------------------------------------------------------------------
BY ACTION OF BOARD OF DIRECTORS AND MEMBERS
[_] 4. The above resolution was adopted by the board of directors and by members.
5. Vote of members:
(a) (Use if no members are required to vote as a class)
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF MEMBERS VOTING TOTAL VOTING POWER VOTE REQUIRED FOR ADOPTION VOTE FAVORING ADOPTION
- ------------------------------------------------------------------------------------------------------------------------
(b) (If the members of any class are entitled to vote as a class, indicate the designation and number of members of
each such class, the voting power thereof, and the vote of each such class for the amendment resolution)
We hereby declare, under the penalties of false statement that the statements made in the foregoing certificate are
true.
- -----------------------------------------------------------------------------------------------------------------------------
NAME OF PRESIDENT OR VICE PRESIDENT (Print or Type) NAME OF SECRETARY OR ASSISTANT SECRETARY (Print or Type)
- -----------------------------------------------------------------------------------------------------------------------------
SIGNED (President or Vice President) SIGNED (Secretary or Assistant Secretary)
=============================================================================================================================
FOR OFFICE USE ONLY FILING FEE CERTIFICATION FEE TOTAL FEES
$ 20 $ 50 (FR) $ 9 $ 79
---------------------------------------------------------------------
SIGNED (For Secretary
State of Connecticut of State)
- ------------------------------------------------------------------------------------------------------------------------
FILED CERTIFIED COPY SENT ON (DATE) INITIALS
- ------------------------------------------------------------------------------------------------------------------------
JUL 30, 1979 TO
- ------------------------------------------------------------------------------------------------------------------------
/s/ SECRETARY OF STATE CARD LIST PROOF
- ------------------------------------------------------------------------------------------------------------------------
BY________________________
</TABLE>
<PAGE>
----------------------
CERTIFICATE OF INCORPORATION For office use only
STOCK CORPORATION
STATE OF CONNECTICUT
----------------------
61-8 rev. 10-69 SECRETARY OF THE STATE ACCOUNT NO.
M99124
----------------------
INITIALS
----------------------
The undersigned incorporator(s) hereby form(s) a corporation under the Stock
Corporation Act of the State of Connecticut:
1. The name of the corporation is MYSTECH ASSOCIATES, INC.
2. The nature of the business to be transacted, or the purposes to be promoted
or carried out by the corporation, are as follows:
To perform, sell and contract engineering and design services for
electronic systems, software and programming and to manufacture,
fabricate and assemble electronic systems and equipment; to lease and
purchase land, buildings, space and equipment for the furtherance of
the above business and in general to carry on any of the above business
and any other business connected therewith and to do any and all acts
permitted under the laws of the State of Connecticut and the United
States.
<PAGE>
(Continued)
3. The designation of each class of shares, the authorized number of shares of
each such class, and the par value (if any) of each share thereof, are as
follows:
Common 5,000 no par
4. The terms, limitations and relative rights and preferences of each class of
shares and series thereof (if any), or an express grant of authority to the
board of directors pursuant to Section 33-341, 1959 Supp. Conn. G.S., are as
follows:
5. The minimum amount of stated capital with which the corporation shall
commence business is ONE THOUSAND ($1,000.00) dollars. (Not less than one
thousand dollars)
6. (7) Other provisions
Dated at Groton this 17th day of July, 1971.
I/We hereby declare, under the penalties of perjury, that the statements made in
the foregoing certificate are true.
This certificate of incorporation must be signed by one or more incorporators.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
NAME OF INCORPORATOR (Print or Type) NAME OF INCORPORATOR (Print or Type) NAME OF INCORPORATOR (Print or Type)
1. Siebert Feldman 2. Peter B. Perry 3. Robert F. Wohlleber
- --------------------------------------------------------------------------------------------------------------------------
SIGNED (Incorporator) SIGNED (Incorporator) SIGNED (Incorporator)
1. /s/ Siebert Feldman 2. /s/ Peter B. Perry 3. /s/ Robert F. Wohlleber
- --------------------------------------------------------------------------------------------------------------------------
NAME OF INCORPORATOR (Print or Type) NAME OF INCORPORATOR (Print or Type) NAME OF INCORPORATOR (Print or Type)
4. 5. 6.
- --------------------------------------------------------------------------------------------------------------------------
SIGNED (Incorporator) SIGNED (Incorporator) SIGNED (Incorporator)
4. 5. 6.
- --------------------------------------------------------------------------------------------------------------------------
FOR OFFICE USE ONLY FRANCHISE FEE FILING FEE CERTIFICATION FEE TOTAL FEES
FILED State of Connecticut $ 50 $20 $ 7 $ 77
--------------------------------------------------------------------------------
JUL 19 1971 - 1:30 PM SIGNED (For Secretary of State)
--------------------------------------------------------------------------------
Secretary of State CERTIFIED COPY SENT ON (Date) INITIALS
Receipt +1 CC sent to:
8-5-71 PMM
--------------------------------------------------------------------------------
TO
O'Brien and Shafner, Esq.
Bridge St. at Route One, Groton Ct. 06340
--------------------------------------------------------------------------------
CARD LIST PROOF
- --------------------------------------------------------------------------------------------------------------------------
61-5 (BACK) Attn: Matthew K. Garvey, Esq.
</TABLE>
<PAGE>
VOL 797
----------------------
APPOINTMENT OF STATUTORY AGENT FOR SERVICE For office use only
DOMESTIC CORPORATION
----------------------
61-6 REV. 6-66 ACCOUNT NO.
M99124
----------------------
INITIALS
----------------------
TO: The Secretary of the State of Connecticut
NAME OF CORPORATION
MYSTECH ASSOCIATES, INC.
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
APPOINTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
The above corporation appoints as its statutory agent for service, one of the following:
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF NATURAL PERSON WHO IS RESIDENT OF CONNECTICUT BUSINESS ADDRESS
10 Hemlock Road, Groton, Connecticut 06340
----------------------------------------------------------------
Siebert Feldman RESIDENCE ADDRESS
10 Hemlock Road, Groton, Connecticut 06340
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF CONNECTICUT CORPORATION ADDRESS OF PRINCIPAL OFFICE IN CONN. (If none, enter address
of appointee)
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION not Organized Under the Laws of Conn. ADDRESS OF PRINCIPAL OFFICE IN CONN. (If none, enter "Secretary
of the State of Connecticut")
- ------------------------------------------------------------------------------------------------------------------------------------
Which has procured a Certificate of Authority to transact business or conduct affairs in this state.
- ------------------------------------------------------------------------------------------------------------------------------------
AUTHORIZATION
NAME OF INCORPORATOR (Print or type) SIGNED (Incorporator) DATE
ORIGINAL Siebert Feldman /s/ Siebert Feldman
APPOINTMENT -------------------------------------------------------------------------------
NAME OF INCORPORATOR (Print or type) SIGNED (Incorporator)
Peter B. Perry /s/ Peter B. Perry July 17, 1971
(Must be signed -------------------------------------------------------------------------------
by a majority NAME OF INCORPORATOR (Print or type) SIGNED (Incorporator)
of incorporators) Robert F. Wohlleber /s/ Robert F. Wohlleber
-------------------------------------------------------------------------------
NAME OF PRESIDENT, VICE PRESIDENT OR SIGNED (President, or Vice DATE
SUBSEQUENT SEC President, or Secretary)
APPOINTMENT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ACCEPTANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Accepted: NAME OF STATUTORY AGENT FOR SERVICE (Print or Type) SIGNED (Statutory Agent For Service)
SIEBERT FELDMAN /s/ Siebert Feldman
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FOR OFFICE USE ONLY FILING FEE CERTIFICATION FEE TOTAL FEES
FILED STATE OF CONNECTICUT $ 7 $ 7
---------------------------------------------------------------------------
JUL 19 1971 -- 1:30 PM
SIGNED (For Secretary of State)
Secretary of State
---------------------------------------------------------------------------
CERTIFIED COPY SENT ON (Date) INITIALS
Receipt +1 cc sent to:
TO O'Brien and Shafner, Esq. 8-5-71 PMM
Bridge St. at Route One, Groton Ct. 06340
---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------
CARD LIST PROOF
- ------------------------------------------------------------------------------------------------------------------------------------
Attn: Matthew K. Garvey, Esq.
