<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AUTODESK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7372 94-2819853
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
111 MCINNIS PARKWAY,
SAN RAFAEL, CALIFORNIA 94903
(415) 507-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CAROL A. BARTZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
AUTODESK, INC.
111 MCINNIS PARKWAY
SAN RAFAEL, CALIFORNIA 94903
(415) 507-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
<TABLE>
<S> <C> <C>
MARK A. BERTELSEN, ESQ. R. DREW OGDEN, ESQ., PATRICK J. RONDEAU, ESQ.
HERBERT P. FOCKLER, ESQ. VICE PRESIDENT, LEGAL AND SCOTT E. PUESCHEL, ESQ.
DON S. WILLIAMS, ESQ. BUSINESS DEVELOPMENT HALE AND DORR LLP
WILSON SONSINI GOODRICH & ROSATI SOFTDESK, INC. 60 STATE STREET
PROFESSIONAL CORPORATION 7 LIBERTY HILL ROAD BOSTON, MASSACHUSETTS 02109
650 PAGE MILL ROAD HENNIKER, NEW HAMPSHIRE 03242 (617) 526-6000
PALO ALTO, CALIFORNIA 94304 (603) 428-5000
(415) 493-9300
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger described herein.
If 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. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock
$0.01 par value............... 5,650,000 shares $14.1875 $80,159,375 $24,291
================================================================================================
</TABLE>
(1) Represents the approximate number of shares of the Common Stock of the
Registrant which may be issued to former stockholders of Softdesk, Inc.
("Softdesk") pursuant to the Merger described herein.
(2) Calculated in accordance with Rule 457(f)(1) and Rule 457(c) based on
$14.1875 per share, which represents the average of the high and the low
prices of Softdesk Common Stock reported on the Nasdaq National Market on
February 27, 1997.
(3) The amount of the registration fee includes $18,060 previously paid
pursuant to Section 14(g) of the Securities Exchange Act, as amended, in
connection with the filing by Softdesk of a Proxy Statement/Prospectus
related to the proposed Merger. Accordingly, pursuant to Rule 457(b) under
the Securities Act, an additional fee of $6,231 is being paid in
connection with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
[LOGO OF AUTODESK]
SOFTDESK, INC. PROXY STATEMENT/AUTODESK, INC. PROSPECTUS
[LOGO OF SOFTDESK]
5,650,000 SHARES
AUTODESK COMMON STOCK
----------------
This Proxy Statement/Prospectus constitutes the Prospectus of Autodesk,
Inc., a Delaware corporation ("Autodesk"), with respect to up to 5,650,000
shares of its Common Stock, par value $0.01 per share ("Autodesk Common
Stock"), to be issued in connection with the proposed merger (the "Merger") of
Autodesk Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Autodesk ("Merger Sub"), with and into Softdesk, Inc., a
Delaware corporation ("Softdesk"), pursuant to the terms set forth in the
Agreement and Plan of Reorganization, dated as of December 10, 1996 (the
"Agreement") by and among Autodesk, Merger Sub and Softdesk, as amended by the
Amendment dated December 19, 1996 (as amended, the "Amended Agreement"). As
used herein, the term "Combined Company" means Autodesk and Softdesk and their
respective subsidiaries as a consolidated entity following the Merger. The
Common Stock, $0.01 par value per share, of Softdesk is herein referred to as
"Softdesk Common Stock." As a result of the Merger, each outstanding share of
Softdesk Common Stock, other than any shares held in the treasury of Softdesk
or owned by Merger Sub, Autodesk or any wholly owned subsidiary of Autodesk or
Softdesk, will be converted into the right to receive that fraction of a share
of Autodesk Common Stock obtained by dividing $15.00 by the average of the
closing prices of Autodesk Common Stock as quoted on the Nasdaq National
Market for the five trading days immediately preceding the closing date of the
Merger (subject to adjustment in certain circumstances as provided in the
Amended Agreement) (the "Exchange Ratio"), and each outstanding option or
right to purchase Softdesk Common Stock under the Softdesk 1992 Stock Option
Plan, 1993 Equity Incentive Plan and 1993 Director Stock Option Plan
(collectively, the "Softdesk Stock Option Plans") will be assumed by Autodesk
and will become an option or right to purchase Autodesk Common Stock, with
appropriate adjustments to the number of shares issuable thereunder and the
exercise price thereof based on the Exchange Ratio.
This Proxy Statement/Prospectus also constitutes the Proxy Statement of
Softdesk with respect to the Special Meeting of Stockholders of Softdesk
scheduled to be held on March 31, 1997 (the "Softdesk Meeting").
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to the stockholders of Softdesk on or about March 6, 1997.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY SOFTDESK STOCKHOLDERS IN EVALUATING THE PROPOSALS TO BE VOTED
ON AT THE SOFTDESK MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED
HEREBY.
----------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF AUTODESK OFFERED HEREBY HAVE
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is March 4, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... 1
TRADEMARKS................................................................. 1
FORWARD-LOOKING STATEMENTS................................................. 1
SUMMARY.................................................................... 2
MARKET PRICE AND DIVIDEND INFORMATION...................................... 13
SELECTED QUARTERLY FINANCIAL DATA.......................................... 15
SELECTED HISTORICAL AND UNAUDITED SELECTED PRO FORMA
COMBINED FINANCIAL DATA................................................... 16
RISK FACTORS............................................................... 18
SOFTDESK, INC. SPECIAL MEETING............................................. 23
General.................................................................. 23
Matters to be Considered................................................. 23
Recommendation of Softdesk Board of Directors............................ 23
Record Date and Voting................................................... 23
Proxies.................................................................. 24
No Appraisal Rights...................................................... 24
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................ 26
Background of the Merger................................................. 26
Joint Reasons For the Merger............................................. 29
Autodesk's Reasons For the Merger........................................ 30
Softdesk's Reasons for the Merger........................................ 31
Opinion of Softdesk's Financial Advisor.................................. 33
Certain Federal Income Tax Considerations................................ 35
Governmental and Regulatory Approvals.................................... 37
Accounting Treatment..................................................... 37
Federal Securities Law Consequences...................................... 37
TERMS OF THE MERGER........................................................ 38
Effective Time........................................................... 38
Manner and Basis of Converting Shares.................................... 38
Conduct of Combined Company Following the Merger......................... 39
Conduct of Autodesk's and Softdesk's Business Prior to the Merger........ 39
No Solicitation.......................................................... 40
Break Up Fees; Expenses.................................................. 41
Conditions to the Merger................................................. 42
Termination of the Amended Agreement..................................... 43
Stock Option Agreement................................................... 44
Voting Agreements........................................................ 45
Affiliate Agreements..................................................... 45
Non-Competition Agreements............................................... 45
Interests of Certain Persons............................................. 45
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION.............. 47
Financial Statements..................................................... 47
AUTODESK................................................................... 53
BUSINESS................................................................. 53
AUTODESK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 64
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AUTODESK MANAGEMENT AND EXECUTIVE COMPENSATION.......................... 73
AUTODESK STOCK INFORMATION.............................................. 79
SOFTDESK.................................................................. 83
BUSINESS................................................................ 83
SOFTDESK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 90
SOFTDESK MANAGEMENT AND EXECUTIVE COMPENSATION.......................... 95
SOFTDESK STOCK INFORMATION.............................................. 96
DESCRIPTION OF CAPITAL STOCK.............................................. 98
Autodesk Capital Stock.................................................. 98
Softdesk Capital Stock.................................................. 99
Comparison of Capital Stock............................................. 100
EXPERTS................................................................... 101
LEGAL MATTERS............................................................. 101
FINANCIAL STATEMENTS...................................................... F-1
Index to Consolidated Financial Statements.............................. F-1
REPORT OF INDEPENDENT AUDITORS............................................ F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................. F-20
ANNEX A--Agreement and Plan of Reorganization, dated as of December 10,
1996, among Autodesk, Inc., Autodesk Acquisition Corporation and
Softdesk, Inc., as amended by the Amendment dated December 19,
1996............................................................. A-1
ANNEX B--Opinion of Wessels, Arnold & Henderson, L.L.C.................... B-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
Autodesk and Softdesk are subject to the information reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60601-2511. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a World-
Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC
at the address "http://www.sec.gov." Autodesk Common Stock and Softdesk Common
Stock are both quoted on the Nasdaq National Market (the "Nasdaq") under the
trading symbols "ADSK" and "SDSK," respectively, and reports, proxy statements
and other information filed with the SEC can also be inspected at the offices
of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
Autodesk has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), registering the shares of Autodesk Common Stock to be
received by Softdesk stockholders in the Merger. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the SEC.
For further information, reference is hereby made to the Registration
Statement. Copies of the Registration Statement (including the exhibits and
schedules thereto), may be inspected, without charge, at the offices of the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE
MATTERS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AUTODESK OR SOFTDESK. NEITHER THE
DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
----------------
TRADEMARKS
This Proxy Statement/Prospectus contains trademarks of Autodesk and Softdesk
and may contain trademarks of others.
----------------
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Any statements contained herein (including without limitation
statements to the effect that Autodesk, Softdesk or their respective
managements "believes," "expects," "anticipates," "plans" and similar
expressions) that are not statements of historical fact should be considered
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain factors,
including those set forth in the "Risk Factors" section below. Reference is
also made to the particular discussions set forth under "Autodesk--Autodesk
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Softdesk--Softdesk Management's Discussion and Analysis of
Financial Condition and Results of Operations."
1
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. This summary does not contain a complete statement
of all material elements of the proposals to be voted on and is qualified in
its entirety by the more detailed information appearing elsewhere in this Proxy
Statement/Prospectus and in the information and documents annexed hereto.
THE COMPANIES
Autodesk, Inc.
Autodesk, Inc. ("Autodesk") is a leader in the development and marketing of
design and drafting software and multimedia tools, primarily for the business
and professional environment. Autodesk's flagship product AutoCAD is one of the
world's leading computer aided design ("CAD") tools with an installed base of
1.5 million units worldwide. Autodesk has structured its business to address
five key market segments reflecting the Autodesk customer base and target
markets: Architecture, Engineering and Construction ("AEC"), Mechanical
Computer Aided Design ("MCAD"), Geographic Information Systems ("GIS"), Data
Management and Multimedia. Autodesk's AEC customers utilize Autodesk software
alone and in combination with software provided by Autodesk's third-party
developers to manage every phase of a building's life cycle--from conceptual
design through construction, maintenance and renovation. Autodesk's MCAD
customers include mechanical engineers, designers and drafters. Autodesk's GIS
products provide easy-to-use mapping and GIS technology to help businesses and
governments manage their assets and infrastructure. Autodesk Data Management
products allow users to organize, access, share, view and manage design-related
information. Autodesk addresses the multimedia market through its Kinetix
division, the leader in PC-based 3D modeling, visualization and animation
software, providing a full range of products for digital media and design
professionals.
Autodesk was incorporated in California in April 1982 and was reincorporated
in Delaware in May 1994. Autodesk maintains its executive offices at 111
McInnis Parkway, San Rafael, California 94903 and its telephone number is (415)
507-5000.
Autodesk Acquisition Corporation
Autodesk Acquisition Corporation ("Merger Sub") is a corporation recently
organized by Autodesk for the purpose of effecting the Merger. It has no
material assets and has not engaged in any activities except in connection with
the Merger. Merger Sub's executive offices are located at 111 McInnis Parkway,
San Rafael, California 94903, and its telephone number is (415) 507-5000.
Softdesk, Inc.
Softdesk, Inc. ("Softdesk") develops, markets and supports CAD application
software products primarily for professionals, non-professional office users
and home users in the AEC market. Softdesk's integrated application software is
used by civil engineers, surveyors, architects, home builders, building
services engineers, structural engineers, facilities managers, mapping
professionals and home and office users worldwide to automate the design and
engineering process, from large infrastructure engineering projects to single-
family home or office design. The majority of Softdesk's products are designed
for use in conjunction with Autodesk's AutoCAD software. Softdesk also has
products which run on DataCAD developed by Cadkey, Inc., the CornerStone
Toolkit developed by ARITEK Systems, Inc., and Softdesk's own proprietary
Drafix CAD software. Softdesk's products operate on Microsoft Windows and DOS-
based operating systems. Softdesk sells its products worldwide and maintains
several international offices and subsidiaries.
Softdesk was incorporated in 1985 as a New Hampshire corporation and was
reincorporated in Delaware in December 1993. Softdesk's principal executive
offices are located at 7 Liberty Hill Road, Henniker, New Hampshire 03242, and
its telephone number is (603) 428-5000.
2
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS OF SOFTDESK
Time, Date, Place and Purpose
A Special Meeting of Stockholders of Softdesk will be held at the office of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts on Monday, March 31,
1997 at 10:00 a.m. local time (the "Softdesk Meeting"). The purpose of the
Softdesk Meeting is to consider approval and adoption of the Amended Agreement.
See "Softdesk, Inc. Special Meeting--General" and "--Matters to be Considered."
Record Date and Vote Required
Only Softdesk stockholders of record at the close of business on January 31,
1997 (the "Softdesk Record Date") are entitled to notice of and to vote at the
Softdesk Meeting. Pursuant to the Delaware General Corporation Law and the
Softdesk Restated Certificate of Incorporation, as amended, the affirmative
vote of the holders of a majority of the Softdesk Common Stock outstanding as
of the Softdesk Record Date is required to approve and adopt the Amended
Agreement.
As of the Softdesk Record Date, there were 296 stockholders of record of
Softdesk Common Stock and 6,023,239 shares of Softdesk Common Stock
outstanding, each of which will be entitled to cast one vote per share on each
matter to be acted upon at the Softdesk Meeting. Softdesk's directors and
certain of its officers have agreed to vote their shares in favor of the
approval and adoption of the Amended Agreement. See "Softdesk, Inc. Special
Meeting--Record Date and Voting," "Terms of the Merger--Voting Agreements" and
"--Interests of Certain Persons."
Recommendation of Softdesk Board of Directors
Softdesk's Board of Directors (the "Softdesk Board") has unanimously approved
the Amended Agreement and the transactions contemplated thereby and has
determined that the Merger is fair to and in the best interests of Softdesk and
its stockholders. After careful consideration, the Softdesk Board unanimously
recommends a vote in favor of approval and adoption of the Amended Agreement.
Stockholders should read this Proxy Statement/Prospectus carefully prior to
voting. See "Approval of the Merger and Related Transactions--Background of the
Merger," "--Joint Reasons for the Merger," "--Softdesk's Reasons for the
Merger," and "Softdesk, Inc. Special Meeting--Recommendation of Softdesk Board
of Directors."
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY SOFTDESK STOCKHOLDERS IN
CONNECTION HEREWITH: (I) THE EXPECTED LONG-TERM STRATEGIC BENEFITS OF THE
MERGER ARE DEPENDENT UPON THE SUCCESSFUL COMBINATION AND INTEGRATION OF THE
BUSINESS AND OPERATIONS OF SOFTDESK WITH AUTODESK, AND THERE CAN BE NO
ASSURANCE THAT THIS WILL OCCUR; (II) THE ISSUANCE OF AUTODESK COMMON STOCK IN
CONNECTION WITH THE MERGER WILL HAVE THE EFFECT OF REDUCING AUTODESK'S NET
INCOME PER SHARE AND COULD REDUCE THE MARKET PRICE OF AUTODESK COMMON STOCK
UNLESS AND UNTIL REVENUE GROWTH OR COST SAVINGS AND OTHER BUSINESS SYNERGIES
SUFFICIENT TO OFFSET THE EFFECT OF SUCH ISSUANCE CAN BE ACHIEVED; (III) THERE
CAN BE NO ASSURANCE THAT THE INTEGRATION OF SOFTDESK'S BUSINESS OPERATIONS WITH
AUTODESK WILL NOT INVOLVE UNEXPECTED COSTS; (IV) AUTODESK'S INTEGRATION OF
SOFTDESK PRODUCTS, WHICH CURRENTLY COMPETE WITH PRODUCT OFFERINGS OF CERTAIN
THIRD PARTY DEVELOPERS, MAY ADVERSELY IMPACT AUTODESK'S CURRENT RELATIONSHIPS
WITH SUCH THIRD PARTY DEVELOPERS OR END-USERS; (V) COMPETITION AMONG AEC
APPLICATIONS SUPPLIERS IS INTENSE AND COULD ADVERSELY AFFECT THE COMBINED
COMPANY'S BUSINESS; (VI) A NUMBER OF FACTORS MAY RESULT IN UNANTICIPATED
FLUCTUATIONS IN OPERATING RESULTS; (VII) CHANGING TECHNOLOGY AND MARKET
REQUIREMENTS CREATE CERTAIN INHERENT RISKS, INCLUDING THE POTENTIAL DIFFICULTY
IN SUCCESSFULLY INTRODUCING NEW PRODUCTS; (VIII) THE COMBINED COMPANY'S FUTURE
SUCCESS DEPENDS IN PART UPON THE CONTINUED SERVICE OF ITS KEY EMPLOYEES, THE
LOSS OF ONE OR MORE OF WHOM COULD HAVE A MATERIAL ADVERSE IMPACT ON THE
COMBINED COMPANY'S BUSINESS; (IX) THE MARKETS FOR DESIGN AND VISUALIZATION
SOFTWARE IN WHICH THE COMBINED COMPANY'S PRODUCTS WILL COMPETE ARE HIGHLY
COMPETITIVE;
3
<PAGE>
(X) AUTODESK FACES THE RISKS INHERENT IN INTERNATIONAL OPERATIONS, INCLUDING
CURRENCY FLUCTUATIONS AND ADDITIONAL COSTS; (XI) AUTODESK WILL BE DEPENDENT ON
PROPRIETARY TECHNOLOGY, WHICH IT MAY NOT BE ABLE TO FULLY PROTECT; (XII) THE
MARKET FOR AUTODESK COMMON STOCK, AND FOR TECHNOLOGY STOCKS IN GENERAL, IS
EXTREMELY VOLATILE; (XIII) A DECLINE IN THE PRICE OF AUTODESK COMMON STOCK
BELOW $16.00 PER SHARE MAY CAUSE THE VALUE RECEIVED BY SOFTDESK STOCKHOLDERS TO
DECLINE PRIOR TO THE EFFECTIVE TIME (AS DEFINED BELOW). SEE "RISK FACTORS."
REASONS FOR THE MERGER
The Boards of Softdesk and Autodesk have authorized the execution and
delivery of the Amended Agreement with the expectation that the proposed
Merger, by combining the experience, financial resources, size and breadth of
AEC product offerings of Autodesk and Softdesk, will result in significant
long-term strategic benefits to the companies and their stockholders. See "Risk
Factors," "Approval of the Merger and Related Transactions--Joint Reasons for
the Merger," "--Autodesk's Reasons for the Merger," and "--Softdesk's Reasons
for the Merger."
FAIRNESS OPINION
Wessels, Arnold & Henderson, L.L.C. ("WA&H") has delivered to the Softdesk
Board its written opinion, dated December 19, 1996, to the effect that, as of
such date, the Merger was fair from a financial point of view to the holders of
Softdesk Common Stock. The full text of the opinion of WA&H, which sets forth
assumptions made and matters considered, is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference. HOLDERS OF
SOFTDESK COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See "Approval of the Merger and Related Transactions--Opinion of
Softdesk's Financial Advisor" and Annex B attached hereto.
INCOME TAX TREATMENT
The Merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), in which
case no gain or loss should generally be recognized by the holders of shares of
Softdesk Common Stock on the exchange of their shares of Softdesk Common Stock
solely for shares of Autodesk Common Stock. At the closing of the Merger,
Autodesk and Softdesk will each have received an opinion from tax counsel that
the Merger will constitute a tax-free reorganization under Section 368(a) of
the Code. HOWEVER, ALL SOFTDESK STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS. See "Approval of the Merger and Related Transactions--Certain Federal
Income Tax Considerations."
REGULATORY MATTERS
Autodesk and Softdesk are aware of no material governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of
the various states and with the pre-merger notification and waiting-period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). See "Approval of the Merger and Related Transactions--
Governmental and Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the purchase method of
accounting for financial reporting purposes in accordance with generally
accepted accounting principles. See "Approval of the Merger and Related
Transactions--Accounting Treatment."
4
<PAGE>
THE MERGER
Terms of the Merger
At the Effective Time (as defined below) of the Merger, Merger Sub will merge
with and into Softdesk and Autodesk will become the owner of all of the
outstanding capital stock of Softdesk. It is currently intended that the
operations of Softdesk will be integrated with those of Autodesk as soon as
practicable following the Effective Time. As a result of the Merger, each
outstanding share of Softdesk Common Stock, other than any shares held in the
treasury of Softdesk or owned by Autodesk, will be converted into the right to
receive that fraction of a share of Autodesk Common Stock obtained by dividing
$15.00 by the average of the closing prices of Autodesk Common Stock as quoted
on the Nasdaq for the five trading days immediately preceding the Closing Date
(as defined below) (the "Exchange Ratio"); provided that, in the event that the
average of the closing prices of Autodesk Common Stock so determined is less
than $16.00 per share, Autodesk may terminate the Amended Agreement without
consummating the Merger, unless Softdesk agrees, within two business days after
notice of Autodesk's intention to terminate the Amended Agreement, to
consummate the Merger at a fixed Exchange Ratio of 0.9375 shares of Autodesk
Common Stock for each share of Softdesk Common Stock. Pursuant to the Merger,
each outstanding option or right to purchase Softdesk Common Stock under the
Softdesk Stock Option Plans will be assumed by Autodesk and will become an
option or right to purchase Autodesk Common Stock, with appropriate adjustments
to be made to the number of shares issuable thereunder and the exercise price
thereof based on the Exchange Ratio.
No fractional shares will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of Softdesk Common Stock (after aggregating all
fractional shares to be received by such holder) will receive from Autodesk an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average closing price of a share of
Autodesk Common Stock for the ten most recent trading days ending on the
trading day immediately prior to the Effective Time (as defined below), as
reported on the Nasdaq. See "Terms of the Merger--Manner and Basis of
Converting Shares."
Effective Time of the Merger
The Merger will become effective upon the filing of the Certificate of Merger
(the "Certificate of Merger") with the Secretary of State of the State of
Delaware or at such later time as may be agreed in writing by Autodesk,
Softdesk and Merger Sub and specified in the Certificate of Merger (the
"Effective Time"). Assuming all conditions to the Merger are met or waived
prior thereto, it is anticipated that the closing date of the Merger (the
"Closing Date") and the Effective Time will be on or about March 31, 1997. See
"Terms of the Merger--Effective Time."
Exchange of Softdesk Stock Certificates
Promptly after the Effective Time, Autodesk, acting through Harris Trust &
Savings Bank as its exchange agent (the "Exchange Agent"), will deliver to each
Softdesk stockholder of record a letter of transmittal with instructions to be
used by such stockholder in surrendering certificates which, prior to the
Merger, represented shares of Softdesk Common Stock. CERTIFICATES SHOULD NOT BE
SURRENDERED BY THE HOLDERS OF SOFTDESK COMMON STOCK UNTIL SUCH HOLDERS RECEIVE
THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. At the Effective Time, each
then outstanding option or right to purchase Softdesk Common Stock under the
Softdesk Stock Option Plans will be assumed by Autodesk without any action on
the part of the holder thereof, and the number of shares issuable thereunder
and the exercise price thereof will be appropriately adjusted according to the
Exchange Ratio. OPTION AGREEMENTS NEED NOT BE SURRENDERED. See "Terms of the
Merger--Manner and Basis of Converting Shares."
Form S-8 Registration Statement
No later than ten business days after the Closing Date, Autodesk will file a
registration statement on Form S-8 under the Securities Act covering the shares
of Autodesk Common Stock issuable upon exercise of
5
<PAGE>
options to purchase Softdesk Common Stock assumed by Autodesk at the Effective
Time. See "Terms of the Merger--Manner and Basis of Converting Shares."
Conduct of Combined Company Following the Merger
Pursuant to the Merger, Merger Sub will be merged with and into Softdesk and
Softdesk will become a wholly-owned subsidiary of Autodesk (the "Softdesk
Subsidiary"). Following the Merger, the Softdesk Subsidiary will continue to
operate in Henniker, New Hampshire, and will serve as headquarters for
Autodesk's AEC Market Group. It is anticipated that the Softdesk Subsidiary
will be merged into Autodesk in the future. David C. Arnold, President and
Chief Executive Officer of Softdesk, will serve as Vice President in charge of
Autodesk's AEC Market Group. The stockholders of Softdesk will become
stockholders of Autodesk, and their rights as stockholders will be governed by
the Autodesk Certificate of Incorporation and Bylaws and the laws of the State
of Delaware.
No Solicitation
Under the terms of the Amended Agreement, until the earlier of the Effective
Time or termination of the Amended Agreement pursuant to its terms, Softdesk
and its subsidiaries have agreed that they will not, and will instruct their
respective directors, officers, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly, (i) solicit, or knowingly
encourage submission of, any proposals or offers by any person, entity or group
(other than Autodesk and its affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any non-public
information concerning themselves to, or afford any access to the properties,
books or records of itself to, or otherwise assist or facilitate, or enter into
any agreement or understanding with, any person, entity or group (other than
Autodesk and its affiliates, agents and representatives), in connection with
any Acquisition Proposal with respect to themselves. For the purposes of the
Amended Agreement, an "Acquisition Proposal" with respect to an entity means
any proposal or offer relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the entity or any
subsidiaries of the entity (other than sales of assets or inventory in the
ordinary course of business or permitted under the terms of the Amended
Agreement), (ii) sale of 10% or more of the outstanding shares of capital stock
of the entity (including without limitation by way of a tender offer or an
exchange offer), (iii) the acquisition by any person of beneficial ownership or
a right to acquire beneficial ownership of, or the formation of any "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) which beneficially owns, or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding shares of capital stock of
the entity (except for acquisitions for passive investment purposes only in
circumstances where the person or group qualifies for and files a Schedule 13G
with respect thereto); 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. Softdesk has agreed to cease any and all existing activities,
discussions or negotiations with any parties conducted prior to the signing of
the Agreement with respect to any of the foregoing. Softdesk has agreed to
notify Autodesk as promptly as practicable (i) if any inquiry or proposal is
made or any information or access is requested in writing in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) of the
significant terms and conditions of any such Acquisition Proposal. In addition,
subject to the other provisions set forth in this description, from and after
the date of the Agreement until the earlier of the Effective Time and
termination of the Amended Agreement pursuant to its terms, Softdesk has agreed
that it and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Autodesk); provided,
however, that nothing in the Amended Agreement will prohibit the Board of
Directors of Softdesk from taking and disclosing to its stockholders a position
with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act.
Notwithstanding the foregoing, Softdesk may, to the extent its Board of
Directors determines, in good faith, after consultation with outside legal
counsel, that such Board's fiduciary duties under applicable law require it to
6
<PAGE>
do so, participate in discussions or negotiations with, and, subject to the
requirements set forth in this paragraph, furnish information to any person,
entity or group after such person, entity or group has delivered to Softdesk in
writing, an unsolicited bona fide Acquisition Proposal which the Softdesk Board
in its good faith reasonable judgment determines, after consultation with its
independent financial advisors, would result in a transaction more favorable to
the stockholders of Softdesk from a financial point of view than the Merger and
for which financing, to the extent required, is then committed or which, in the
good faith reasonable judgment of the Softdesk Board (based upon the advice of
independent financial advisors), is reasonably capable of being financed by
such person, entity or group, and which is likely to be consummated (a
"Superior Proposal"). In the event Softdesk receives a Superior Proposal,
nothing contained in the Amended Agreement will prevent the Softdesk Board from
approving such Superior Proposal or recommending such Superior Proposal to its
stockholders, if such Board determines that such action is required by its
fiduciary duties under applicable law; provided, however, that Softdesk has
agreed not to accept or recommend to its stockholders, or enter into any
agreement concerning, a Superior Proposal for a period of not less than seven
days after the receipt by Autodesk of a copy of such Superior Proposal.
Notwithstanding the foregoing, Softdesk may not provide any non-public
information to a third party unless Softdesk provides such non-public
information pursuant to a nondisclosure agreement with terms regarding the
protection of confidential information at least as restrictive as such terms in
the confidentiality agreement between Autodesk and Softdesk entered into in
connection with the Merger and such non-public information has previously been
delivered or made available to Autodesk. See "Terms of the Merger--No
Solicitation."
Market Price Data
Autodesk Common Stock has been traded on the Nasdaq under the symbol "ADSK"
since May 1, 1996, and was traded on the Nasdaq under the symbol "ACAD" from
Autodesk's initial public offering in 1985 until that time. On December 9,
1996, the day immediately prior to the public announcement of the execution of
the Agreement, the closing price of Autodesk Common Stock as reported on the
Nasdaq was $27.25 per share. On December 18, 1996, the day immediately prior to
the public announcement of the Amended Agreement, the closing price of Autodesk
Common Stock as reported on the Nasdaq was $27.625 per share. On February 27,
1997, the closing price of Autodesk Common Stock as reported on the Nasdaq was
$34.875 per share. There can be no assurance as to the actual price of Autodesk
Common Stock prior to, at or at any time following the Effective Time of the
Merger, or in the event the Merger is not consummated.
Softdesk Common Stock has been traded on the Nasdaq under the symbol "SDSK"
since Softdesk's initial public offering in February 1994. On December 9, 1996,
the day immediately prior to the public announcement of the execution of the
Agreement, the closing price of Softdesk Common Stock as reported on the Nasdaq
was $9.25 per share. On December 18, 1996, the day immediately prior to the
public announcement of the Amended Agreement, the closing price of Softdesk
Common Stock as reported on the Nasdaq was $10.375 per share. On February 27,
1997, the closing price of Softdesk Common Stock as reported on the Nasdaq was
$14.063 per share. Following the Merger, Softdesk Common Stock will no longer
be traded on the Nasdaq. There can be no assurance as to the actual price of
Softdesk Common Stock prior to or at the Effective Time of the Merger, or in
the event the Merger is not consummated. See "Risk Factors" and "Market Price
and Dividend Information."