</TABLE>
<PAGE>
Exhibit 3.2.2
-------------
MYSTECH ASSOCIATES, INC.
BY-LAWS
Effective 24 October 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
TABLE OF CONTENTS........................................................ i-ii
ARTICLE I - OFFICES, BOOKS AND RECORDS................................... 1
SECTION 1 - PRINCIPAL OFFICE........................................... 1
SECTION 2 - CORPORATE HEADQUARTERS..................................... 1
SECTION 3 - OTHER OFFICES.............................................. 1
SECTION 4 - BOOKS AND RECORDS.......................................... 1
ARTICLE II - SHARE CERTIFICATES, TRANSFERS, STOCK OWNERSHIP.............. 2
SECTION 1 - SHARE CERTIFICATES......................................... 2
SECTION 2 - VOTING ENTITLEMENT......................................... 2
SECTION 3 - TRANSFER OF SHARES......................................... 2
SECTION 4 - TRANSFER RESTRICTIONS...................................... 2
SECTION 5 - PURCHASE OF OWN SHARES..................................... 3
SECTION 6 - STOCK OWNERSHIP............................................ 3
ARTICLE III - MEETINGS................................................... 3
SECTION 1 - ANNUAL MEETING............................................. 3
SECTION 2 - SPECIAL MEETING............................................ 3
SECTION 3 - PLACE OF MEETING........................................... 3
SECTION 4 - QUORUM..................................................... 4
SECTION 5 - NOTICE OF MEETING.......................................... 4
ARTICLE IV - SHAREHOLDER VOTING PROCEDURES............................... 4
SECTION 1 - ELIGIBILITY RECORD DATE.................................... 4
SECTION 2 - SHAREHOLDER'S LIST......................................... 5
SECTION 3 - PROXIES.................................................... 5
SECTION 4 - VOTING OF SHARES........................................... 5
SECTION 5 - PERCENTAGE VOTE REQUIRED................................... 5
SECTION 6 - VOTING PROCEDURE........................................... 6
SECTION 7 - VOTING OF SHARE BY CERTAIN HOLDERS......................... 6
ARTICLE V - BOARD OF DIRECTORS........................................... 6
SECTION 1 - GENERAL POWERS............................................. 6
SECTION 2 - NUMBER, TENURE AND QUALIFICATIONS.......................... 6
SECTION 3 - NOMINATION OF DIRECTORS.................................... 7
SECTION 4 - ELECTION OF DIRECTORS...................................... 7
SECTION 5 - CHAIRMAN OF THE BOARD OF DIRECTORS......................... 8
SECTION 6 - RESIGNATION OF DIRECTORS................................... 8
SECTION 7 - PROCEDURE FOR REMOVAL...................................... 8
SECTION 8 - VACANCIES.................................................. 8
SECTION 9 - COMPENSATION............................................... 9
SECTION 10 - REGULAR MEETINGS.......................................... 9
SECTION 11 - SPECIAL MEETINGS.......................................... 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 12 - NOTICE OF SPECIAL MEETINGS................................ 9
SECTION 13 - QUORUM.................................................... 9
SECTION 14 - MANNER OF ACTING.......................................... 10
SECTION 15 - INFORMAL ACTION........................................... 10
SECTION 16 - COMMITTEES................................................ 10
ARTICLE VI - OFFICERS.................................................... 10
SECTION 1 - NUMBER..................................................... 10
SECTION 2 - ELECTION AND TERM OF OFFICE................................ 10
SECTION 3 - REMOVAL.................................................... 11
SECTION 4 - RESIGNATIONS............................................... 11
SECTION 5 - VACANCIES.................................................. 11
SECTION 6 - SALARIES................................................... 11
ARTICLE VII - DUTIES OF OFFICERS......................................... 11
SECTION 1 - PRESIDENT.................................................. 11
SECTION 2 - VICE PRESIDENT(S).......................................... 12
SECTION 3 - SECRETARY.................................................. 12
SECTION 4 - ASSISTANT SECRETARY........................................ 12
SECTION 5 - TREASURER.................................................. 12
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYERS AND
AGENTS................................................................. 13
SECTION 1 - EXTENT AND CONDITIONS OF INDEMNITY......................... 13
SECTION 2 - INSURANCE.................................................. 13
ARTICLE IX - CONTRACTS, LOANS, CHECKS AND DEPOSITS....................... 13
SECTION 1 - CONTRACTS.................................................. 13
SECTION 2 - LOANS...................................................... 13
SECTION 3 - CHECKS AND DRAFTS.......................................... 14
SECTION 4 - DEPOSITS................................................... 14
ARTICLE X - GENERAL PROVISIONS........................................... 14
SECTION 1 - FISCAL YEAR................................................ 14
SECTION 2 - SERVICE OF PROCESS......................................... 14
SECTION 3 - CORPORATE SEAL............................................. 14
SECTION 4 - WAIVER OF NOTICE........................................... 14
SECTION 5 - AMENDMENTS TO BY-LAWS...................................... 14
</TABLE>
<PAGE>
MYSTECH ASSOCIATES, INC.
BY-LAWS
EFFECTIVE 24 OCTOBER 1996
ARTICLE I. - OFFICES, BOOKS AND RECORDS
---------------------------------------
SECTION 1 - PRINCIPAL OFFICE
The principal office of the Corporation, required by law to be maintained in the
State of Connecticut, shall be located in the Town of Groton, County of New
London.
SECTION 2 - CORPORATE HEADQUARTERS
The corporate headquarters of the Corporation shall be in the State of Virginia,
County of Fairfax, or at any other place designated by the Board of Directors.
SECTION 3 - OTHER OFFICES
The Corporation may have other offices at such other places within or without
the State of Connecticut as the Board of Directors may from time to time
designate or as the affairs of the Corporation require.
SECTION 4 - BOOKS AND RECORDS
There shall be kept correct and complete books and records of account and
minutes of the proceedings of the Corporation's incorporator, Shareholders,
Directors and committees of Directors. There shall also be maintained at the
principal office of the Corporation and corporate headquarters a record of the
Corporation's Shareholders, giving the names and addresses of all Shareholders
and the number and class of shares held by each. There shall also be maintained
a statement of the number of shares of stock or the amount of other securities
held by the Corporation in any other corporation in which the Corporation may
own an equity interest. At intervals of not more than twelve months the
Corporation shall prepare a balance sheet showing its financial condition as of
a date not more than four months prior thereto and a profit and loss statement
reflecting its operations for the twelve months preceding such date. The
balance sheet and profit and loss statement shall be deposited at the principal
office of the Corporation and be kept for at least ten years from such date. In
addition, within thirty days after preparation of each such annual balance sheet
and profit and loss statement, a copy thereof shall be provided to each
Shareholder of record. All reports shall be subject to inspection by the
Shareholders at all reasonable times with prior notice.