Termination
The Amended Agreement may be terminated under certain circumstances,
including, without limitation, by mutual written consent of Autodesk and
Softdesk authorized by their respective Boards of Directors, and by either
Autodesk or Softdesk: if the other party commits certain breaches of any
representation, warranty or covenant contained in the Amended Agreement; if
consummation of the Merger is prohibited by an order or other action of a court
of competent jurisdiction or a governmental, regulatory or administrative
agency or commission; if the Merger is not consummated on or before May 31,
1997 (except that the Amended Agreement cannot be terminated pursuant to this
latter provision by a party whose action or failure to act has been a principal
cause of the failure of the Merger to occur on or before such date where such
action or failure to act constitutes a breach of the Amended Agreement); if
Softdesk shall have accepted certain acquisition proposals or if any
7
<PAGE>
such proposal has been recommended by the Softdesk Board to the Softdesk
stockholders; if the required approval of the Softdesk stockholders shall not
have been obtained by reason of the failure to obtain the required vote upon a
vote taken at a meeting of stockholders duly convened therefor or any
adjournment thereof, provided such right of termination shall not be available
to Softdesk if the failure to obtain stockholder approval shall have been
caused by action or inaction in breach of the Amended Agreement; or if a
material adverse effect (as defined) with respect to the other party has
occurred since the date of the Amended Agreement. In addition, the Amended
Agreement may be terminated by Autodesk if the Softdesk Board shall have (i)
failed to convene a meeting of Softdesk stockholders in accordance with the
terms of the Amended Agreement, (ii) failed to recommend approval of the
Amended Agreement and the Merger or withheld, withdrawn or modified in a manner
adverse to Autodesk, such recommendation in favor of the Merger, or (iii)
failed to reject an Acquisition Proposal within ten days. See "Terms of the
Merger--Termination of the Amended Agreement."
Break-Up Fees
Softdesk has agreed that, in the event that the required approval of
Softdesk's stockholders contemplated by the Amended Agreement has not been
obtained by reason of the failure to obtain the required vote upon a vote taken
at a meeting of Softdesk stockholders convened for such purpose, Softdesk will
immediately pay to Autodesk $750,000. Similarly, in the event the Amended
Agreement is terminated because (a) Softdesk accepts a Superior Proposal (in
the absence of Autodesk having suffered an event which constitutes a material
adverse effect) or (b) the Softdesk Board (i) recommends a Superior Proposal to
the Softdesk stockholders, (ii) fails to convene a stockholders' meeting as
required by the Amended Agreement, (iii) fails to recommend approval of the
Amended Agreement and the Merger or withholds, withdraws or modifies in a
manner adverse to Autodesk its recommendation in favor of the Merger, or (iv)
fails to reject an Acquisition Proposal within ten days of its making (in each
case in the absence of Autodesk having suffered an event which constitutes a
material adverse effect), Softdesk has agreed to immediately pay to Autodesk
$2,500,000. Furthermore, Softdesk has agreed that in the event that the Amended
Agreement is terminated as a result of any of the events described in this
paragraph, and within six months of such termination Softdesk enters into any
transaction which gives effect to an Acquisition Proposal by a third party,
Softdesk will pay to Autodesk, upon the consummation of such transaction,
$5,000,000 minus any amounts previously paid under the circumstances described
in the preceding sentences. See "Terms of the Merger--Break Up Fees; Expenses."
The occurrence of any of the foregoing events, among other events, will also
entitle Autodesk to exercise its rights under the Amended Option Agreement. See
"Terms of the Merger--Stock Option Agreement."
Conditions to the Merger
Consummation of the Merger is subject to the satisfaction of the following
conditions: approval by the requisite vote of the stockholders of Softdesk
shall have been obtained; the Registration Statement filed with the SEC
relating to the issuance of shares of Autodesk Common Stock in connection with
the Merger shall be effective and such shares shall be authorized for listing
on the Nasdaq; no injunction, court order, or other legal restraint preventing
consummation of the Merger shall be in effect; Autodesk and Softdesk shall have
received opinions from their respective legal counsel to the effect that the
Merger will qualify as a "reorganization" within the meaning of Section 368(a)
of the Code; and the waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated by the reviewing
agency and any similar government requirements shall have been complied with or
satisfied. In addition, the obligations of Softdesk to consummate the Merger
are subject to the following conditions, unless waived by Softdesk: the
representations and warranties of Autodesk and Merger Sub contained in the
Amended Agreement shall be accurate as of the closing, except where any breach
or breaches did not have or would not reasonably be expected to have a material
adverse effect on Autodesk; Autodesk and Merger Sub shall have performed in all
material respects the covenants required by the Amended Agreement; the shares
of Autodesk Common Stock issuable to stockholders of Softdesk pursuant to the
Amended Agreement shall have been authorized for listing on the Nasdaq; and
Softdesk shall have received a legal opinion from counsel to Autodesk in such
form as shall be reasonably
8
<PAGE>
acceptable to Softdesk. In addition, the obligations of Autodesk to consummate
the Merger are subject to the following conditions, unless waived by Autodesk:
the representations and warranties of Softdesk contained in the Amended
Agreement shall be accurate as of the closing, except where any breach or
breaches did not have or would not reasonably be expected to have a material
adverse effect on Softdesk; Softdesk shall have performed in all material
respects the covenants required by the Amended Agreement; certain affiliates
and employees of Softdesk shall have signed voting and/or noncompetition
agreements; and Autodesk shall have received a legal opinion from counsel to
Softdesk in such form as shall be reasonably acceptable to Autodesk. See "Terms
of the Merger--Conditions to the Merger."
Stock Option Agreement
As an inducement to Autodesk to enter into the Amended Agreement, Softdesk
entered into a Stock Option Agreement with Autodesk dated December 10, 1996
(the "Option Agreement"), as amended on December 19, 1996 (as amended, the
"Amended Option Agreement"), pursuant to which Softdesk granted Autodesk the
right (the "Option"), under certain conditions, to purchase up to 1,195,095
shares of Softdesk Common Stock by paying to Softdesk $11.715 per share for
each share purchased under the Option.
Subject to certain conditions, the Option may be exercised in whole or in
part by Autodesk (i) upon the acquisition by any person of beneficial ownership
or a right to acquire beneficial ownership of, or the formation of any "group"
(as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of, 50% or more of the then outstanding shares of capital
stock of Softdesk, (ii) in the event the approval of the Softdesk stockholders
required by the Amended Agreement shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a meeting of Softdesk
stockholders duly convened therefor or at any adjournment thereof, (iii) in the
event that Softdesk shall have accepted a Superior Proposal or if the Softdesk
Board shall have recommended a Superior Proposal to the Softdesk stockholders,
or (iv) in the event that the Softdesk Board shall have failed to convene the
stockholders meeting required by the Amended Agreement, failed to recommend
approval of the Amended Agreement and the Merger in the proxy statement to be
provided to the Softdesk stockholders in connection with the Merger, or
withheld, withdrawn or modified in a manner adverse to Autodesk its
recommendation in favor of the Merger, or failed to reject an Acquisition
Proposal within ten days of its making (any of the events specified in clauses
(i), (ii), (iii) or (iv) of this sentence being referred to herein as an
"Exercise Event"). The Amended Option Agreement terminates upon the earlier of
(i) the Effective Time, (ii) 180 days following the termination of the Amended
Agreement if an Exercise Event shall have occurred on or prior to the date of
such termination, or (iii) the date on which the Amended Agreement is
terminated if an Exercise Event shall not have occurred on or prior to such
date; provided, however, that with respect to clause (ii) of this sentence, if
the Option cannot be exercised by reason of any applicable government order or
waiting period continuing in force, then the Option will not terminate until
the tenth business day after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal. Notwithstanding
the foregoing, the Option may not be exercised if Autodesk is in breach in any
material respect of any of its covenants or agreements contained in the Amended
Agreement. See "Terms of the Merger--Stock Option Agreement."
The Option Agreement also gives Autodesk the right, in certain circumstances,
to require Softdesk to purchase all shares of Softdesk Common Stock acquired by
Autodesk upon exercise of the Option.
Voting Agreements
Each of David C. Arnold, Jesse F. Devitte, David A. Paine and August Grasis
III (who own as of December 31, 1996 an aggregate of 1,161,785 of the
outstanding shares of Softdesk Common Stock, representing approximately 19% of
the votes entitled to be cast by holders of Softdesk Common Stock issued and
outstanding as of December 31, 1996) has entered into a voting agreement with
Autodesk (each, a "Voting Agreement"). Messrs. Arnold, Devitte, Paine and
Grasis are all executive officers or key personnel of Softdesk. Pursuant to the
9
<PAGE>
Voting Agreement, each of the foregoing Softdesk stockholders has agreed to
vote in favor of approval of the Amended Agreement and the Merger and any
matter that could reasonably be expected to facilitate the Merger, and against
approval of any proposal made in opposition to or competition with consummation
of the Merger. See "Terms of the Merger--Voting Agreements."
Non-Competition Agreements
Prior to the Effective Time, and as a condition to Autodesk's obligations
with respect to the Merger, each of David C. Arnold, Jesse F. Devitte, David A.
Paine and August Grasis III (each, an "Employee", and collectively, the
"Employees") shall have entered into a non-competition agreement with Autodesk
(each, a "Non-Competition Agreement"). Each Non-Competition Agreement requires
that, during the period commencing on the Closing Date and ending two years
after the Closing Date, the Employee shall not, directly or indirectly, (i)
participate or engage in the design, development, manufacture, production,
marketing, sale or servicing of any product, or the provision of any service,
that directly or indirectly relates to or competes with Softdesk's or
Autodesk's products or services related in any way to computer-aided design
software, (ii) induce or attempt to induce any person who at the time of such
inducement is an employee of Softdesk or Autodesk to perform work or services
for any other person other than Autodesk or Softdesk, or (iii) permit the name
of such Employee to be used in connection with a competitive business. "See
Terms of the Merger--Conditions to the Merger" and "--Non-Competition
Agreements."
Affiliate Agreements
Each of the directors and executive officers of Softdesk have entered into
agreements restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of Softdesk Common Stock held by
them prior to the Merger and the shares of Autodesk Common Stock received by
them in the Merger so as to comply with the requirements of applicable federal
securities and tax laws. See "Terms of the Merger--Conditions to the Merger"
and "--Affiliate Agreements."
Interests of Certain Persons
The Amended Agreement provides that Autodesk will assume Softdesk's
outstanding stock options under the Softdesk Stock Option Plans, which options
will become exercisable in full as a result of the Merger and thereafter such
options will be exercisable for Autodesk Common Stock. In light of the premium
reflected in the Exchange Ratio, Softdesk's officers and directors holding
stock options will thus receive a significant benefit from the Merger in the
form of the higher value of shares issuable upon exercise of their options.
Autodesk has entered into oral agreements with certain Softdesk affiliates,
pursuant to which such persons will receive certain employment and stock
compensation packages consistent with their anticipated employment with
Autodesk following the Merger. See "Terms of the Merger--Interests of Certain
Persons." Officers of Softdesk will not receive or be entitled to any other
payments by virtue of the Merger except as shareholders or option holders of
Softdesk.
The Amended Agreement provides that, from and after the Effective Time, the
Softdesk Subsidiary will fulfill and honor in all respects the indemnification
obligations of Softdesk to its officers and directors pursuant to the
provisions of its Certificate of Incorporation and Bylaws as in effect
immediately prior to the Effective Time. For a period of two years after the
Effective Time, Autodesk will ensure that the Softdesk Subsidiary fulfills the
foregoing obligations. The Amended Agreement also provides that the Certificate
of Incorporation and Bylaws of the Softdesk Subsidiary will contain the
provisions with respect to indemnification and elimination of liability for
monetary damages set forth in the Certificate of Incorporation and Bylaws of
Softdesk, which provisions will not be amended, repealed or otherwise modified
for a period of three years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, at the Effective
Time,
10
<PAGE>
were directors, officers, employees or agents of Softdesk, unless such
modification is required by law. See "Terms of the Merger--Interests of Certain
Persons."
No Appraisal Rights
Stockholders of Softdesk who dissent from the Merger will not be entitled to
rights of appraisal under Section 262 of the Delaware General Corporation Law.
See "Softdesk, Inc. Special Meeting--No Appraisal Rights." Accordingly,
stockholders who do not wish to receive Autodesk Common Stock in exchange for
their shares of Softdesk Common Stock must liquidate their investment by
selling their stock in the market prior to consummation of the Merger.
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Autodesk
and Softdesk and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a purchase method of accounting, assuming an
average of the closing prices of Autodesk Common Stock as quoted on the Nasdaq
for the five trading days immediately preceding the Closing Date equal to
$32.07 per share, and thus that 0.4677 of a share of Autodesk Common Stock is
issued in exchange for one share of Softdesk Common Stock in the Merger. This
data should be read in conjunction with the selected historical financial data,
the unaudited pro forma combined condensed financial information and the
separate historical financial statements of Autodesk and Softdesk and notes
thereto, included elsewhere in this Proxy Statement/Prospectus. The pro forma
combined financial data are not necessarily indicative of the operating results
that would have been achieved had the Merger been consummated as of the
beginning of the periods presented and should not be construed as
representative of future operations.
<TABLE>
<CAPTION>
FISCAL NINE MONTHS
YEAR ENDED JANUARY 31, ENDED
----------------------- OCTOBER 31,
1994 1995 1996 1996
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
HISTORICAL--AUTODESK:
Net income per share..................... $1.25 $1.14 $ 1.76 $ 0.75
Book value per share..................... 6.25 6.85 7.39 5.44
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- DECEMBER 31,
1994 1995 1996 1996
----- ----- ----------- ------------
<S> <C> <C> <C> <C>
HISTORICAL--SOFTDESK:
Net income (loss) per share.............. $0.46 $0.58 $(0.13) $(0.19)
Book value per share..................... 3.85 4.06 3.98 3.98
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
JANUARY 31, OCTOBER 31,
1996 1996
----------- ------------
<S> <C> <C>
PRO FORMA COMBINED NET INCOME PER
SHARE(1):
Per Autodesk share....................... $1.65 $0.62
Equivalent per Softdesk share............ 0.77 0.29
</TABLE>
<TABLE>
<CAPTION>
AS OF
OCTOBER 31,
1996
-----------
<S> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(1)(2):
Per Autodesk share.................................................. $5.92
Equivalent per Softdesk share....................................... $2.77
</TABLE>
- --------
(1) The unaudited equivalent Softdesk pro forma per share amounts are
calculated by multiplying the Autodesk combined pro forma per share amounts
by the Exchange Ratio.
(2) Historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period. Pro forma book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of each period.
12
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
AUTODESK STOCK PRICE AND DIVIDEND INFORMATION
Autodesk Common Stock is traded on the Nasdaq under the symbol "ADSK." The
following table sets forth the range of high and low sales prices per share
for Autodesk Common Stock as reported on the Nasdaq for the periods indicated
(as adjusted to reflect a stock split in October 1994).
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal Year 1998
First Quarter (February 1, 1997 through
February 27, 1997)..................................... $36 3/8 $28 1/4
Fiscal Year 1997
First Quarter............................................ $44 1/4 $29 3/4
Second Quarter........................................... 42 3/4 20 1/2
Third Quarter............................................ 27 1/2 18 1/2
Fourth Quarter........................................... 35 3/8 21
Fiscal Year 1996
First Quarter............................................ $44 $33
Second Quarter........................................... 50 1/4 34
Third Quarter............................................ 53 33
Fourth Quarter........................................... 39 1/2 27 3/4
</TABLE>
As of December 9, 1996, the last day prior to the public announcement of the
execution of the Agreement, high and low sales prices per share of Autodesk
Common Stock as reported on the Nasdaq were $28 7/8 and $27, respectively, and
the closing price for the Autodesk Common Stock as reported on the Nasdaq was
$27 1/4 per share. As of December 18, 1996, the last day prior to the public
announcement of the execution of the Amended Agreement, high and low sales
prices per share of Autodesk Common Stock as reported on the Nasdaq were $27
3/4 and $27, respectively, and the closing price for the Autodesk Common Stock
as reported on the Nasdaq was $27 5/8 per share.
As of February 27, 1997, the closing price of Autodesk Common Stock as
reported on the Nasdaq was $34.875 per share.
Autodesk has paid quarterly dividends of $0.06 per share with respect to
fiscal years 1996 and 1997, and currently intends to continue paying such cash
dividends on a quarterly basis.
13
<PAGE>
SOFTDESK STOCK PRICE AND DIVIDEND INFORMATION
Softdesk's Common Stock has been traded on the Nasdaq under the symbol
"SDSK" since Softdesk's initial public offering in February 1994. The
following table sets forth for the periods indicated the high and low sales
prices per share for Softdesk's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal Year 1997
First Quarter (January 1, 1997 through
February 27, 1997).................................... $ 15 1/2 $ 14
Fiscal Year 1996
First Quarter.......................................... $ 20 1/2 $ 11
Second Quarter......................................... 14 3/4 8 1/2
Third Quarter.......................................... 9 1/2 5
Fourth Quarter......................................... 16 1/4 4 1/2
Fiscal Year 1995
First Quarter.......................................... $ 26 $ 16
Second Quarter......................................... 25 18 3/4
Third Quarter.......................................... 28 1/2 20 1/4
Fourth Quarter......................................... 25 1/2 18 3/4
</TABLE>
On December 9, 1996, the last day prior to the announcement of the execution
of the Agreement, the high and low sales prices per share of Softdesk Common
Stock as reported on the Nasdaq were $10 and $9 1/4, respectively, and the
closing price of Softdesk Common Stock was $9 1/4 per share. As of December
18, 1996, the last day prior to the public announcement of the Amended
Agreement, high and low sales prices per share of Softdesk Common Stock as
reported on the Nasdaq were $10 39/64 and $10 1/4, respectively, and the
closing price of Softdesk Common Stock was $10 3/8 per share.
As of February 27, 1997, the closing price for Softdesk Common Stock as
reported on the Nasdaq was $14.063 per share.
Before giving effect to any acquisitions, Softdesk never paid any cash
dividends on its Common Stock. Softdesk currently intends to retain any
earnings for future growth and therefore does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
At the Softdesk Record Date, there were approximately 296 Softdesk
stockholders of record.
14
<PAGE>
AUTODESK, INC.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year ended January 31,
1997:
Net revenues................ $136,281 $128,745 $116,647 N/A
Gross margin................ 118,989 112,123 101,427 N/A
Income from operations...... 28,125 17,123 7,502 N/A
Net income.................. 19,060 10,645 5,873 N/A
Net income per share........ 0.39 0.22 0.13 N/A
Fiscal year ended January 31,
1996:
Net revenues................ $138,658 $140,686 $128,537 $126,286
Gross margin................ 121,373 123,324 112,419 110,239
Income from operations...... 38,408 38,897 28,046 23,676
Net income.................. 25,977 26,299 19,207 16,305
Net income per share........ 0.51 0.52 0.38 0.34
Fiscal year ended January 31,
1995:
Net revenues................ $106,578 $110,259 $108,179 $129,596
Gross margin................ 91,479 95,123 93,994 112,291
Income from operations...... 24,340 24,398 23,230 9,943
Net income.................. 16,446 16,587 15,896 7,677
Net income per share........ 0.33 0.34 0.32 0.15
</TABLE>
15
<PAGE>
SELECTED HISTORICAL AND UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except per share amounts)
The following selected historical financial information of Autodesk and
Softdesk has been derived from their respective historical financial
statements, and should be read in conjunction with each company's consolidated
financial statements and the notes thereto, included elsewhere in this Proxy
Statement/Prospectus. The selected pro forma financial information is derived
from the unaudited pro forma condensed combined financial statements and
should be read in conjunction with such unaudited pro forma statements and the
notes thereto included in this Proxy Statement/Prospectus. For purposes of the
pro forma operating data, Autodesk's consolidated financial statements for the
fiscal year ended January 31, 1996, and for the nine months ended October 31,
1996 have been combined with the Softdesk consolidated financial statements
for the year ended December 31, 1995, and for the nine months ended December
31, 1996, respectively. Autodesk has paid quarterly dividends of $0.06 per
share with respect to fiscal years 1994, 1995, 1996 and 1997, and currently
intends to continue paying such cash dividends on a quarterly basis. Before
giving effect to any acquisitions, Softdesk never paid any cash dividends on
its Common Stock. Softdesk currently intends to retain any earnings for future
growth and therefore does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Prior to the respective dates of
certain acquisitions by Softdesk, the acquired companies declared and paid
cash dividends of $208,000 in 1994. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of future operating results or financial position.
AUTODESK SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, OCTOBER 31,
-------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF INCOME
DATA:
Net revenues............ $273,974 $353,154 $405,596 $454,612 $534,167 $407,881 $381,673
Income from operations.. 80,231 63,197 89,703 81,911 129,027 105,351 52,750
Net income.............. 57,794 43,873 62,166 56,606 87,788 71,483 35,578
Net income per share.... $ 1.15 $ 0.88 $ 1.25 $ 1.14 $ 1.76 $ 1.41 $ 0.75
Shares used in computing
net income per share... 49,980 49,800 49,740 49,840 49,800 50,520 47,480
<CAPTION>
AS OF JANUARY 31, AS OF
-------------------------------------------- OCTOBER 31,
1992 1993 1994 1995 1996 1996
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital......... $190,554 $165,261 $177,241 $218,095 $203,539 $161,274
Total assets............ 328,026 358,283 404,874 482,076 517,929 477,163
Put warrants............ -- -- -- -- -- 64,500
Total stockholders'
equity................. 267,305 267,833 296,879 323,484 342,328 243,860
</TABLE>
16
<PAGE>
SOFTDESK SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF INCOME
DATA:
Revenues................ $15,307 $19,431 $26,115 $30,582 $41,737 $ 32,412 $ 25,548
Operating income
(loss)................. 638 1,764 1,960 3,449 5,568 3,690 (1,273)
Net income (loss)....... 325 1,057 1,342 2,369 3,579 2,374 (1,129)
Pro forma net income
(loss)................. 361 1,083 1,295 2,590 3,579 2,374 (1,129)
Pro forma net income
(loss) per share....... $ 0.07 $ 0.31 $ 0.34 $ 0.46 $ 0.58 $ 0.38 $ (0.19)
Shares used in computing
pro forma net income
(loss) per share....... 2,950 2,969 3,859 5,619 6,161 6,179 6,004
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 1,086 $ 1,622 $ 9,199 $15,698 $16,308
Total assets............ 8,168 10,250 29,439 35,117 31,346
Redeemable convertible
preferred stock........ 2,024 2,186 -- -- --
Long-term obligations... -- -- -- 1,193 --
Total stockholders'
equity................. 337 1,238 22,008 24,263 23,970
</TABLE>
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
JANUARY 31, OCTOBER 31,
1996 1996
----------- -----------
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME DATA:
Net revenues........................................... $575,904 $407,221
Income from operations................................. 128,750 47,093
Net income............................................. 86,855 31,065
Net income per share................................... $ 1.65 $ 0.62
Shares used in per share computation................... 52,681 50,288
</TABLE>
<TABLE>
<CAPTION>
AS OF
OCTOBER 31,
1996
-----------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Working capital..................................................... $171,582
Total assets........................................................ 533,984
Put warrants........................................................ 64,500
Stockholders' equity................................................ 281,980
</TABLE>
See "Unaudited Pro Forma Condensed Combining Financial Information" and
accompanying notes thereto.
17
<PAGE>
RISK FACTORS
The operating results of Autodesk are, and the future operating results of
the Combined Company after the Merger will be, subject to a number of risks,
some of which are set forth in "Autodesk Management's Discussion and Analysis
of Financial Condition and Results of Operations--Certain Risk Factors Which
May Impact Future Operating Results," which should be evaluated carefully by
the Softdesk stockholders. In addition, the following factors should be
considered carefully in evaluating the proposals to be voted on at the
Softdesk Meeting and the acquisition of the securities offered hereby.
UNCERTAINTIES RELATING TO THE INTEGRATION OF OPERATIONS
Softdesk and Autodesk have entered into the Amended Agreement with the
belief that the Merger will result in beneficial synergies for the Combined
Company. The proposed Merger entails a number of risks, including successfully
managing the integration of the Softdesk operations, retention of key
employees at Softdesk and managing a larger and more geographically disparate
business. There can be no assurance that Autodesk will successfully manage
this business or obtain anticipated synergies. In addition, the Merger could
require significant additional management attention. If Autodesk is
unsuccessful in integrating and managing the Softdesk business, the Combined
Company's business, consolidated results of operations and financial condition
could be materially adversely affected.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although Autodesk and Softdesk believe that beneficial synergies will result
from the Merger, there can be no assurance that combining the two companies'
businesses, even if achieved in an efficient, effective and timely manner,
will result in combined results of operations and financial condition superior
to what would have been achieved by each company independently, or as to the
period of time required to achieve such result. The issuance of Autodesk
Common Stock in connection with the Merger will have the effect of reducing
Autodesk's net income per share and could reduce the market price of Autodesk
Common Stock unless and until revenue growth or cost savings and other
business synergies sufficient to offset the effect of such issuance can be
achieved. There can be no assurance that stockholders of Softdesk would not
achieve greater returns on investment if Softdesk were to remain an
independent company.
COSTS OF INTEGRATION; TRANSACTION EXPENSES
Autodesk estimates that it will incur direct transaction costs associated
with the Merger in the range of approximately $2.5 million to $3.5 million.
Softdesk has incurred direct transaction costs associated with the Merger of
approximately $1.4 million which were charged to operations in the Softdesk
quarter ended December 31, 1996. In addition, the Combined Company expects to
incur additional significant charges to operations estimated to be in the
range of $50 million to $60 million with respect to in-process research and
development which will be taken in the quarter in which the Merger is
consummated. The Combined Company also expects to incur approximately $3
million for personnel redeployment and related costs. In addition, the
Combined Company expects to incur additional expenses of approximately $3
million to $4 million with regard to integrating the two companies. There can
be no assurance that the Combined Company will not incur additional material
charges in subsequent quarters to reflect additional costs associated with the
Merger.
IMPACT OF COMBINATION ON RELATIONSHIPS WITH THIRD PARTY DEVELOPERS AND END-
USERS
Autodesk's business strategy has historically depended in large part on its
relationships with third party developers, who provide products that expand
the functionality of Autodesk's design software. In the AEC market in
particular, a number of developer partners, including Softdesk, have
contributed to demand for AutoCAD by providing application products with high
levels of functionality. Because Softdesk has products which compete with the
product offerings of some of these developers, the proposed Merger may
negatively impact certain of these relationships. However, Autodesk's
commitment to maintain an open architecture for AutoCAD and for certain of
Softdesk's products should permit third party developers to continue to
develop and
18
<PAGE>
market specific applications. While Autodesk and Softdesk believe that the
Merger will ultimately improve the quality of the platform on which developer
products are based and permit achievement of higher functionality and greater
customer satisfaction, thereby benefiting both the Combined Company and the
developer base, there can be no assurance that certain developers will not
elect to support other products or otherwise experience disruption in product
development and delivery cycles. Such disruption in particular markets could
negatively impact these third party developers and end-users during the
transitional period, which could have a material adverse effect on the
Combined Company's business, consolidated results of operations and financial
condition.
RISKS ASSOCIATED WITH AEC MARKET
Softdesk and Autodesk believe that each has been able to achieve current
levels of market acceptance for its products through a combination of product
features and performance, price, innovation and the reputations of both
Softdesk and Autodesk as proven and reliable suppliers in the AEC market. As
competition in the AEC market intensifies, the Combined Company may encounter
significant challenges in attempting to retain and develop market acceptance
for its products which could have a material adverse effect on the Combined
Company's business, consolidated results of operations and financial
condition. Factors which could affect the AEC market include downward pricing
pressure, consolidation resulting in strengthened competitors, product
combinations which offer more comprehensive solutions to customers, varying
economic conditions in specific geographical regions, technological innovation
by competitors, entry of new competitors into the AEC market and changes in
the design and construction process resulting in changes in the demand for the
type of software produced by the Combined Company. There can be no assurance
that following the Merger the Combined Company will be able to respond
promptly or effectively to these or other changes and challenges in the AEC
market.
FLUCTUATIONS IN OPERATING RESULTS
Each of Autodesk's and Softdesk's quarterly operating results have in the
past, and the Combined Company's results may in the future, fluctuate
significantly depending on factors such as seasonal slowing in certain
geographic regions, the size and timing of orders, the level of product and
price competition, and general economic factors. Autodesk and Softdesk have
routinely received, and the Combined Company may routinely receive, a
substantial portion of its orders in the last month of a fiscal quarter, with
these orders frequently concentrated in the last weeks or days of a fiscal
quarter. As a result, the Combined Company may not learn of revenue shortfalls
until late in a fiscal quarter. Additionally, the Combined Company's operating
expenses are expected to be based in part on its expectations for future
revenues and will be relatively fixed in the short term. Accordingly, any
revenue shortfall could have an immediate and significant adverse effect on
the Combined Company's business, consolidated results of operations and
financial condition. Similarly, shortfalls in revenues or earnings from levels
expected by securities analysts could have an immediate and significant
adverse effect on the trading price of Autodesk Common Stock.
PRODUCT DEVELOPMENT AND INTRODUCTION
The software industry is characterized by rapid technological change as well
as changes in customer requirements and preferences. Future results of the
Combined Company will depend largely upon its ability to offer products that
compete favorably with respect to price, reliability, performance, range of
useful features, continuing product enhancements, reputation, and training.
Delays or difficulties with new product introductions or product enhancements
planned for future periods could have a material adverse effect on the
Combined Company's business and consolidated results of operations. Further,
increased competition in the market for design, multimedia, data management,
or data publishing software products could also have a negative impact on the
Combined Company's business, consolidated results of operations and financial
condition.
The software products historically offered by Softdesk and Autodesk are
internally complex and may contain errors or defects ("bugs"), especially when
first introduced. Despite extensive product testing and quality control, there
can be no assurance that defects and errors will not be found in the Combined
Company's
19
<PAGE>
products. Such defects or errors could result in damage to the Combined
Company's reputation, loss of revenues, or lack of market acceptance of its
products, any of which could have a material and adverse effect on the
Combined Company's business, consolidated results of operations and financial
condition.
Certain of the historical product development activities of Softdesk and
Autodesk have been performed by independent firms and contractors, while other
technologies are licensed from third parties. Softdesk and Autodesk generally
either own or have exclusive licenses for use of the software developed by
third parties. Because talented development personnel are in high demand,
there can be no assurance that independent developers, including those who
have developed products for Softdesk and Autodesk in the past, will be able to
provide development support to the Combined Company in the future. Similarly,
there can be no assurance that the Combined Company will be able to obtain and
renew license agreements on favorable terms, if at all, which could have a
material adverse effect on the Combined Company's business, consolidated
results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Combined Company's future success depends in significant part upon the
continued service of its key technical, sales and senior management personnel.
The loss of the services of one or more of these key employees could have a
material adverse effect on its business and operating results. Additions of
new and departures of existing personnel, particularly in key positions, can
be disruptive and can result in departures of existing personnel. In addition,
as a result of the Merger, and pursuant to the terms of Softdesk Stock Option
Plans, immediately prior to the Effective Time, the exercisability of
outstanding options under such plans will accelerate in full. Such
acceleration may reduce the incentive for certain Softdesk employees to remain
with the Combined Company.