<PAGE>
ARTICLE II. - SHARE CERTIFICATES, TRANSFERS, STOCK OWNERSHIP
------------------------------------------------------------
SECTION 1 - SHARE CERTIFICATES
Certificates representing shares of the Corporation shall be issued to every
Shareholder for the fully paid shares owned. The authorized number of shares,
the classes, and the par value of stock of the Corporation shall be established
by the Certificate of Incorporation of the Corporation and any amendments
thereto. These certificates shall be in a form determined by the Board of
Directors and shall be signed by the Chairman of the Board or the President or a
Vice President and the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares are issued, with the number of
shares and date of issue, shall be entered on the stock transfer book of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled and no new certificates shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except in
the case of a lost, destroyed, or mutilated certificate. In such instances, a
new certificate may be issued therefore upon such terms and indemnity to the
Corporation as the Board of Directors may prescribe.
SECTION 2 - VOTING ENTITLEMENT
Each outstanding share having voting rights shall be entitled to one vote on
each matter submitted to a vote at a meeting of the Shareholders in accordance
with the eligibility requirements of Article IV, Sections 1 and 2.
SECTION 3 - TRANSFER OF SHARES
Transfer of shares of the Corporation shall be made on the stock transfer books
of the Corporation only upon authorization by the registered holder of record of
said shares thereof in person or by his/her duly authorized and executed power
of attorney, who shall furnish proper evidence of authority to transfer, filed
with the Secretary of the Corporation, and upon surrender for cancellation of
the certificate for such shares duly endorsed or accompanied by duly executed
stock powers for a like number of shares. The person in whose name the shares
are issued on the books of the Corporation shall be deemed by the Corporation to
be the owner thereof for all purposes as regard this Corporation. All
certificates surrendered for transfer shall be canceled before any new
certificates for the transferred shares shall be issued. The Board of Directors
may make such additional rules and regulations and take such action as it may
deem expedient, not inconsistent with the Certificate of Incorporation and these
By-Laws concerning the issue, transfer and registration of Certificates of
Shares of the Corporation or the issue of certificates in lieu of Certificates
claimed to have been lost, destroyed, stolen or mutilated.
SECTION 4 - TRANSFER RESTRICTIONS
The Shareholders may by agreement restrict the transfer of stock. Any agreement
between Shareholders involving restrictions or options on the sale or transfer
of shares shall not be valid unless the existence thereof is noted on
certificates affected thereby and unless an executed copy of such agreement, and
any amendments thereto, is filed with the Secretary of the Corporation who shall
cause such agreements and amendments to be made part of the minutes of the
Corporation. Not withstanding, the Corporation shall have the first right of
refusal for the purchase of the Shareholder's stock.
SECTION 5 - PURCHASE OF OWN SHARES
The Corporation, by majority vote of the Directors, may purchase its own capital
stock.
<PAGE>
SECTION 6 - STOCK OWNERSHIP
The Shareholders may by agreement restrict the ownership of stock. Ownership of
shares is restricted to current employees of the Corporation or its
subsidiaries, which includes any indirect ownership resulting from employee's
beneficial interests in employee benefit plans qualified under Section 401(a) of
the Internal Revenue Code, and an Employee Stock Ownership Plan qualified under
Section 4975(e)(7) of the Internal Revenue Code, and any non-employee
Shareholders as of October 6, 1989.
ARTICLE III - MEETINGS
----------------------
SECTION 1 - ANNUAL MEETING
The Annual Meeting of the Shareholders shall be held in October in each year, at
a place, date and time set by the Board of Directors for the purpose of electing
directors, and for the transaction of such other business as may properly come
before the meeting. If the election of directors shall, for any reason, not be
held on the day designated herein for Annual Meeting of Shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a Special Meeting of the Shareholders as soon thereafter as may be
convenient.
SECTION 2 - SPECIAL MEETING
Special meetings of the Shareholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the Chairman of the Board,
President or by the affirmative vote of a majority of the Board of Directors,
and shall be called by the President at the request of the holders of not less
than one-tenth (1/10) of all the outstanding shares of the Corporation.
SECTION 3 - PLACE OF MEETING
The Board of Directors may designate any place, either within or without the
State of Connecticut, as the place of meeting for any Annual Meeting or for any
Special Meeting duly called. A waiver of notice signed by all of the
Shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Connecticut as the place of holding of such
meeting. If no designation is made, or if a special meeting be otherwise
called, the place of such meeting shall be the corporate headquarters of the
Corporation.
SECTION 4 - QUORUM
At all meetings of Shareholders, except as otherwise expressly provided bylaw,
there shall be present, either in person or by proxy, Shareholders of record
holding at least fifty percent (50%) of the capital stock issued and outstanding
and entitled to vote at such meetings in order to constitute a quorum. If less
than fifty percent (50%) of the outstanding shares are so represented at a
meeting, a majority of the shares so represented may adjourn the meeting without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted as
originally notified. The Shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum.
SECTION 5 - NOTICE OF MEETING
<PAGE>
Written or printed notice stating the place, day and hour of the meeting and, in
case of a Special Meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten or more than thirty days before the
date of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, President, or the Secretary, or the officer or persons
calling the meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the united States mail, postage prepaid, addressed to the
Shareholder at his/her address as it appears on the stock transfer books of the
Corporation.
ARTICLE IV - SHAREHOLDER VOTING PROCEDURES
------------------------------------------
SECTION 1 - ELIGIBILITY RECORD DATE
For the purposes of determining the Shareholders entitled to notice of or
eligible to vote at any meeting of Shareholders or any adjournment thereof, or
entitled to receive distribution, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of Shareholders,
such record date in any case to be not more than sixty days and, in the case of
a meeting of Shareholders, not less than ten days immediately preceding the date
on which the particular action requiring such determination of Shareholders is
to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of Shareholders entitled to notice of or eligible to vote at a
meeting of the Shareholders, or of Shareholders entitled to receive
distribution, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors authorizing such distribution is
adopted, as the case may be, shall be the record date for such determination of
Shareholders.
When a determination of Shareholders has been made, as provided in this section,
the determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than ninety days after the fixed date of the original meeting.
SECTION 2 - SHAREHOLDER'S LIST
At least ten days before each meeting of Shareholders, the Secretary of the
Corporation shall prepare an alphabetical list of the Shareholders entitled to
vote at such meeting, with the address and number of shares held by each, which
list shall be kept on file at the corporate headquarters and at the principal
office of the Corporation for a period of ten days prior to such meeting and
shall be subject to inspection by any Shareholder at any time during the normal
business hours. This list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any Shareholder
during the whole time of the meeting for the purposes thereof.
SECTION 3 - PROXIES
At all meetings of Shareholders, a Shareholder may vote by proxy executed in
writing by the Shareholder or by his/her duly authorized attorney in fact. Such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after eleven months from the date of
execution.
SECTION 4 - VOTING OF SHARES
Each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of the Shareholders.
<PAGE>
SECTION 5 - PERCENTAGE VOTE REQUIRED
If a quorum is present, approval of any motion dealing with fundamental changes
having to do with: (i) amendments to the Certificate of Incorporation or the
restatement thereof; (ii) approval of any corporate merger or consolidation with
another corporation; (iii) sale of all or substantially all of the assets of the
Corporation in a transaction not in the usual course of its business; (iv)
voluntary dissolution of the Corporation; and (v) reinstatement of the
Corporation after dissolution shall be by a two-thirds (2/3) affirmative vote of
the then outstanding and eligible to vote shares of record at the time of the
meeting.
If a quorum is present, election of directors, and the amendment of these By-
laws, requires an affirmative vote of at least fifty percent (50%) of the then
outstanding and eligible to vote shares of record at the time of the meeting as
delineated in Article V and Article X, respectively.
If a quorum is present, all other actions or matters, other than the fundamental
changes identified above in this section, the election of directors, and the
amendment of these By-laws, requires a simple majority vote of the voting group
either present in person or represented by proxy.
SECTION 6 - VOTING PROCEDURE
Voting on all matters except major actions and matters described in Article IV,
Section 5 shall be by voice or by a show of hands, unless the holders of ten
percent (10%) of the shares represented at the meeting shall, prior to the
voting of any matter, demand a written ballot vote on the particular matter.
Voting on fundamental changes shall be by written ballot.
SECTION 7 - VOTING OF SHARE BY CERTAIN HOLDERS
Shares held by an administrator, executor, guardian or conservator may be voted
by him/her, either in person or by proxy, without a transfer of such shares into
his/her name. Shares standing in the name of a trustee may be voted by said
Trustee, either in person or by proxy, but no trustee shall vote shares held by
him that are not in his/her name.
Shares standing the name of a receiver may be voted by such receiver and shares
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his/her name if authority to do so be contained in an
appropriate order of the court by which the receiver was appointed.
Shares of treasury stock of the Corporation shall not be voted, directly or
indirectly, at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time.
ARTICLE V - BOARD OF DIRECTORS
------------------------------
SECTION 1 - GENERAL POWERS
The business and affairs of the Corporation shall be managed by its Board of
Directors.
SECTION 2 - NUMBER, TENURE AND QUALIFICATIONS
The number of Directors of the Corporation shall be not less than two (2) nor
more than seven (7). Directors may be nominated and elected from two groups: 1)
employee/shareholders, and 2) non-employee/non-shareholders. Each
<PAGE>
Director shall hold office until his/her death, resignation, or removal, or
until the next annual meeting of Shareholders at which Directors are nominated
and elected.
At least two (2), but not more than four (4), of the Directors shall be elected
from the qualified group of employee/shareholders. As few as zero (0), but no
more than three (3), of the Directors shall be elected from the qualified group
of candidates who are non-employees/non-shareholders. In no case shall the
number of non-employee/non-shareholder Directors exceed the number of
employee/shareholder Directors.
Qualifications for employee/shareholder seats on the Board of Directors shall
consist of having been continuously employed by the Corporation for at least
five (5) years and owning at least three-quarters of one percent (.0075) of the
outstanding shares of Corporation stock, either directly, or in combination with
such Directors owning shares in their ESOP and 401(k) plan accounts.
Qualifications for non-employee/non-shareholder seats on the Board of Directors
shall consist of not currently being employed by the Corporation, owning no
MYSTECH ASSOCIATES, INC. or its subsidiaries corporate stock, having no close
relative (defined as spouse, child, parent, sibling, brother-in-law or sister-
in-law, father-in-law or mother-in-law, or aunt/uncle) currently employed by the
Corporation, and not being currently employed by, or on active duty with, the
U.S. Government (military reserve duty excepted). Qualified non-employee/non-
shareholder Directors shall also bring an independent perspective and a
specialized expertise, or additional level of experience, in one or more areas
not currently represented by the employee/shareholder Directors.
All candidates for Director, upon nomination, shall sign a MYSTECH ASSOCIATES,
INC. Non-Disclosure of Proprietary Data/Information Agreement.
SECTION 3 - NOMINATION OF DIRECTORS
Nomination of individuals for both employee/shareholder and non-employee/non-
shareholder Directors who meet the minimum qualifications delineated in Article
V, Section 2, shall be made by the Board of Directors acting as a nominating
committee at least ninety (90), but not more than one hundred and twenty (120)
days in advance of the annual Shareholder meeting. Notice of the Board of
Directors slate of director nominees, including any vacant seats, shall be sent
to all Shareholders within ten (10) days of their nomination.
Additional qualified nominations may be made by a petition signed by
Shareholders owning an aggregate of at least ten percent (10%) of the
outstanding shares of the Corporation. The seat (either currently vacant or
filled by a Board of Directors nominee) for which any additional nominee is
running shall be identified in the nomination petition. The petition shall also
contain a statement signed by the nominee indicating the nominee's willingness
to accept a nomination. The Secretary of the Corporation shall be provided any
additional Shareholder nomination petitions at least forty-five (45) days, but
no more than ninety (90) days, in advance of the annual Shareholder meeting.
In the event an unforeseen vacancy occurs in the Board of Directors nominated
slate of Directors within the minimum ninety (90) day period, the Board of
Directors may, at its discretion, nominate a new nominee at any time prior to
the election.
Shareholders will be provided suitable biographical information on all nominees
with the Notice of Annual Meeting at least ten (10) days prior the Annual
Meeting.
SECTION 4 - ELECTION OF DIRECTORS
<PAGE>
Directors elected at the Annual Meeting will hold office until the next Annual
Meeting at which Directors are nominated and elected.
Election to the Board of Directors for both employee/shareholder Directors and
non-employee/non-shareholder Directors requires at least a fifty-percent (50%)
affirmative vote of the then outstanding and eligible to vote shares of record
at the time of the meeting.
In those instances where more than one nominee is competing for the same seat,
the nominee receiving the highest number of affirmative votes shall be deemed
elected providing the number of affirmative votes represents at least fifty
percent (50%) of the then outstanding and eligible to vote shares. If a nominee
for any seat fails to receive an affirmative vote of at least fifty percent
(50%) of the then outstanding and eligible to vote shares of record at the time
of the meeting, then that seat shall be deemed to be vacant. If any Shareholder
so demands, the election of Directors shall be by ballot.
SECTION 5 - CHAIRMAN OF THE BOARD OF DIRECTORS
At the first regular Board of Directors meeting after their election, the
Directors shall appoint one (1) of their number as the Chairman of the Board.
The Chairman will preside at all meetings of the Shareholders and of the Board
of Directors, and will communicate to the president all Board of Directors
decisions required by him/her to perform general management and supervision of
the business affairs of the Corporation.
SECTION 6 - RESIGNATION OF DIRECTORS
A Director may resign at any time by delivering written notice by hand or by
certified mail, return receipt requested, to the Chairman of the Board of
Directors or the Secretary of the Corporation. A resignation is effective when
the notice is received unless the notice specifies a later effective date. If a
resignation is to be effective at a later date, the Board of Directors may by
vote accept such resignation immediately and proceed to fill the pending vacancy
under Section 8 of this Article before the effective date.
SECTION 7 - PROCEDURE FOR REMOVAL
Any individual Director may be removed from office, with or without cause, by
the Shareholders at any special meeting by a majority vote of the issued and
outstanding shares. Any vacancy occurring by reason of such removal may be
filled in accordance with Section 8 of this Article.
SECTION 8 - VACANCIES
Any vacancy occurring in the Board of Directors or the Chairman of the Board due
to death, resignation, removal or court order shall be filled by the concurring
majority affirmative vote of all the remaining Directors even though such
remaining directors are less than a quorum and though such majority is less than
a quorum. A Director elected to fill a vacancy shall be elected for the
unexpired term of his/her predecessor in office. Any Directorship to be filled
by reason of an increase in the number of Directors shall be filled by election
at an annual meeting of the Shareholders or at a special meeting of Shareholders
called for that purpose.
<PAGE>
SECTION 9 - COMPENSATION
By resolution of the Board of Directors, the Directors may be paid their
expenses, if any, for attendance at each meeting of the Board and may be paid a
fixed sum for attendance at each meeting of the Board of Directors, or a stated
fee as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 10 - REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held without further notice
other than this By-law, immediately after and at the same place as the Annual
Meeting of Shareholders. The Board of Directors may provide, by resolution, the
time and place, either within or without the State of Connecticut, for the
holding of regular meetings of the Board of Directors. Such resolution shall be
deemed notice of the holding of such regular meetings.
SECTION 11 - SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by or at the request of
the Chairman of the Board or any two Directors. The person or persons authorized
to call Special meetings of the Board of Directors may designate any place for
holding the special meeting of the Board of Directors called by them.