COMPETITION
The market for design and visualization software is highly competitive and
subject to rapid technological change. A number of Softdesk's current
competitors have larger installed customer bases than Softdesk. In addition,
some of the Combined Company's competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements.
Furthermore, because there are relatively low barriers to entry in the
software industry, Autodesk and Softdesk expect that additional competition
may arise from other established and emerging companies, which may choose to
enter the market by developing products that compete with those offered by the
Combined Company or by acquiring companies, businesses, products or product
lines that compete with the Combined Company. It is also possible that
alliances among competitors may emerge and rapidly acquire significant market
share. Autodesk and Softdesk also believe that competition will increase as a
result of software industry consolidation. There can be no assurance that the
Combined Company's current or potential competitors will not develop or
acquire products comparable or superior to those developed by the Combined
Company, combine or merge to form significant competitors, or adapt more
quickly than the Combined Company to new technologies, evolving industry
trends and changing customer requirements. Increased competition could result
in price reductions, reduced margins or loss of market share, any of which
could materially adversely affect the Combined Company's business,
consolidated results of operations and financial condition.
In addition, competitors and potential competitors may resort to litigation
as a means of competition. Such litigation may be costly and expose the
Combined Company to new claims that it may not have anticipated. Any
litigation involving the Combined Company, whether as plaintiff or defendant,
regardless of the outcome, may result in substantial costs and expenses to the
Combined Company and significant diversion of effort by the Combined Company's
technical and management personnel. In addition, there can be no assurance
that litigation, either instituted by or against the Combined Company, will
not be necessary to resolve issues that may arise from time to time in the
future with other competitors. Any such litigation could have a material
adverse effect upon the Combined Company's business, consolidated results of
operations and financial condition.
20
<PAGE>
INTERNATIONAL REVENUES
International revenues represented approximately 58%, 61%, 64% and 67% of
Autodesk's consolidated revenues for the fiscal years ended January 31, 1994,
1995, 1996 and the nine months ended October 31, 1996, respectively, and
represented approximately 42%, 32%, 31% and 32% of Softdesk's net revenues for
the fiscal years ending December 31, 1994, 1995 and 1996 and the nine months
ended December 31, 1996, respectively. Each of Autodesk and Softdesk
anticipates that international revenues will continue to account for a
significant portion of the Combined Company's revenues. Risks inherent in the
Combined Company's international sales include the following: unexpected
changes in regulatory practices and tariffs; difficulties in staffing and
managing foreign operations; difficulties in translating and otherwise
localizing products for foreign markets; maintaining and building distribution
channels; longer collection cycles; potential changes in tax laws; greater
difficulty in protecting intellectual property; and the impact of fluctuating
exchange rates between the US dollar and foreign currencies (in particular,
the Japanese yen and the German mark) in markets where each of Autodesk and
Softdesk does business. The Combined Company's international results may also
be impacted by general economic and political conditions in these foreign
markets. There can be no assurance that the Combined Company will be able to
maintain or increase international market demand for its products or that
other factors will not have a material adverse effect on the Combined
Company's international sales and consequently on the Combined Company's
business, consolidated results of operations and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS FOR
INFRINGEMENT
Autodesk and Softdesk rely on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect their respective proprietary rights. Despite such
efforts to protect their proprietary rights, unauthorized parties may attempt
to copy aspects of Autodesk's or Softdesk's products or to obtain and use
information that Autodesk or Softdesk regards as proprietary. Policing
unauthorized use of Autodesk's or Softdesk's products is difficult, time-
consuming and costly. Although neither Autodesk nor Softdesk is able to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. There can be no assurance
that the Combined Company's means of protecting its proprietary rights will be
adequate or that its competitors will not independently develop similar
technology. Autodesk and Softdesk expect that software product developers will
be increasingly subject to infringement claims as the number of products and
competitors in their industry segments grows and the functionality of products
in different industry segments overlaps. There can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting
from infringement claims) will not be asserted against the Combined Company or
that any such assertions will not have a material adverse effect on its
business. Any such claims, whether with or without merit, could be time-
consuming, result in costly litigation and diversion of resources, cause
product shipment delays or require the Combined Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required,
may not be available on acceptable terms, if at all, which could have a
material adverse effect on the Combined Company's business, consolidated
results of operations and financial condition.
Each of Autodesk and Softdesk also relies on certain software that it
licenses from third parties, including software that is integrated with
internally developed software and used in its products to perform key
functions. There can be no assurance that these third-party software licenses
will continue to be available on commercially reasonable terms, or that the
software will be appropriately supported, maintained or enhanced by the
licensors. The loss of licenses to, or inability to support, maintain and
enhance, any of such software, could result in increased costs, or in delays
or reductions in product shipments until equivalent software could be
developed, identified, licensed and integrated, which would have a material
adverse effect on the Combined Company's business, consolidated results of
operations and financial condition.
21
<PAGE>
VOLATILITY OF STOCK PRICES
The market for Autodesk's and Softdesk's Common Stock is highly volatile.
The trading price of Autodesk Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements following the Merger of technological innovations or new
products by Autodesk or its competitors, changes in prices of Autodesk's or
its competitors' products and services, changes in product mix, changes in
revenue and revenue growth rates for Autodesk as a whole or for geographic
areas or business units, and other events or factors. Statements or changes in
opinions, ratings, or earnings estimates made by brokerage firms or industry
analysts relating to the markets in which Autodesk does business or relating
to Autodesk or Softdesk specifically have resulted, and could in the future
result, in an immediate and adverse effect on the market price of Autodesk's
Common Stock. Statements by financial or industry analysts regarding the
impact on Autodesk's net income per share resulting from the Merger and the
extent to which such analysts expect potential business synergies to impact
reported results in future periods can be expected to contribute to volatility
in the market price of Autodesk's Common Stock. In addition, the stock market
has from time to time experienced extreme price and volume fluctuations which
have particularly affected the market price for the securities of many high-
technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Autodesk Common Stock.
EFFECT ON EXCHANGE RATIO OF PRICE OF AUTODESK COMMON STOCK
Under the terms of the Amended Agreement, each share of Softdesk Common
Stock issued and outstanding at the Effective Time will be converted into the
right to receive that fraction of a share of Autodesk Common Stock obtained by
dividing $15.00 by the average of the closing prices of Autodesk Common Stock
as quoted on the Nasdaq for the five trading days immediately preceding the
Closing Date, subject to certain limitations if the price of Autodesk Common
Stock declines below $16.00 per share. The Exchange Ratio is thus adjusted
depending on fluctuations in the market price of Autodesk Common Stock. As
long as the price of Autodesk Common Stock is at least $16.00 per share over
the five consecutive trading days immediately preceding the Closing Date,
Softdesk stockholders will be issued Autodesk Common Stock having an aggregate
value of $15.00 per share of Softdesk Common Stock. If, however, the price of
Autodesk Common Stock is less than $16.00 per share over such five days and
Softdesk elects to proceed with the Merger at such lower price, Softdesk
stockholders will receive shares of Autodesk Common Stock having a total value
of less than $15.00 per share of Softdesk Common Stock. In addition, there can
be no assurance that the market price of the Autodesk Common Stock on and
after the Closing Date will not be lower than the value of Autodesk Common
Stock on the Closing Date.
22
<PAGE>
SOFTDESK, INC. SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Softdesk
Common Stock in connection with the solicitation of proxies by the Softdesk
Board for use at the Softdesk Meeting to be held on March 31, 1997, at the
office of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of Softdesk on or about March 6, 1997.
MATTERS TO BE CONSIDERED
At the Softdesk Meeting, holders of Softdesk Common Stock will be asked to
consider and vote upon (i) a proposal to approve and adopt the Amended
Agreement and (ii) such other matters as may properly be brought before the
Softdesk Meeting or any adjournment or postponement thereof.
RECOMMENDATION OF SOFTDESK BOARD OF DIRECTORS
The Softdesk Board has unanimously approved the Amended Agreement and
recommends a vote FOR the approval and adoption of the Amended Agreement.
RECORD DATE AND VOTING
Softdesk has fixed January 31, 1997 as the record date for the determination
of the Softdesk stockholders entitled to notice of and to vote at the Softdesk
Meeting. Accordingly, only holders of record of Softdesk Common Stock on the
record date will be entitled to notice of and to vote at the Softdesk Meeting.
As of January 31, 1997, there were outstanding and entitled to vote 6,023,239
shares of Softdesk Common Stock (constituting all of the voting stock of
Softdesk), which shares were held by approximately 296 holders of record. Each
holder of record of shares of Softdesk Common Stock on the record date is
entitled to one vote per share, which may be cast either in person or by
properly executed proxy, at the Softdesk Meeting. The presence, in person or
by properly executed proxy, of the holders of a majority of the outstanding
shares of Softdesk Common Stock entitled to vote at the Softdesk Meeting is
necessary to constitute a quorum at the Softdesk Meeting.
The approval and adoption of the Amended Agreement will require the
affirmative vote of the holders of a majority of the shares of Softdesk Common
Stock outstanding on the record date.
Shares of Softdesk Common Stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
Softdesk Meeting. Shares which abstain from voting as to a particular matter
will be treated as shares that are present and entitled to vote at the
Softdesk Meeting for purposes of determining whether a quorum exists, but will
not be counted as votes cast on such matter. If a broker or nominee holding
stock in "street name" indicates on a proxy that it does not have
discretionary authority to vote as to a particular matter ("broker non-
votes"), those shares will be treated as present and entitled to vote at the
Softdesk Meeting for purposes of determining whether a quorum exists. In
determining whether the Amended Agreement has received the requisite number of
affirmative votes, abstentions and broker non-votes will have the same effect
as a vote against the Amended Agreement.
As of December 31, 1996, directors and executive officers of Softdesk and
their affiliates may be deemed to be beneficial owners of approximately 20% of
the outstanding shares of Softdesk Common Stock. Each of the directors and
executive officers of Softdesk has advised Softdesk that he or she intends to
vote or direct the vote of all shares of Softdesk Common Stock over which he
or she has voting control for approval and adoption of the Amended Agreement.
In addition, certain directors and executive officers of Softdesk, who
together beneficially own approximately 19% of the outstanding Softdesk Common
Stock, have entered into agreements
23
<PAGE>
with Autodesk pursuant to which they agreed to vote in favor of the approval
and adoption of the Amended Agreement and granted to Autodesk a proxy to vote
their shares of Softdesk Common Stock in favor of the approval and adoption of
the Amended Agreement. See "Softdesk--Softdesk Stock Information," "Terms of
the Merger--Voting Agreements."
PROXIES
This Proxy Statement/Prospectus is being furnished to Softdesk stockholders
in connection with the solicitation of proxies by and on behalf of the Board
of Directors of Softdesk for use at the Softdesk Meeting, and is accompanied
by a form of proxy.
All shares of Softdesk Common Stock which are entitled to vote and are
represented at the Softdesk Meeting by properly executed proxies received
prior to or at such Meeting, and not revoked, will be voted at such Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will
be voted for approval and adoption of the Amended Agreement.
If any other matters are properly presented at the Softdesk Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the enclosed forms of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Softdesk, at or before the taking of the vote at the
Softdesk Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Softdesk before the taking of the vote at
the Softdesk Meeting or (iii) attending the Softdesk Meeting and voting in
person (although attendance at the Softdesk Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to Softdesk, Inc., 7 Liberty Hill Road,
Henniker, New Hampshire 03242, Attention: Secretary, or hand delivered to the
Secretary of Softdesk at or before the taking of the vote at the Softdesk
Meeting.
All expenses of Softdesk's solicitation of proxies, including the cost of
preparing and mailing this Proxy Statement/Prospectus to Softdesk
stockholders, will be borne by Softdesk. In addition to solicitation by use of
the mails, proxies may be solicited from Softdesk stockholders by directors,
officers and employees of Softdesk in person or by telephone, telegram or
other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-
pocket expenses in connection with such solicitation. Softdesk has retained
Corporate Investor Communications, Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the Softdesk
Meeting at a cost of approximately $4,500 plus reimbursement of reasonable
out-of-pocket expenses. Arrangements will also be made with brokerage houses,
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such brokerage
houses, custodians, nominees and fiduciaries, and Softdesk will reimburse such
brokerage houses, custodians, nominees and fiduciaries for their reasonable
expenses incurred in connection therewith.
NO APPRAISAL RIGHTS
Section 262 of the Delaware General Corporation Law provides appraisal
rights (sometimes referred to as "dissenters rights") to stockholders of
Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as Softdesk,
(a) whose securities are listed on a national securities exchange or are
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") and
(b) whose stockholders are not required to accept in exchange for their stock
anything other than stock of another corporation listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation
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system by the NASD and cash in lieu of fractional shares. Because Softdesk's
Common Stock is traded on such a system, the Nasdaq, and because the Softdesk
stockholders are being offered stock of Autodesk, which is also traded on the
Nasdaq, and cash in lieu of fractional shares, stockholders of Softdesk will
not have appraisal rights with respect to the Merger. The Delaware General
Corporation Law does not provide appraisal rights to stockholders of a
corporation, such as Autodesk, which issues shares in connection with a merger
but is not itself a constituent corporation in the merger.
SOFTDESK STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
Softdesk has since its inception been a major developer of architectural,
engineering and construction applications software operating primarily with
Autodesk's AutoCAD software. Softdesk has participated in Autodesk's
Registered Developer Program for several years and licenses the AutoCAD OEM
(Original Equipment Manufacturer) software for incorporation into certain of
its products. Autodesk has been familiar with Softdesk's products and aware of
their functions and capabilities since Softdesk was founded, and through its
Registered Developer Program has provided Softdesk with assistance in
developing products which operate optimally with AutoCAD.
Over the past several years, representatives of Softdesk and Autodesk have
from time to time had conversations concerning the possibility of an
acquisition of Softdesk by Autodesk. All such conversations were exploratory
in nature, and did not progress beyond the preliminary stage. In addition,
Softdesk has from time to time engaged in discussions with other parties
concerning a possible business combination with Softdesk.
On October 10, 1996, Eric Herr, Autodesk's President and Chief Operating
Officer and acting Vice President-Architecture, Engineering & Construction
Market Group, during a trip to New Hampshire to meet with one of Autodesk's
dealers, met with David C. Arnold, President and Chief Executive Officer of
Softdesk, and viewed a presentation by Mr. Arnold's staff of Softdesk's new
generation of software based on Autodesk's AutoCAD Runtime Extension ("ARX")
programming environment. Mr. Herr recognized in Softdesk's software a global
potential for integrated AEC software solutions which had not existed with
previous versions of the companies' AEC products. During that meeting, Messrs.
Herr and Arnold agreed to consider the advantages and risks of a merger of
their companies and to discuss such matters further following a November 7,
1996 nationwide closed-circuit television marketing program to be presented by
Autodesk which included a segment on Softdesk's implementation of Autodesk's
ARX technology in its products.
On November 1, 1996, Softdesk received a proposal from a third party (the
"Third Party") to acquire Softdesk for $8.00 per share. Softdesk indicated to
the Third Party that it would consider and respond to this proposal.
On November 7, 1996, following the marketing program, Mr. Herr and Mr.
Arnold discussed possible strategic advantages which might be realized through
a business combination and agreed to engage in further discussions, subject to
the agreement of Carol Bartz, Chief Executive Officer of Autodesk. The
following morning, in a conversation with Mr. Herr, Ms. Bartz agreed that
serious discussions concerning a possible combination were appropriate.
On November 14, 1996, Mr. Arnold met with Mr. Herr and several members of
Autodesk's Executive Staff in New Hampshire for in-depth discussions of the
potential strategic benefits and risks of a business combination between
Autodesk and Softdesk. Prior to commencing these discussions, the companies
signed a non-disclosure agreement. No discussions concerning an acquisition
price or other substantive terms were held at this meeting.
On the morning of November 19, 1996, during a regularly-scheduled meeting of
Autodesk's Executive Staff, the risks and benefits of a business combination
with Softdesk were discussed at length, and a consensus was reached to request
Autodesk's Board of Directors to authorize Autodesk's management to negotiate
terms and conditions of a merger with representatives of Softdesk. In a
telephone meeting of the Autodesk Board held that day, there was a preliminary
discussion concerning the factors that supported a possible strategic business
combination with Softdesk. The Autodesk Board also discussed possible terms of
an acquisition and various strategic and operational matters relating to the
business combination. The Autodesk Board authorized management to explore the
possibility of combining with Softdesk and to continue discussions with
representatives of Softdesk. At this time, Autodesk commenced discussions with
its outside legal and financial advisors.
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On November 20, 1996, representatives of Autodesk and Softdesk, and their
respective financial and legal advisors, met to discuss the structure and
terms of a possible transaction. Autodesk proposed a merger in which Softdesk
Stockholders would receive Autodesk Common Stock. Although no agreement on the
value of the Autodesk Common Stock to be issued in the proposed merger was
reached during this meeting, the values discussed were in excess of the $8.00
per share proposal from the Third Party. Between November 20 and November 27,
1996, discussions between representatives of Autodesk and Softdesk continued
regarding the proposed merger.
On November 22, 1996, Softdesk contacted the Third Party, indicated that
Softdesk was considering an acquisition proposal from another party, and
suggested that the Third Party notify Softdesk within the next several days if
it wished to revise its prior acquisition proposal. On November 26, 1996, the
Third Party contacted Softdesk and increased its acquisition proposal to
approximately $9.00 per share in cash.
On November 27, 1996, the Softdesk Board held a special meeting. Softdesk
management updated the directors on the recent discussions with Autodesk
concerning the proposed merger. Management informed the directors that,
although an agreement had not yet been reached on price, the value being
discussed for the Autodesk Common Stock to be issued in the proposed merger
was approximately $11.50 per share of Softdesk Common Stock. Softdesk
management also reviewed with the directors the acquisition proposal from the
Third Party. The directors discussed at length the various advantages and
disadvantages of the proposed merger with Autodesk and the proposal from the
Third Party. At the conclusion of this meeting, it was the consensus of the
Softdesk Board that Softdesk's management and its financial and legal advisors
should pursue discussions with Autodesk. See "Approval of the Merger and
Related Transactions--Softdesk's Reasons for the Merger."
Numerous telephone discussions ensued between representatives of Autodesk
and Softdesk during the period from November 27, 1996 through December 1,
1996, concerning the proposed merger, including the exchange ratio of Autodesk
Common Stock to Softdesk Common Stock. On December 1, 1996, Autodesk and
Softdesk reached preliminary agreement on a ratio at which Autodesk Common
Stock would be exchanged for Softdesk Common Stock, contingent on mutually
satisfactory resolution of other issues. Autodesk and Softdesk agreed that
meetings would be held the following week to resolve those issues and that
simultaneously with those discussions representatives of the two companies and
their advisors would meet to conduct due diligence.
Between December 2, 1996 and December 10, 1996, representatives of Autodesk
and Softdesk and their respective technical, legal and financial advisors met
and conversed by telephone to conduct the due diligence investigations of each
other's company and to explore further potential synergies between the two
companies and the operational issues associated with a merger. In addition,
Autodesk's and Softdesk's legal counsel and executive officers had further
discussions regarding the terms of the Agreement, the termination rights
relating to the Agreement, the conditions upon which any breakup fees would be
payable and the amount of such fees, and the representations, warranties and
covenants to be made by the parties. Autodesk's and Softdesk's outside
advisors had further discussions regarding issues surrounding the exchange
ratio and other terms and conditions of the proposed merger.
Between November 22, 1996 and December 5, 1996, Softdesk and the Third Party
had various discussions relating to a potential business combination. On
December 5, 1996, the Third Party presented Softdesk with a Term Sheet for a
proposed acquisition of Softdesk at $11.00 per share in cash.
Late in the afternoon of December 9, 1996, the Softdesk Board met to
consider and vote upon the proposed merger with Autodesk and related matters.
At this meeting, Softdesk management summarized the discussions with Autodesk
over the past two weeks, Softdesk's financial and legal advisors made
presentations concerning the proposed merger, the Agreement and the Option
Agreement, and WA&H delivered its oral opinion that, as of such date, the
consideration to be paid to the holders of Softdesk Common Stock in the
proposed merger was fair from a financial point of view. Softdesk management
also reviewed with the directors the terms of the most recent acquisition
proposal from the Third Party, including the uncertainties associated
therewith. Following such discussions and presentations, the Softdesk Board
unanimously approved the Agreement with Autodesk and the
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related Option Agreement, which provided Autodesk with the right to purchase
up to 1,195,095 shares of Softdesk Common Stock under certain circumstances,
and unanimously recommended that the holders of Softdesk Common Stock vote in
favor of the approval and adoption of the Agreement. See "Approval of the
Merger and Related Transactions--Softdesk's Reasons for the Merger" and "--
Opinion of Softdesk's Financial Advisor."
On December 10, 1996, the Autodesk Board convened by telephone to consider
and vote upon the proposed merger and related transactions. At this meeting,
management of Autodesk reported that agreement had been reached on the
exchange ratio and responded to questions regarding various aspects of the
proposed merger, and the Autodesk Board received reports from its outside
advisors. After such review and discussions the Autodesk Board unanimously
approved the Agreement. See "Approval of the Merger and Related Transactions--
Autodesk's Reasons for the Merger."
Following such meeting, Autodesk and Softdesk executed the Agreement and
issued a joint press release announcing the Merger. Under the terms of the
Agreement as originally executed, each share of Softdesk Common Stock would be
converted into 0.44 shares of Autodesk Common Stock (valued, based upon the
closing price of Autodesk Common Stock on December 10, 1996, at $11.72 per
share of Softdesk Common Stock). The exchange ratio of 0.44 was subject to
adjustment under certain circumstances, provided that, in general, the value
of the Autodesk Common Stock to be issued in the Merger could not be less than
$11.00 per share of Softdesk Common Stock nor greater than $12.50 per share of
Softdesk Common Stock.
On December 12, 1996, Softdesk received an unsolicited written proposal from
the Third Party to acquire Softdesk at a price of $14.00 per share in cash,
common stock or a combination thereof. On December 13, 1996, the Softdesk
Board met to discuss this acquisition proposal. After receiving advice from
Softdesk's financial advisors and legal counsel, the Softdesk Board determined
that the proposal constituted an "East Superior Proposal" as defined in the
Agreement and that it was both permissible, under the terms of the Agreement,
and advisable for Softdesk management to pursue discussions with the Third
Party concerning such acquisition proposal. Softdesk also notified Autodesk of
the receipt of such acquisition proposal and its principal terms, as required
by the Agreement, as well as its intention to pursue discussions with the
Third Party.
Between December 14, 1996 and December 19, 1996, Softdesk and its advisors
engaged in a series of meetings and discussions with the Third Party and its
advisors for the purpose of discussing the terms upon which the Third Party
was prepared to acquire Softdesk, negotiating a definitive acquisition
agreement and allowing the Third Party to conduct a due diligence
investigation of Softdesk's business. During this time, Softdesk and its
representatives also held various discussions with Autodesk representatives.
On December 16, 1996 Softdesk notified Autodesk that, in response to the Third
Party's proposal, it had had discussions with the Third Party and provided
Autodesk with a copy of a term sheet setting forth the principal terms of the
proposal, as required by the Agreement. Softdesk further notified Autodesk
that Softdesk had not yet determined whether the Third Party was willing to
enter into an agreement consistent with such proposal and otherwise acceptable
to Softdesk, and further that the Softdesk Board had not decided whether it
would elect (i) to enter into such an agreement with the Third Party or (ii)
reject such proposal. Softdesk informed Autodesk that the Softdesk Board
intended to meet shortly thereafter to make a decision.
On December 17 and 18, 1996, at its regularly scheduled meeting, the
Autodesk Board considered the Third Party's acquisition proposal and its
implications for the proposed Autodesk-Softdesk combination and for Autodesk's
business strategy. After receiving and considering the report and
recommendations of management and the reports of its outside advisors, the
Autodesk Board authorized management to offer an amended proposal to Softdesk,
which, among other things, increased the purchase price to $15.00 per share,
based on the average trading price of Autodesk Common Stock for the five-day
period prior to the closing of the Merger, but required as a condition to that
increased offer that Softdesk agree to certain increases in the potential
compensation to Autodesk in the event the Agreement should be later terminated
by Softdesk.
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On the morning of December 19, 1996, Ms. Bartz, Autodesk's Chief Executive
Officer, traveled to Henniker, New Hampshire, to meet with Softdesk
management. At this meeting, Ms. Bartz proposed an amendment to the Agreement
which would increase the amount of Autodesk Common Stock issued in exchange
for each share of Softdesk Common Stock to an amount determined by dividing
$15.00 by the average closing price per share of the Autodesk Common Stock on
the Nasdaq over the five trading days immediately preceding the closing of the
Merger. By its terms, the Autodesk offer would terminate upon its disclosure
to any third party. The proposed amendment also contemplated certain other
revisions to the terms of the Agreement and Option Agreement.
Softdesk called a Board of Directors' meeting for 4:00 p.m. on December 19,
1996 to consider both the proposed amendment to the Agreement and the Third
Party's acquisition proposal. Softdesk also contacted the Third Party on the
morning of December 19, 1996 and, without disclosing any terms of the proposed
amendment to the Agreement, indicated that a meeting of the Softdesk Board was
being held at 4:00 p.m. that afternoon to consider both a proposed amendment
to the Agreement with Autodesk and the acquisition proposal from the Third
Party. Softdesk requested that the Third Party submit to Softdesk by 4:00 p.m.
both its best offer for the acquisition of Softdesk and an executed
acquisition agreement setting forth the terms that had been negotiated between
Softdesk and the Third Party over the past several days. During the afternoon
of December 19, 1996, the Third Party informed Softdesk that it was increasing
the terms of its acquisition proposal to $15.00 per share in cash and
delivered an executed acquisition agreement that was on substantially the same
terms as the Agreement originally executed between Softdesk and Autodesk,
except that (i) it provided for cash consideration of $15.00 per share, (ii)
it contemplated a tender offer followed by a merger, and (iii) it did not
require Softdesk to grant to the Third Party a stock option similar to the one
granted to Autodesk (such acquisition proposal is referred to herein as the
"Third Party Proposal").
At 4:00 p.m. on December 19, 1996, the Softdesk Board met to consider the
amendment to the Agreement proposed by Autodesk and the Third Party Proposal.
After discussing the terms of both proposals, considering the terms of the
Agreement with Autodesk relating to Softdesk's right to terminate such
Agreement for the purpose of entering into an acquisition agreement with
another party, and the potential synergies from the Autodesk combination,
among other factors, and after receiving input from its financial advisors and
legal counsel, the Softdesk Board unanimously approved the proposed amendment
to the Agreement and unanimously recommended that the holders of Softdesk
Common Stock vote in favor of the approval and adoption of the Agreement as so
amended.
On the evening of December 19, 1996, Autodesk and Softdesk executed the
Amendment and issued a joint press release announcing the amendment.
On December 31, 1996, Softdesk received a letter from the Third Party
expressing the Third Party's disagreement with the decision of the Softdesk
Board and its intention to continue to monitor the situation.
JOINT REASONS FOR THE MERGER
The Boards of Directors of Softdesk and Autodesk have determined that the
Merger would have the potential to enable the Combined Company to realize
long-term improved operating results and achieve a stronger competitive
position. Autodesk and Softdesk believe that CAD users in the field of
architecture, engineering and construction are requiring greater functionality
and seamless integration of their software solutions and that, in order to
succeed in this market, participants in this market will need to expand their
product offerings to address a wider range of customer requirements. Autodesk
and Softdesk also believe that the Merger will provide greater opportunities
for the Combined Company to develop new generations of complementary AEC
products based upon Autodesk's ARX object-oriented programming environment. In
this way, the Merger could provide the Combined Company with a range of
products and services better able to provide users of their software with
increases in productivity.
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Each of the Boards of Directors of Softdesk and Autodesk has identified
additional potential mutual benefits of the Merger that they believe will
contribute to the success of the Combined Company. These potential benefits
include principally the following:
. The combined experience, financial resources, size and breadth of AEC
product offerings of both Autodesk and Softdesk should enable the
Combined Company to respond more quickly and effectively to
technological change, increased competition and market demands in an
industry experiencing rapid innovation and change.
. The long history of technical cooperation between the two companies and
interoperability of the two companies' products should enable the
companies to integrate current product offerings and introduce new
product offerings more quickly, easily and effectively.
. The significant overlap in sales and marketing activities and strategies
should result in additional resources available to expand the Combined
Company's competitive opportunities.
. The combination of Softdesk's AEC applications software and specialized
software development activities with Autodesk's design and drafting
software and other software offerings, global translation, localization,
production, sales and marketing infrastructure should allow the Combined
Company to offer a more comprehensive and integrated set of AEC software
tools to its customers and to achieve significant cost savings.
. The creation of a larger customer base, a higher market profile and
greater technical and financial strength may present greater
opportunities for marketing the AEC products of the Combined Company.
. The Merger should provide an opportunity for expanded distribution of
Softdesk's products through Autodesk's extensive value-added
distribution network, enhancing the sales prospects for both Autodesk's
and Softdesk's products.
. Significant advantages should result from increasing the opportunity for
effectively utilizing the skills and resources of the companies'
respective management teams.
. The broadening and integration of the companies' product lines may
enhance the Combined Company's ability to increase market penetration by
expanding the functionality of design and visualization software in the
architectural, engineering and construction industries, thereby
providing users with improved productivity.
. Autodesk and Softdesk believe that the integration of Softdesk's
technology and development resources with those of Autodesk should
establish the Combined Company's leadership position in providing
object-oriented standards for the AEC market.
. The creation of a combined customer service and technical support system
may permit the Combined Company to provide more efficient support
coverage to its customers.
Autodesk and Softdesk have each identified additional reasons for the
Merger. Each Board of Directors, however, has recognized that it is possible
that none of the potential benefits of the Merger will be realized. See "Risk
Factors."
AUTODESK'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Autodesk
Board believes that the Merger will be beneficial to Autodesk for the
following reasons:
. Autodesk believes that its continued future success is dependent in part
on its ability to continue to expand its product offerings from general-
purpose design and drafting software into more specialized vertical
design applications. Together, Autodesk's and Softdesk's products would
be expected to provide a more comprehensive suite of software tools for
architectural, engineering and construction design and drafting
applications, with particular strengths in the design segment. Moreover,
Softdesk's offerings in civil engineering applications would offer
Autodesk an opportunity to expand into a segment where it has heretofore
not had a significant presence.