SECTION 12 - NOTICE OF SPECIAL MEETINGS
Notice of any Special Meeting shall be given at least five (5) days previously
thereto by written notice delivered personally, or mailed to each Director at
his/her business address, or by facsimile, or telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice by facsimile, such notice
shall be deemed to be delivered when the sending facsimile device provides a
receipt that the facsimile has been received by the receiving facsimile device.
If notice be given by telegram, such notice shall be deemed to be delivered when
the notice is delivered to the telegraph company. Any Director may waive notice
of any meeting, either prior or subsequent thereto.
The attendance of a Director at a Special Meeting shall constitute a waiver of
notice of such special meeting, except where a Director attends a meeting for
the expressed purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
Unless required by Statute or By-Laws, neither the business to be transacted at,
nor the purpose of any Regular or Special meeting of the Board of Directors,
need be specified in the notice or waiver of notice of such meeting.
SECTION 13 - QUORUM
A majority of the number of elected Directors shall constitute a quorum for the
transaction of business at any Regular or Special meeting of the Board of
Directors, but if less than such majority is present at a meeting, a majority of
the Directors may adjourn the meeting from time to time without further notice.
SECTION 14 - MANNER OF ACTING
The concurrence of the majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
<PAGE>
SECTION 15 - INFORMAL ACTION
Unless otherwise restricted by the Certificate of Incorporation or these By-
Laws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof, may be taken without a meeting if a
written ratification of such action is signed by all members of the Board of
Directors or of such committee, as the case may be, and such written
ratification is filed with the minutes of proceedings of the Board of Directors
or committee.
SECTION 16 - COMMITTEES
The Board of Directors by affirmative vote of a majority may appoint from the
Directors an Executive Committee, Audit Committee, Compensation Committee, and
any other such committees as they deem judicious and delegate to such committee
any of the powers of the Board of Directors.
ARTICLE VI - OFFICERS
---------------------
SECTION 1 - NUMBER
The officers of the Corporation shall be a President and a Secretary, chosen by
the Board of Directors, and the Directors may also appoint a Vice President, a
Treasurer, and such other officers and assistant officers as may be deemed
necessary or expedient. Any two or more offices may be held by the same person
except President and Secretary which must be held by different persons.
SECTION 2 - ELECTION AND TERM OF OFFICE
The officers of the Corporation shall be appointed annually by the Board of
Directors at the first meeting of the Directors held immediately after each
Annual Meeting of the Shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office for the term for which he/she has
been appointed until his/her successor shall have been duly elected and shall
have qualified. Provided, however, that an officer shall cease to be in office
upon his/her: (i) death; (ii) resignation; (iii) removal from office in
accordance with these By-Laws, or any other lawful removal from office; or (iv)
an order of court that by reason of incompetency or any other lawful cause,
he/she is no longer an officer in office.
SECTION 3 - REMOVAL
Any officer, or agent appointed by the Board of Directors may be removed with or
without cause at any time by resolution adopted by the affirmative vote of the
Directors holding a majority of the directorships at a special meeting of the
Board called for that purpose, whenever, in its judgment, the best interests of
the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4 - RESIGNATIONS
Any officer may resign at any time by delivering written notice by hand or by
certified mail, return receipt requested, to the Chairman of the Board of
Directors or the secretary of the Corporation. The resignation shall take effect
upon receipt unless the notice specifies a later effective date and such later
effective date is accepted by the concurring majority vote of the Board of
Directors.
<PAGE>
SECTION 5 - VACANCIES
A vacancy in any office because of death, resignation, removal, disqualification
or otherwise, may be filled by the Board of Directors.
SECTION 6 - SALARIES
The salaries of the officers shall be fixed from time to time by the Board of
Directors and no officer shall be prevented from receiving such salary by reason
of the fact that he/she is also a Director of the Corporation.
ARTICLE VII - DUTIES OF OFFICERS
--------------------------------
SECTION 1 - PRESIDENT
The President shall be the Chief Executive Officer of the Corporation and,
subject to the control of the Board of Directors, shall have general supervision
over and management of the business affairs of the Corporation. He shall see
that all orders and resolutions of the Board are carried into effect. If a
Chairman of the Board has not been elected, the President shall preside at all
meetings of the Shareholders. The President may sign with the Secretary or any
other proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts or other instruments, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the Office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 2 - VICE PRESIDENT(S)
There may be one or more Vice Presidents, one of whom shall be appointed
Executive Vice President by the Board of Directors, and who shall, in the
absence, death, removal or disability of the President, perform the duties and
exercise the powers of that office. There may be additional Vice Presidents,
appointed by the Board of Directors at its discretion, who shall perform such
other duties and have such other powers as prescribed by the Board of Directors.
These additional Vice Presidents may be entitled Senior Vice President, Vice
President, or Assistant Vice President as prescribed by the Board of Directors.
SECTION 3 - SECRETARY
The Secretary shall: (a) keep the minutes of the Shareholders' meetings and of
the Board of Directors' meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these By-Laws as required by law; (c) be custodian of the Corporate records and
of the seal of the Corporation and see that the seal of the Corporation is
affixed to all documents, the execution of which, on behalf of the Corporation
under the seal, is duly authorized; (d) keep a register of the post office
address of each Shareholder; (e) sign each share certificate of the Corporation,
the issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer book of the
Corporation; and (g) in general, perform all duties incident to the Office of
Secretary and such other duties as from time to time may be assigned to him/her
by the President.
SECTION 4 - ASSISTANT SECRETARY
<PAGE>
The Board of Directors may appoint one or more Assistant Secretaries who, in the
absence of the Secretary shall be vested with certain powers and duties of the
Secretary as set forth by the Board of Directors.
SECTION 5 - TREASURER
The Treasurer shall: (a) have charge and custody of and be responsible for all
funds and securities of the Corporation; receive and give receipts for monies
due and payable to the Corporation from any source whatsoever, and deposit all
such monies in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected in accordance with the provisions of
Article IX of these By-Laws; and (b) in general perform all the duties incident
to the Office of Treasurer and such other duties as from time to time may be
prescribed to him/her by the President. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful performance of his/her duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.
ARTICLE VIII - INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYERS AND AGENTS
-----------------------------------------
SECTION 1 - EXTENT AND CONDITIONS OF INDEMNITY
Provided that the Directors, employees, officers and agents and any eligible
outside party are acting in good faith and in a manner reasonably believed to be
in the best interests of the Corporation or a related enterprise, the
Corporation shall indemnify and reimburse each person (and their heirs,
executors and administrators) who at any time serves or shall have served as a
Director or officer at the time, against and for any and all claims and
liability to which he/she may become subject by reason of his/her being or
having been a Director or officer of the Corporation or of any such other
corporation, and against and for any and all expense necessarily incurred in
connection with the defense or reasonable settlement of any legal or
administrative proceedings to which he/she is made a party by reason of his/her
being or having been a Director, officer, employee, agent or eligible outside
party of the Corporation, or of any such other corporation, except in relation
to matters as to which he/she shall be finally adjudged to be liable for
negligence or misconduct in the performance of his/her official duties and
except as specifically prevented or limited by applicable legislation or
controlling judicial precedent. The provisions hereof shall not be deemed to
exclude any other right or privilege to which such person may be entitled as a
matter of law or otherwise.
SECTION 2 - INSURANCE
The Corporation may purchase and maintain insurance to indemnify its Directors,
officers, employees, agents or eligible outside parties and the Board of
Directors against the whole or any portion of the liability assumed by it in
accordance with this article and may also procure insurance, in such amounts as
the Board of Directors may determine, on behalf of any person who is or was a
Director, officer, employee, agent or eligible outside party of this
Corporation.
ARTICLE IX - CONTRACTS, LOANS, CHECKS AND DEPOSITS
--------------------------------------------------
SECTION 1 - CONTRACTS
The Board of Directors may, by affirmative vote hereinafter prescribed,
authorize any officer or officers, agent or agents to enter into any contract or
execute and deliver any instruments, including notes, mortgages, bonds and other
evidence or Corporate indebtedness in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
<PAGE>
SECTION 2 - LOANS
No loans shall be contracted on behalf of the Corporation and no evidences of
indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 3 - CHECKS AND DRAFTS
All checks, drafts, or other order for payment of money, notes, or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officer agent or agents of the Corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
SECTION 4 - DEPOSITS
All funds of the Corporation not otherwise employed shall be deposited from time
to time to the credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
ARTICLE X - GENERAL PROVISIONS
------------------------------
SECTION 1 - FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of July and end on
the 30th day of June in each year.
SECTION 2 - SERVICE OF PROCESS
Any process in the nature of a summons or legal notice of any kind directed to
or against this Corporation may be served upon the President, any registered
agent of the Corporation, and in their absence may be otherwise served in
accordance with the statutes of the State of Connecticut.
SECTION 3 - CORPORATE SEAL
The Board of Directors shall provide a Corporate Seal which shall be circular in
form and shall contain the name of the Corporation and State of Incorporation
and the word "Seal".
SECTION 4 - WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director of
the Corporation under the provisions of these By-Laws or under the provisions of
certificate of incorporation or under the laws of the State of Connecticut, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein shall be deemed
equivalent to the giving of such notice.
SECTION 5 - AMENDMENTS TO BY-LAWS
These By-Laws may be amended, added to, altered or repealed, or new By-Laws may
be adopted, at any lawful meeting of Shareholders of the Corporation by the
affirmative vote of at least fifty percent (50%) of the then outstanding and
eligible to vote shares of record at the time of the meeting called for the
specific purpose among other things or items.
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Sterling Software,
Inc. for the registration of 942,813 shares of its common stock and to the
incorporation by reference therein of our report dated November 18, 1997, with
respect to the consolidated financial statements and schedule of Sterling
Software, Inc. included in its Annual Report (Form 10-K) for the year ended
September 30, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
May 27, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated August 13, 1997 on our audits of the financial statements and
financial statement schedule of Mystech Associates, Inc. as of June 30, 1997 and
1996, and for each of the years in the two year period ended June 30, 1997. We
also consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data".
/s/ Argy, Wiltse, & Robinson, P.C.
------------------------------------
Argy, Wiltse, & Robinson, P.C.
McLean, Virginia
May 27, 1998
<PAGE>
EXHIBIT 23.5
[LOGO OF WILLAMETTE MANAGEMENT ASSOCIATES APPEARS HERE]
WILLAMETTE MANAGEMENT ASSOCIATES
8201 Greensboro Drive, Suite 817
McLean, Virginia 22102
703-917-6600/(Fax) 703-917-6610
We hereby consent to (i) the inclusion of our opinion letter, dated May 27,
1998, to the Trustees of the Mystech Associates, Inc. Employee Stock Ownership
Plan as Appendix B to the Proxy Statement/Prospectus forming part of this
Registration Statement on Form S-4, and (ii) references made to our firm and
such opinion in such Joint Proxy Statement/Prospectus under the captions
entitled "Summary - Opinion of the ESOP Trustees' Financial Advisor," "Summary -
Market Price Information," "The Merger - Background of the Merger," "The Merger
- - Mystech's Reasons for the Merger," and "The Merger - Opinion of the ESOP
Trustees' Financial Advisor." In giving such consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, and we do not admit that we are experts with
respect to any part of the Registration Statement within the meaning of term
"expert" as used in the Securities Act, or the rules and regulations promulgated
thereunder.
By: Scott D. Levine
--------------------------
Name: /s/ Scott D. Levine
--------------------------
Title: Senior Associate
--------------------------
Dated: May 27, 1998
<PAGE>
EXHIBIT 24.1
------------
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints Jeannette P. Meier, Don J. McDermett, Jr., Mark H. Kleinman, Robert L.
Estep, Mark E. Betzen, or any of them, the true and lawful attorney-in-fact,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, to sign on his or her behalf, as a director or
officer, or both, as the case may be, of Sterling Software, Inc., a Delaware
corporation (the "Corporation"), a Registration Statement on Form S-4 relating
to the offering of Common Stock, par value $.10 per share, of the Corporation in
connection with the Agreement and Plan of Merger among the Corporation, Sterling
Software (Connecticut), Inc., a Connecticut corporation, and Mystech Associates,
Inc., a Connecticut corporation (the "Registration Statement"), pursuant to the
Securities Act of 1933, as amended, and to sign any or all amendments and any or
all post-effective amendments to the Registration Statement, whether on Form S-4
or otherwise, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney or attorneys-in-fact, and each of them with or
without the others, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney or attorneys-in-fact or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: May 27, 1998
/s/ Sterling L. Williams /s/ R. Logan Wray
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Sterling L. Williams R. Logan Wray
/s/ Sam Wyly /s/ Charles J. Wyly
- -------------------------------------- ----------------------------------
Sam Wyly Charles J. Wyly
/s/ Evan A. Wyly, Jr. /s/ Phillip A. Moore
- -------------------------------------- ----------------------------------
Evan A. Wyly, Jr. Phillip A. Moore
/s/ Michael C. French /s/ Donald R. Miller
- -------------------------------------- ----------------------------------
Michael C. French Donald R. Miller
/s/ Robert J. Donachie /s/ Alan W. Steelman
- -------------------------------------- ----------------------------------
Robert J. Donachie Alan W. Steelman
<PAGE>
Exhibit 99.1
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MYSTECH ASSOCIATES, INC.
Corporate Stock Ownership Agreement
======================
October 14, 1994
MYSTECH ASSOCIATES, Inc., a Connecticut Corporation, hereinafter called the
"Corporation," and the owners of shares of outstanding common stock of the
Corporation, collectively called the "Shareholders," the Board of Directors of
Mystech Associates, Inc., collectively called the "Directors" hereby enter into
agreement with regard to Mystech Associates, Inc. Stock. This Corporate Stock
Ownership Agreement ("Agreement"), terminates and supersedes the Corporation
Stock Purchase and Resale Resolution dated October 6, 1989 as amended.
WHEREAS, the Corporation has as of the date above issued and outstanding 133,737
shares of common stock, of which 133,737 shares are owned as delineated in
Attachment A to this Agreement; and
WHEREAS, the Shareholders desire to insure continuity of harmonious management,
to establish a fair value and provide a market for the Shareholders, to provide
the funding of such purchases of the said Corporation and to promote their
mutual interests and the interests of the Corporation by imposing certain
restrictions and obligations on themselves and the shares of stock of the
Corporation; and
WHEREAS, the Shareholders and Directors desire to continue to share ownership
with those employees of the Corporation who contribute to the Corporation's
success. Ownership shall be commensurate with such contribution and obtained
through the Employee Stock Ownership Plan (ESOP), a qualified retirement plan
designed and operated in accordance with the requirements of the Employee
Retirement Income Security Act (ERISA) and implemented as specified in the ESOP
document, and through a Stock Option Plan as stipulated in Section III and
directed by the Board of Directors; and
WHEREAS, the ESOP provides a program for all employees to participate in
Corporate Ownership. The ESOP also provides a market for non-ESOP common stock
sold by Shareholders wishing to sell stock, Shareholders terminating as
employees, and by deceased Shareholder's Estates. The Shareholders agree that a
level of ESOP ownership in the range of 35 to 45 percent of outstanding
Corporate stock is a desirable goal; and
WHEREAS, for a two year period ending in March, 1994, the Corporate match on the
Mystech Associates, Inc. 401(k) Plan was made in Corporate stock. There is no
exception to return to a 401(k) stock match in the future. As the current
Corporate stock invested in the 401(k) Plan becomes available due to employees
leaving the 401(k) Plan, the Corporation or ESOP Trust intends to purchase those
shares; and
WHEREAS, it is the desire of the Corporation, the Shareholders and the Directors
to set out in this Agreement the restrictions and obligations concerning the
ownership of any of the Corporation's stock.