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. By virtue of the Merger, the functionality of certain Autodesk products,
including AutoCAD, should be enhanced and third party developers,
relieved of the obligation to duplicate this effort, will be able to
deliver enhanced vertical market applications and a broader selection of
vertical market applications.
. Given the complementary and integrated nature of the AEC products of
Autodesk and Softdesk, the Merger should enhance the opportunity for the
potential realization of Autodesk's strategic objective of achieving
greater scale and presence in the market for architecture, engineering
and construction applications.
. In the face of competitors which often provide more complete solutions
to architectural, engineering and construction customers, the
combination will permit Autodesk to address its customers' requirements
with more comprehensive solutions.
. Softdesk's experience with distribution of retail products should
provide Autodesk with a significant opportunity to leverage existing
channel relationships and benefit from Softdesk's expertise in retail
sales development.
SOFTDESK'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Softdesk
Board believes that the Merger will be beneficial to Softdesk for the
following additional reasons:
. Autodesk's greater financial, technical and marketing resources should
allow Softdesk to offer more products with greater functionality to a
broader base of end-users and to compete more effectively in the AEC
market.
. Softdesk believes that the Merger will provide it greater access to
Autodesk's larger base of installed users, many of whom use AutoCAD
without any AEC-specific applications, allowing for increased sales of
Softdesk products. In addition, following the Merger, Softdesk should be
in a position to leverage Autodesk's larger sales force and more
extensive distribution channel, as well as Autodesk's name recognition
in the AEC market.
. Historically, Autodesk has focused significant effort on and derived a
significant portion of its revenues from international markets. Softdesk
expects that this international presence, including Autodesk's technical
resources abroad, will enable Softdesk to address foreign markets more
successfully, through improved international sales efforts and
localization of products.
. Softdesk believes that the combination of its products with AutoCAD will
allow it to compete more effectively against companies that offer high-
end total drafting and design solutions. Softdesk also believes that the
Merger will afford it a unique opportunity to take greater advantage of
its long term relationship and experience with Autodesk and AutoCAD.
With respect to the markets for mid-range to low-end products, access to
AutoCAD-based technology will better enable Softdesk to provide quality
stand-alone products which are also compatible with higher-end
solutions.
In reaching its conclusion to approve the Agreement and the amendment to the
Agreement, the Softdesk Board consulted with management of Softdesk, as well
as with its financial and legal advisors, and considered the factors described
above (including those described under the caption "Joint Reasons for the
Merger") and a number of additional factors, including the following:
(i) The Softdesk Board considered how the Merger would aid in
implementing and accelerating Softdesk's long-term growth strategy.
(ii) The Softdesk Board analyzed the financial performance and condition,
businesses and prospects of Softdesk and Autodesk, including, but not
limited to, information with respect to their respective recent and
historic stock prices and earnings performance. The Softdesk Board
considered the detailed financial analyses presented by WA&H, as well as
the Softdesk Board's own knowledge of Softdesk, Autodesk and their
respective businesses.
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(iii) The Softdesk Board considered the oral opinion of WA&H,
subsequently confirmed in writing, that, as of December 19, 1996, the
consideration to be received by Softdesk stockholders in the Merger was
fair to the Softdesk stockholders from a financial point of view. See "--
Opinion of Softdesk's Financial Advisor."
(iv) The Softdesk Board considered the fact that the Merger would provide
holders of Softdesk Common Stock with shares of Autodesk Common Stock
having a value that represents a significant premium over the price at
which the Softdesk Common Stock was trading over the several months prior
to the execution of the Agreement, and the fact that the Merger would
provide the holders of Softdesk Common Stock with the opportunity to retain
an equity interest in the Combined Company, which would have a much larger
market float and greater liquidity than Softdesk with the potential for
appreciation based on the potential synergies between Autodesk and
Softdesk.
(v) The Softdesk Board considered the terms of the Amended Agreement and
the Amended Option Agreement, including the limits on Softdesk soliciting
or engaging in discussions with respect to alternative transactions, the
limited rights of both Softdesk and Autodesk to terminate the Amended
Agreement and the termination fees payable by Softdesk to Autodesk under
certain circumstances. See "Terms of the Merger--No Solicitation," "--
Termination of the Agreement" and "--Break Up Fees; Expenses."
(vi) The Softdesk Board considered the Third Party Proposal, including
the amount of the cash consideration offered pursuant to the Third Party
Proposal and the other terms and conditions of the Third Party Proposal,
compared to the growth opportunities for the Softdesk/Autodesk combination.
(vii) The Softdesk Board took into account its knowledge of Autodesk's
technology, product cycles and market opportunities, as well as Autodesk's
historic stock price fluctuations, in evaluating the value of the stock
offer in the Amended Agreement.
(viii) The Softdesk Board compared the terms of the Third Party Proposal
to the terms of the Amended Agreement, and considered as part of such
comparison, among other factors, the opportunity of Softdesk stockholders
to retain an equity interest in the acquiring corporation in the case of
the Autodesk transaction and the provisions of the Amended Agreement
relating to Softdesk's right to terminate the Amended Agreement for the
purpose of entering into an acquisition agreement with another party.
(ix) The Softdesk Board considered the effect on Softdesk stockholders of
Softdesk continuing as a stand-alone entity compared to the effect of
Softdesk combining with Autodesk, in light of the factors summarized above
with respect to the financial condition and prospects of Softdesk on a
stand-alone basis and of the Combined Company, and the current economic,
competitive and business environment.
(x) The Softdesk Board considered the likelihood of the Merger being
approved by the appropriate regulatory authorities. See "Approval of the
Merger and Related Transactions--Government and Regulatory Approvals."
(xi) The Softdesk Board considered the expectation that the Merger will
be a tax-free transaction to Softdesk stockholders. See "Approval of the
Merger and Related Transactions--Certain Federal Income Tax Consequences."
(xii) The Softdesk Board considered the effect of the Merger on
Softdesk's other constituencies, including its employees, customers and the
communities served by Softdesk.
The Softdesk Board also identified and considered a number of potential
risks relating to the Merger, including (i) the difficulty and management
distraction inherent in integrating two geographically dispersed operations,
(ii) the risk that the synergies and benefits sought in the Merger would not
be fully achieved, (iii) the risk that the Merger would not be consummated,
and (iv) the substantial charges expected to be incurred by the Combined
Company in connection with the Merger. See "Risk Factors." The Softdesk Board
believed that these risks were outweighed by the potential benefits to be
realized from the Merger.
The foregoing discussion of the information and factors considered by the
Softdesk Board is not intended to be exhaustive but is believed to include all
material factors considered by the Softdesk Board. In view of the
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wide variety of information and factors considered, the Softdesk Board did not
find it practical to, and did not, assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing
weights to different factors.
OPINION OF SOFTDESK'S FINANCIAL ADVISOR
WA&H was retained by Softdesk, pursuant to an engagement letter dated
November 27, 1996, and amended and restated December 19, 1996 (the "WA&H
Engagement Letter"), to furnish an opinion as to the fairness, from a
financial point of view, to Softdesk and the Softdesk stockholders of the
consideration to be paid in the Merger.
On December 19, 1996, WA&H rendered its opinion (the "WA&H Opinion") to the
Softdesk Board of Directors that, as of such date and based on the procedures
followed, factors considered and assumptions made by WA&H and certain other
limitations, all as set forth therein, the consideration proposed to be paid
to the holders of Softdesk Common Stock upon completion of the Merger was fair
from a financial point of view. A copy of the WA&H Opinion is attached as
Annex B to this Proxy Statement/Prospectus. Softdesk stockholders are urged to
read the WA&H Opinion in its entirety. The summary of the opinion set forth
herein is qualified in its entirety by reference to the full text of the WA&H
Opinion.
The WA&H Opinion applies only to the fairness, from a financial point of
view, of the consideration to be paid to the Softdesk stockholders as provided
by the terms of the Amended Agreement and should not be understood to be a
recommendation by WA&H to vote in favor of any matter presented in this Proxy
Statement/Prospectus. Softdesk stockholders should note that the opinion
expressed by WA&H was provided solely for the information of the Softdesk
Board in its evaluation of the Merger and was not prepared on behalf of, and
was not intended to confer rights or remedies upon, Autodesk, Softdesk or any
shareholder of Softdesk or Autodesk, or any persons other than the Softdesk
Board. The Softdesk Board did not impose any limitations on the scope of the
investigation of WA&H with respect to rendering its opinion.
WA&H assumed and relied upon the accuracy and completeness of the financial,
legal, tax, operating and other information provided by Softdesk and Autodesk
and certain other publicly available information and did not independently
verify such information. WA&H did not perform any independent evaluation or
appraisal of any of the respective assets or liabilities of Softdesk or
Autodesk, nor was WA&H furnished with any such evaluations or appraisals. The
WA&H Opinion is based on conditions as they existed and information available
to WA&H on the date of the WA&H Opinion. Events occurring after the date of
the WA&H Opinion may materially affect the assumptions used in preparing the
WA&H Opinion.
In connection with its review of the Merger, and in arriving at its opinion,
WA&H: (i) reviewed and analyzed the financial terms of the Amended Agreement;
(ii) reviewed and analyzed certain publicly available financial and other data
with respect to Softdesk and Autodesk and certain other relevant operating
data relating to Softdesk and Autodesk made available to WA&H from published
sources and from the internal records of Softdesk and Autodesk; (iii)
conducted discussions with members of the senior management of Softdesk with
respect to the business and prospects of Softdesk; (iv) conducted discussions
with members of the senior management of Autodesk with respect to the business
and prospects of Autodesk; (v) reviewed reported prices and trading activity
for the Autodesk Common Stock and the Softdesk Common Stock; (vi) compared the
financial performance of Autodesk and Softdesk and prices of the Autodesk
Common Stock and Softdesk Common Stock with that of certain other comparable
publicly traded companies and their securities; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable merger
transactions; and (viii) estimated the present value of Softdesk using a
discounted cash flow analysis. In addition, WA&H conducted such other analyses
and examinations and considered such other financial, economic and market
criteria as it deemed necessary in arriving at its opinion, including the
review of the Third Party Proposal.
The following is a summary of the financial analyses performed by WA&H in
connection with the delivery of the WA&H Opinion and made available to the
Softdesk Board:
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Comparable Company Analysis. WA&H used a comparable company analysis to
analyze Softdesk's operating performance relative to a group of publicly
traded companies that WA&H deemed for purposes of its analysis to be
comparable to Softdesk. In such analysis, WA&H compared the value to be
achieved by the Softdesk stockholders in the Merger, expressed as a multiple
of certain operating data, to the market trading values of the comparable
companies expressed as a multiple of the same operating results. WA&H compared
multiples of selected financial data for Softdesk with those of the following
publicly traded companies in the CAD/CAM (Computer-Aided Design/Computer-Aided
Manufacturing) industry: ANSYS, Inc., Dassault Systemes, S.A., Eagle Point
Software Corp., Mechanical Dynamics, Inc., Parametric Technology Corp. and
Structural Dynamics Research Corp. (collectively referred to as the
"Comparable Companies"). Although such companies were considered comparable to
Softdesk for the purpose of this analysis based on certain characteristics of
their respective businesses, none of such companies possesses characteristics
identical to those of Softdesk. WA&H calculated the following valuation
multiples based on an implied value of $15.00 per share of Softdesk Common
Stock and, as to the Comparable Companies, on market prices and other
information available as of the same date. Multiples of future earnings and
growth rates were based on projected earnings as estimated publicly by First
Call Consensus and I.B.E.S. Express. The mean and median price per share as a
multiple of each of the indicated statistics for Softdesk as compared to those
of the Comparable Companies were as follows: (a) projected calendar year 1996
earnings per share, 83.3x for Softdesk, as compared to a mean of 28.9x and a
median of 27.4x for the Comparable Companies; and (b) projected calendar year
1997 earnings per share, 30.0x for Softdesk, compared to a mean of 22.5x and a
median of 21.6x for the Comparable Companies. The mean and median ratios of
stock price to projected calendar earnings as a multiple of growth rate for
Softdesk as compared to those of the Comparable Companies were as follows: (a)
projected calendar year 1996 earnings, 333% for Softdesk as compared with a
mean of 104% and a median of 102% for the Comparable Companies; (b) projected
calendar year 1997 earnings per share, 120% for Softdesk compared with a mean
of 81% and a median of 81% for the Comparable Companies.
Comparable Transactions. WA&H compared multiples of selected financial data
and other financial data relating to the Merger with multiples paid in, and
other financial data from, 21 selected mergers since 1990 of publicly traded
companies in the software industry with aggregate transaction values between
$20 and $200 million (the "Comparable Transactions"). The Comparable
Transactions were selected primarily on the aggregate transaction value of the
business acquired and the target companies' involvement in the software
industry. WA&H noted that none of the target companies involved in these
transactions had a business that was directly comparable to Softdesk. This
analysis produced multiples of transaction value to latest 12-month revenues
for the target companies in the Comparable Transactions ranging from 0.5 x to
6.5x, with a mean and median of 2.4x and 1.9x, respectively, compared with
2.6x for Softdesk. The multiple of transaction value to latest 12-month
operating income for the Comparable Transactions ranged from 8.0x to 105.0x,
for target companies with operating income, with a mean and median of 33.6x
and 25.6x, respectively, compared with 65.6x for Softdesk. The multiple of
transaction value to latest 12-month net income for the Comparable
Transactions ranged from 9.5x to 80.0x, for target companies with net income,
with a mean and median of 40.1x and 31.6x, respectively, compared with 81.0x
for Softdesk. WA&H also compared the premium of the equity value per share
over the target companies' stock price four weeks and one day prior to the
announcement of the transaction. The premium of the equity value per share
over the stock price of the target companies four weeks prior to the
announcement of the transaction ranged from -70% to 103%, with a mean and a
median of 40% and 40%, respectively, compared with 114% for Softdesk. The
premium of the equity value per share over the stock price of the target
companies one day prior to the announcement of the transaction ranged from -
21% to 138%, with a mean and a median of 35% and 21%, respectively, compared
with 45% for Softdesk.
Discounted Cash Flow Analysis. WA&H estimated a present value of Softdesk
through a discounted cash flow analysis using projections of future
operations, based in part on information provided by Softdesk's management.
WA&H calculated present values of projected operating cash flows after net
charges to working capital over the period between December 19, 1996 and
December 31, 2000 using a discount rate of 14.7%. WA&H calculated an
approximate terminal value of Softdesk as of December 19, 1996 of 16.5x
Softdesk's projected calendar year 2000 operating income. WA&H determined this
multiple by analyzing the relationship
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between Softdesk's current operating income growth rate and its current market
multiple of operating income and applying this relationship to estimated
future operating income as of calendar year 2000. The terminal value was
discounted to present value using the same discount rate as the cash flows.
WA&H calculated an implied valuation of Softdesk by adding the present values
of the cash flows and of the terminal value. The implied value of Softdesk
based on this analysis was $63.1 million. WA&H determined that, at the time of
the WA&H Opinion, the value of the consideration to be received by the
Softdesk stockholders in the Merger of approximately $90.3 million was greater
than the implied present value of Softdesk under the discounted cash flow
valuation discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. WA&H
believes that its analyses must be considered as a whole and that selecting
portions of the analyses and of the factors considered by WA&H, without
considering all factors and analyses, could create an incomplete or misleading
view of the processes underlying the WA&H Opinion. In arriving at its fairness
determination, WA&H considered the results of all such analyses. In view of
the wide variety of factors considered in connection with its evaluation of
the fairness of the Merger consideration, WA&H did not find it practicable to
assign relative weights to the factors considered in reaching its opinion. No
company or transaction used in the above analyses as a comparison is identical
to Softdesk or Autodesk or the proposed Merger. The analyses were prepared
solely for purposes of WA&H providing its opinion as to the fairness of the
Merger consideration to be issued pursuant to the Amended Agreement to
Softdesk stockholders and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. As described above, the WA&H Opinion and
WA&H's presentation to the Softdesk Board was one of the many factors taken
into consideration by the Softdesk Board in making its determination to
approve the Amended Agreement.