<PAGE>
NOW, THEREFORE, it is hereby agreed between the parties as follows:
I. CORPORATION STOCK OWNERSHIP
With the exception of the current single, non-employee Shareholder, Mrs.
Ann Wohlleber, and other non employees who obtain stock under the provisions of
Section VI, Corporate stock ownership shall be limited to employees of the
Corporation and employees of any of the Corporation's subsidiaries. Upon
termination of employment for any reason, said employees shall sell his or her
stock as stipulated in Section II.B of this Agreement. Upon the death of a
Shareholder, the Estate shall sell and the Corporation or the ESOP Trust shall
buy the deceased employee's stock as stipulated in the SECTION II.C of this
Agreement.
II. SALE OF STOCK BY SHAREHOLDERS
A. Shareholders Wishing to Sell Stock
Employees wishing to sell all or a portion of their stock shall notify the
Corporation of the availability of the stock for purchase in writing, including
the reason for the desired sale, by certified mail.
The Corporation or the ESOP will respond to such offer to sell as set forth
in Section VI hereof.
The per share price for the Shareholders tendered stock shall be the most
recent Independent Appraisal Price (IAP) that has been accepted by the Board of
Directors as stipulated in Section IV hereof as of the date of acceptance of the
offer to sell. Payment terms shall be as stipulated in Section V hereof.
B. Shareholders No Longer Employees
Any Shareholder who ceases to be an employee of the Corporation for any
reason shall sell his or her stock and said employee shall be deemed to have
offered said stock for sale to the Corporation or to the ESOP Trust effective as
of that employee's termination date.
The Corporation or the ESOP will respond to such offer to sell as set forth
in Section VI hereof.
The per share price for the Shareholder stock shall be the most recent IAP
that has been accepted by the Board of Directors as stipulated in Section IV
hereof as of the date of acceptance of the offer to sell. Payment terms shall
be as stipulated in Section V hereof.
C. Deceased Shareholders
Upon the death of a Shareholder, the Corporation or the ESOP Trust shall
purchase all of the stock of the deceased Shareholder, and the legal
representative of the deceased Shareholder shall be obligated to sell to the
Corporation or ESOP Trust all of the stock of the deceased Shareholder. The
Corporation shall have the first right of refusal on a deceased Shareholders
stock. The ESOP Trust shall have the second right of refusal. Should the ESOP
Trust decline to purchase any or all of a deceased Shareholder's stock, the
Corporation shall be required to purchase the stock. This requirement for
purchase of the Corporation's stock shall apply to all and not to less than all,
of said stock, and shall be exercised by the Corporation or the ESOP Trust by
serving written notice upon the legal representative of the Estate of said
Shareholder within ninety (90) days after the qualification of such legal
representative.
The per share price for the stock of the deceased shareholder shall be the
most recent IAP that has been accepted by the Board of Directors as stipulated
in Section IV hereof as of the date of death of the Shareholder. Payment terms
shall be as stipulated in Section V hereof.
III. EMPLOYEE ACQUISITION OF CORPORATION STOCK OTHER THAN BY PARTICIPATION IN
THE EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
A. Stock Option Plan
The parties hereto acknowledge that the Corporation has made available non-
qualified stock options to numerous meritorious technical, support and
management employees in conjunction with the Corporation's Incentive Bonus Plan.
Additionally, certain individuals have been provided other non-qualified stock
options for their extraordinary contribution to the Corporation's growth and
success. The parties hereto recognize the benefits to the Corporation of a
Stock Option Plan to reward and provide incentive to those technical, support
and management employees assisting the Corporation to achieve its success.
The parties hereto hereby authorize and charge the Board of Directors to
develop and implement a continuing Stock Option Plan that will reward and
provide incentive to technical, support and management employees. The total
shares of stock available to be granted employees under the Stock Option Plan
during any one fiscal year shall not exceed ten (10) percent of the outstanding
shares of the Corporation's stock at the beginning of that year.
The parties hereto acknowledge that stock made available through the Stock
Option Plan is to reward those employees who contribute to the Corporation's
success. This stock is intended for those employees interested in a long term
investment in the Corporation and its future. Shareholders selling stock for
non-hardship reasons, or for short term profit taking may be excluded from
future awards under the Stock Option Plan at the discretion of the Board of
Directors.
B. Stock Option for Extraordinary Contribution or Other Opportunity
The parties hereto acknowledge that it may be appropriate for the
Corporation to reward an employee for extraordinary contribution to the growth
and success of the Corporation. Furthermore, it is conceivable in the future
that in order to hire certain experienced, key individuals for Corporate
diversification and growth, a stock option may have to be included as part of
the said individual's compensation package. The parties hereto hereby authorize
the Board of Directors to grant such a stock option as long as such stock
options do not in the aggregate for any fiscal year exceed five (5) percent of
the outstanding shares of the Corporation's stock at the beginning of that year.
Individual stock options that exceed in the aggregate, the five (5) percent
limitation shall require the approval of the Shareholders.
C. Employee Requests to Purchase Stock
The parties hereto acknowledge that the Corporation may from time-to-time
receive requests from employees to purchase stock. Additionally, there are
times when the sale of additional shares of stock to employees would improve the
Corporation's position in terms of Shareholder equity and cash flow. The Board
of Directors is hereby authorized to respond to such written requests from
employees to purchase stock and to approve the sale of stock from the Treasury
when it is deemed to be in the overall best interest of the Corporation,
providing that any single stock sale does not exceed two (2) percent of the
outstanding shares of the Corporation stock on the sale date.
The per share price for the stock sold as specified above shall be the most
recent IAP that has been accepted by the Board of Directors as stipulated in
Section IV hereof as of the date of the sale. Payment terms shall be as
stipulated in Section V hereof.
IV. STOCK TRANSACTION PRICE
Independent Appraisal Price
The parties hereto acknowledge that the valuation of a privately held
company not traded on the open stock market is difficult. The Corporation is
required by law to obtain an independent appraisal of its "Fair Market Value" of
its stock at least annually for purposes of ESOP transactions and valuation.
Since this independently determined appraisal is directed towards determining
fair market value, it, under most circumstances, represents the best estimate of
the Corporation's value and it is incumbent upon the Board of Directors to
accept an IAP as the transaction price for the Corporation's non-ESOP stock.
However, since IAP is normally obtained once per year, there are events that may
require the Board of Directors to commission a new IAP. These events include,
but are not limited to the following:
A. Outside Offer to Purchase Corporation Stock
<PAGE>
Upon receiving a bona fide offer to purchase all or a significant portion
of the Corporation's outstanding stock at a price that exceeds the current IAP,
the Board of Directors shall place the offer before the Shareholders with a
recommendation to approve or decline the purchase offer. Should the Shareholders
approve the purchase offer, the offered price will be accepted by the Board as
the new per share price (IAP). Should the Shareholders decline the offer, the
Board of Directors shall commission a new IAP wherein the independent appraiser
is provided full details of the declined offer to incorporate in the new IAP
determination.
B. Extraordinary Event
Many "extraordinary" events in the internal operations of the corporation
as well as in general external business conditions and financial markets may
have a substantial effect on the value of the Corporation and the current IAP of
the Corporation. "Extraordinary" events may include but are not limited to, the
award or loss of a major contract or significant stock market changes. When the
Board of Directors determines that such an extraordinary event has occurred, and
that said event may cause a change in the current IAP by more than 10%, plus or
minus, the Board of Directors shall be required to commission a new IAP.
In the event that the Board of Directors deems it necessary to commission a
new IAP, all stock transactions under Sections II and III will be suspended
until the new IAP is determined.
V. PAYMENT FOR STOCK TRANSACTIONS
A. Corporation Sale of Stock
Payment for all sales of stock by the Corporation in accordance with
Section III above shall be in cash in full on the effective date of sale.
B. Corporation Purchase of Stock
The Corporation repurchasing stock under circumstances described in
Sections II.A and II.B shall pay the Shareholder in cash, by corporate check,
for the full amount due up to $100,000. For amounts in excess of $100,000, the
Corporation has the option to finance any portion of the amount over $100,000 by
issuing an unsecured Corporate promissory note for a term of up to four (4)
years with interest at the published Wall Street Journal prime interest rate,
plus one (1) percent. The Corporation shall purchase the stock of a deceased
Shareholder from his or her estate as provided under Section II.C, in full, in
cash provided the deceased shareholder met the terms and conditions of Section
VII below, if applicable. Nothing herein shall preclude the parties to any
purchase transaction from a mutual agreement to different terms of payment if
deemed advantageous.
VI. CORPORATION STOCK PURCHASE PROCEDURE
If any stock of the Corporation is available for sale, whether by reason of
voluntary offer, termination of employment or death of a shareholder, it is
hereby agreed that the Corporation shall have the right of first refusal for the
purchase of any such Corporation stock and that the ESOP Trust shall have the
right of second refusal on any Corporation stock not purchased by the
Corporation.
The Shareholders hereby authorize the Secretary of the Corporation to
purchase individual blocks of stock up to $25,000.00 in total value. For
individual blocks of stock exceeding $25,000.00 of total value, or if the
Secretary of the Corporation deems that the purchase of a block of stock under
$25,000.00 of total value may not be in the Corporation's best interest, a
meeting of the Board of Directors shall be called in accordance with the by-laws
of the Corporation. At such meeting, all stock offered for sale by the
Shareholder or transferee, or the estate thereof shall be subject to purchase by
the Corporation.
If the Board of Directors determines that such action is in the best
interests of the corporation and the shareholders, it may decline to purchase
the stock and pass the offer to the ESOP Trust for appropriate action.
It has been and is the intention of the Corporation that any stock offered
for sale by a shareholder will be purchased by the Corporation or the ESOP Trust
at the IAP as set forth in Section IV. However, it must be recognized that
circumstances may arise in the future that make this impossible. Therefore, in
the event that neither the Corporation nor the ESOP Trust agrees to purchase
<PAGE>
any living Shareholder's stock within 90 days of the date of an offer to sell or
the date of termination of employment, the Shareholder shall offer the stock for
sale to any employees of the Corporation or of its subsidiaries.
If within 60 days of such offer, the offered stock has not been purchased
by employees, all restrictions imposed herein on the sale of stock shall
terminate, BUT ONLY AS TO THE OFFERING SHAREHOLDER.
VII. SPECIAL INSURANCE
In order that the Corporation, or ESOP Trust, shall have sufficient funds
to purchase the stock of a deceased Shareholder, the Corporation may purchase
life insurance on each Shareholder that the Board of Directors deems appropriate
or necessary. If such policies are purchased, the Corporation shall be the sole
owner of the policies issued to it and shall be the applicant and beneficiary
thereof.
Shareholders deemed appropriate for this Special Insurance by the Board of
Directors agree to make themselves available for any pre-insurance physical exam
and to provide any required information regarding their insurability. In the
event that a Shareholder declines to make information available or to
participate in a pre-insurance physical or exam, or that they are deemed
uninsurable by an insurance company, the Corporation shall have the right, even
in the event of death, to finance any amount over $100,000 as stipulated in
Section V.B.
VII. NECESSARY DOCUMENTS
If under the terms of this Agreement the stock of any Shareholder, or of
any transferee, is purchased or retired, such Shareholder or transferee shall
execute and deliver all necessary documents that may be reasonably required for
accomplishing a complete transfer of such stock for the purpose of a purchase or
retirement transaction.
IX. NOTICES
Whenever under the Agreement notice is required to be given, it shall be
given in writing, and if such notice is served by mail, it shall be certified
mail directed to the last known address of the Shareholder and shall be deemed
to have been given on the date such notice is posted.
X. ENDORSEMENT ON STOCK CERTIFICATES
Upon the execution of this Agreement and if not previously accomplished,
the certificates of stock subject hereto shall be surrendered to the Corporation
and endorsed as follows:
"The holder of the stock represented by this certificate is a party to a
shareholders' agreement which restricts the holder's ability to sell, give,
or otherwise transfer, dispose of or encumber these shares."
After endorsement, the certificates shall be returned to the Shareholders,
who shall, subject to the terms of this Agreement be entitled to exercise all
rights of ownership of such stock. All stock of the Corporation hereafter issued
to any of the Shareholders shall bear the same endorsement.
XI. AUTHORIZATION
The Corporation is authorized to execute this Agreement by a resolution of
its Shareholders adopted by an affirmative vote of two-thirds of the voting
shares of the Corporation at its regular annual meeting held at 1:00 p.m. on
October 14, 1994, directing the President of the Corporation to sign this
Agreement.
XII. ADOPTION, AMENDMENT AND TERMINATION OF THE AGREEMENT
This Agreement shall become binding on the parties to this agreement. Each
party, to this Agreement, will signify their agreement with the terms and
conditions of this Agreement by their witnessed signature.
<PAGE>
This Agreement may be amended by agreement between the parties, and upon an
affirmative vote of two-thirds of the voting shares of the Corporation at a
regular or special meeting of the Shareholders providing that the action to be
taken is identified in the Notice of the Meeting issued in accordance with the
By-laws of the Corporation. Each party to this Agreement will signify their
agreement with the amendment of this Agreement by their witnessed signatures.
This Resolution shall terminate upon an affirmative vote of two-thirds of
the voting shares of the Corporation at a regular or special meeting of the
Shareholders providing that the action to be taken is identified in the Notice
of the Meeting issued in accordance with the By-laws of the Corporation or the
adjudication of the Corporation as bankrupt, the execution by it or an
assignment for the benefit of creditors, the appointment of a receiver for the
Corporation, or the voluntary or involuntary dissolution of the Corporation.
XIII. BENEFIT
This Agreement, as adopted by the parties hereto, shall be binding upon all
and shall operate for the benefit of all the Shareholders of the Corporation and
their respective executors and administrators and shall be binding upon any
person to whom any of the stock of the Shareholders is transferred in violation
of the provisions of this Agreement and/or the By-Laws of the Corporation and
the Executor or Administrator of such person.
Notwithstanding anything to the contrary herein, any sale of Common Stock
of the Corporation pursuant to this Agreement to the Mystech Associates, Inc.
Employees Stock Ownership Plan and Trust and the Mystech Associates, Inc. 401(k)
Retirement Plan and Trust (the Plans) must comply with the fiduciary duties
applicable to the Plans' fiduciaries under Sections 403, 404 and 406 of the
ERISA and the proposed Department of Labor "adequate consideration" regulations
at Section 2510.3-18(b)(2).
XIV. JURISDICTION
This Agreement is subject to and shall be construed under the laws of the
State of Connecticut and shall be specifically enforceable.
IN WITNESS WHEREOF, this Agreement is effective on October 14, 1994 on the
Corporation by the witnessed signature of its President as directed by the
affirmative vote of two-thirds of the shares eligible to vote on October 14,
1994 at the Annual Meeting of the Shareholders held at Falls Church, Virginia.
<PAGE>
Signed in the Presence of: By:
/s/ Steven P. Bracci /s/ David L. Young
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Witness Signature David L. Young, President
MYSTECH ASSOCIATES, INC.
/s/ Joan Lane
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Witness Signature