WA&H is a nationally recognized investment banking firm and it is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations of
corporations. WA&H is familiar with Softdesk, having acted as a managing
underwriter of the initial public offering of Softdesk Common Stock in
February 1994. Softdesk selected WA&H to render the fairness opinion based on
WA&H's familiarity with Softdesk, its knowledge of the CAD/CAM industry and
its experience in mergers and acquisitions and in securities valuation
generally.
In the ordinary course of business, WA&H acts as a market maker and broker
in the publicly traded securities of Softdesk and Autodesk and receives
customary compensation in connection therewith, and also provides research
coverage of Softdesk and Autodesk. In the ordinary course of business, WA&H
actively trades in the publicly traded securities of Softdesk and Autodesk for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities, which positions, on
occasion, may be material in absolute size or relative to the volume of
trading activity. On the close of trading on December 18, 1996 (the day before
the execution and announcement of the amendment to the Agreement), WA&H held
positions of 32 shares of Autodesk Common Stock and 2,782 shares of Softdesk
Common Stock.
Pursuant to the WA&H Engagement Letter, Softdesk was required to pay WA&H
opinion fees totaling $740,000 upon the rendering of the WA&H Opinion.
Softdesk has also agreed to reimburse WA&H for its reasonable out-of-pocket
expenses and to indemnify WA&H against certain liabilities relating to or
arising out of services performed by WA&H in connection with the Merger. The
terms of the WA&H Engagement Letter, which are customary for transactions of
this nature, were negotiated at arm's length between Softdesk and WA&H, and
the Softdesk Board was aware of such fee arrangement at the time of its
approval of the Agreement and the amendment to the Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
Softdesk Common Stock. This discussion does not deal with all income tax
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considerations that may be relevant to particular Softdesk stockholders in
light of their particular circumstances, such as stockholders who are dealers
in securities, foreign persons, stockholders who acquired their shares in
connection with previous mergers involving Softdesk or an affiliate, or
stockholders who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger), including without limitation transactions in
which shares of Softdesk Common Stock were or are acquired or shares of
Autodesk Common Stock were or are disposed of. Furthermore, no foreign, state
or local tax considerations are addressed herein. ACCORDINGLY, SOFTDESK
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Autodesk, Merger Sub and Softdesk
intended to qualify as a "party to the reorganization" under Section 368(b) of
the Code, in which case the following tax consequences will result (subject to
the limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by holders of Softdesk Common
Stock solely upon their receipt of Autodesk Common Stock in the Merger
(except to the extent of cash received in lieu of a fractional share
thereof) in exchange therefor;
(b) The aggregate tax basis of the Autodesk Common Stock received in the
Merger by a Softdesk stockholder will be the same as the aggregate tax
basis of Softdesk Common Stock surrendered in exchange therefor (reduced by
any basis allocable to any fractional share of Autodesk Common Stock in
lieu of which the stockholder received cash);
(c) The holding period of the Autodesk Common Stock received in the
Merger by a Softdesk stockholder will include the period during which the
stockholder held the Softdesk Common Stock surrendered in exchange
therefor, provided that the Softdesk Common Stock is held as a capital
asset at the time of the Merger;
(d) None of Autodesk, Merger Sub or Softdesk will recognize material
amounts of gain or loss solely as a result of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. At the closing of the Merger, Autodesk
and Softdesk will each have received an opinion from their respective legal
counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation, and Hale
and Dorr LLP, respectively, to the effect that, for federal income tax
purposes, the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. These opinions, which are collectively referred to
herein as the "Tax Opinions," neither bind the IRS nor preclude the IRS from
adopting a contrary position. In addition, the Tax Opinions are subject to
certain assumptions and qualifications and are based on the truth and accuracy
of certain representations made by Autodesk, Merger Sub and Softdesk,
including representations in certificates delivered to counsel by the
respective managements of Autodesk, Merger Sub and Softdesk. Of particular
importance are those assumptions and representations relating to the
"continuity of interest" requirement.
Under current law, the continuity of interest requirement will be satisfied
if Softdesk stockholders do not, pursuant to a plan or intent existing at or
prior to the Merger, dispose of or transfer so much of either (i) their
Softdesk Common Stock in anticipation of the Merger or (ii) the Autodesk
Common Stock to be received in the Merger (collectively, "Planned
Dispositions"), such that the Softdesk stockholders, as a group, no longer
have a substantial proprietary interest in the Softdesk business being
conducted by Autodesk after the Merger. Softdesk stockholders will generally
be regarded as having retained a substantial proprietary interest as long as
the Autodesk Common Stock received in the Merger (after reduction for any
Planned Dispositions), in the aggregate, represents a substantial portion of
the entire consideration received by the Softdesk stockholders in the Merger.
Softdesk stockholders should be aware that the IRS has recently issued
proposed regulations which, if adopted
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in their present form, would determine whether the stockholders of an acquired
corporation retain the requisite substantial proprietary interest in the
acquired corporation's business without regard to sales or dispositions of the
acquiring corporation's stock following the acquisition. It is unclear whether
the proposed regulations will be adopted in their present form or, if adopted,
whether they will be adopted with retroactive effect.
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure of the "continuity of interest" requirement or
otherwise) would result in a Softdesk stockholder recognizing gain or loss
with respect to each share of Softdesk Common Stock surrendered equal to the
difference between the stockholder's basis in each such share and the fair
market value, as of the Effective Time of the Merger, of the Autodesk Common
Stock received in exchange therefor. In such event, a stockholder's aggregate
basis in the Autodesk Common Stock so received would equal its fair market
value and the stockholder's holding period for such stock would begin the day
after the Merger.
GOVERNMENTAL AND REGULATORY APPROVALS
Autodesk and Softdesk are aware of no governmental or regulatory approvals
required for consummation of the Merger, other than compliance with the
federal securities laws and applicable securities and "blue sky" laws of the
various states and compliance with the pre-merger notification and waiting
period requirements of the HSR Act.
ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the purchase method of
accounting for financial reporting purposes in accordance with generally
accepted accounting principles.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Autodesk Common Stock received by Softdesk stockholders in the
Merger will be freely transferable, except that shares of Autodesk Common
Stock received by persons who are deemed to be affiliates of Softdesk prior to
the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in
the case of such persons who become affiliates of Autodesk) or otherwise in
compliance with (or pursuant to an exemption from) the registration
requirements of the Securities Act. Persons deemed to be affiliates of
Softdesk or Autodesk are those individuals or entities that control, are
controlled by, or are under common control with, such party and generally
include executive officers and directors of such party as well as certain
principal stockholders of such party. The Amended Agreement requires Softdesk
to use its best efforts to cause each of its affiliates to execute a written
agreement to the effect that such person will not offer or sell or otherwise
dispose of any of the shares of Autodesk Common Stock issued to such person in
or sell or otherwise dispose of any of the shares of Autodesk Common Stock
issued to such person in or pursuant to the Merger except in compliance with
the Securities Act and the rules and regulations promulgated by the SEC
thereunder. This Proxy Statement/Prospectus does not cover any resales of
Autodesk Common Stock received by affiliates of Softdesk in the Merger.
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TERMS OF THE MERGER
The following discussion summarizes the proposed Merger and related
transactions. The following is not, however, a complete statement of all
provisions of the Amended Agreement and related agreements. Detailed terms of
and conditions to the Merger and certain related transactions are contained in
the Amended Agreement, a conformed copy of which is attached to this Proxy
Statement/Prospectus as Annex A. Statements made in this Proxy
Statement/Prospectus with respect to the terms of the Merger and such related
transactions are qualified in their respective entireties by reference to the
more detailed information set forth in the Amended Agreement.
EFFECTIVE TIME
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be agreed in writing by Autodesk, Softdesk and Merger Sub and specified in
the Certificate of Merger. The filing of the Certificate of Merger will take
place on the Closing Date, which will occur at a time and date to be specified
by Autodesk, Softdesk and Merger Sub no later than the second business day
after the satisfaction or waiver of the conditions to the Merger, or at such
other time as Autodesk, Softdesk and Merger Sub agree in writing. Assuming all
conditions to the Merger are met or waived prior thereto, it is anticipated
that the Closing Date and Effective Time will be on or about March 31, 1997.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time of the Merger, Merger Sub will merge with and into
Softdesk and Autodesk will become the owner of all of the capital stock of
Softdesk. As a result of the Merger, each outstanding share of Softdesk Common
Stock, other than any shares held in the treasury of Softdesk or owned by
Merger Sub, Autodesk or any wholly owned subsidiary of Autodesk or Softdesk,
will be converted into the right to receive that fraction of a share of
Autodesk Common Stock obtained by dividing $15.00 by the average of the
closing prices of Autodesk Common Stock as quoted on the Nasdaq for the five
trading days immediately preceding the scheduled Closing Date (the "Exchange
Ratio"); provided that, in the event that the average of the closing prices of
Autodesk Common Stock as quoted on the Nasdaq for the five trading days
immediately preceding the Scheduled Closing Date is less than $16.00 per
share, Autodesk may terminate the Amended Agreement without consummating the
Merger, unless Softdesk agrees, within two business days after notice of
Autodesk's intention to terminate the Amended Agreement, to consummate the
Merger at a fixed Exchange Ratio of 0.9375 shares of Autodesk Common Stock for
each share of Softdesk Common Stock. Pursuant to the Merger, each outstanding
option or right to purchase Softdesk Common Stock under the Softdesk Stock
Option Plans will be assumed by Autodesk and will become an option or right to
purchase Autodesk Common Stock, with appropriate adjustments to be made to the
number of shares issuable thereunder and the exercise price thereof based on
the Exchange Ratio.
No fractional shares will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of Softdesk Common Stock who would otherwise be
entitled to a fraction of a share of Autodesk Common Stock (after aggregating
all fractional shares to be received by such holder) will receive from the
Combined Company an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the average closing
price of a share of Autodesk Common Stock for the ten most recent trading days
ending on the trading day immediately prior to the Effective Time, as reported
on the Nasdaq.
At or promptly after the Effective Time, Autodesk, acting through the
Exchange Agent, will deliver to each Softdesk stockholder of record (as of the
Effective Time) a letter of transmittal with instructions to be used by such
stockholder in surrendering certificates which, prior to the Merger,
represented shares of Softdesk Common Stock. CERTIFICATES SHOULD NOT BE
SURRENDERED BY THE HOLDERS OF SOFTDESK COMMON STOCK UNTIL SUCH HOLDERS RECEIVE
THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. At the Effective Time, each
then outstanding option to purchase Softdesk Common Stock will be assumed by
Autodesk without any action on the part of the holder thereof. OPTION
AGREEMENTS NEED NOT BE SURRENDERED.
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No later than ten business days after the Closing Date, Autodesk will file a
registration statement on Form S-8 under the Securities Act covering the
shares of Autodesk Common Stock issuable upon exercise of options to purchase
Softdesk Common Stock assumed by Autodesk pursuant to the Merger.
CONDUCT OF COMBINED COMPANY FOLLOWING THE MERGER
Pursuant to the Merger, Merger Sub will be merged with and into Softdesk and
Softdesk will become a wholly-owned subsidiary of Autodesk. Following the
Merger, the Softdesk Subsidiary will continue to operate in Henniker, New
Hampshire, and will serve as headquarters for Autodesk's AEC Market Group. It
is anticipated that the Softdesk Subsidiary will be merged into Autodesk in
the future. David C. Arnold, President and Chief Executive Officer of
Softdesk, will serve as Vice President in charge of Autodesk's AEC Market
Group. The stockholders of Softdesk will become stockholders of Autodesk, and
their rights as stockholders will be governed by the Autodesk Certificate of
Incorporation and Bylaws and the laws of the State of Delaware.
CONDUCT OF AUTODESK'S AND SOFTDESK'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Amended Agreement, each of Autodesk and Softdesk has agreed,
on behalf of itself and its subsidiaries, that during the period from the date
of the original Agreement and continuing until the earlier of the termination
of the Amended Agreement pursuant to its terms or the Effective Time, except
as set forth in certain disclosure schedules or to the extent that the other
party shall otherwise consent in writing, to carry on its business diligently
and in accordance with good commercial practice and to carry on its business
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, to pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, to pay or perform other material
obligations when due, and to use its commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.
In addition, except as set forth in certain disclosure schedules to the
Amended Agreement, without the prior written consent of Autodesk, Softdesk has
agreed that it shall neither do any of the following nor permit its
subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create "standards" or
agreements with "standards" bodies;
(c) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date of the original Agreement and as previously disclosed in writing to
Autodesk, or adopt any new severance plan;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to Softdesk's
intellectual property, or enter into grants as to future patent rights,
except for non-exclusive object code domestic reseller licenses and object
code licenses granted to end-users each in the ordinary course of business;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock except pursuant to rights of repurchase of any such shares
under any employee, consultant or director stock plan;
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(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (i) the issuance of shares of Softdesk Common Stock
pursuant to the exercise of stock options therefor outstanding as of the
date of the Agreement, and (ii) shares of Softdesk Common Stock issuable to
participants in the Softdesk Stock Purchase Plan consistent with the terms
thereof;
(h) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any corporation, partnership
interest, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets or enter into any joint
ventures, strategic partnerships or alliances;
(j) Sell, lease, license (except as otherwise permitted in the Amended
Agreement), encumber or otherwise dispose of any properties or assets which
are material, individually or in the aggregate, to the business of
Softdesk;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire debt securities of
Softdesk, or guarantee any debt securities of others;
(l) Adopt or amend any employee benefit or stock purchase or option plan,
or enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its officers or employees;
(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(n) Make any grant of exclusive rights to any third party; or
(o) Agree in writing or otherwise to take any of the actions described in
the foregoing.
NO SOLICITATION
Under the terms of the Amended Agreement, until the earlier of the Effective
Time or termination of the Amended Agreement pursuant to its terms, Softdesk
has agreed that it and its subsidiaries will not, and will instruct their
respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, (i) solicit or
knowingly encourage submission of, any proposals or offers by any person,
entity or group (other than Autodesk and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any non-public information concerning itself or any of its
subsidiaries to, or afford any access to the properties, books or records of
itself or any of its subsidiaries to, or otherwise assist or facilitate, or
enter into any agreement or understanding with, any person, entity or group
(other than Autodesk and its affiliates, agents and representatives), in
connection with any Acquisition Proposal with respect to itself. For the
purposes of the Amended Agreement, an "Acquisition Proposal" with respect to
an entity means any proposal or offer (other than one with or relating to
Autodesk or its affiliates) relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the entity or any
subsidiaries of the entity (other than sales of assets or inventory in the
ordinary course of business or permitted under the terms of the Amended
Agreement), (ii) sale of 10% or more of the outstanding shares of capital
stock of the entity (including without limitation by way of a tender offer or
an exchange offer), (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of
any "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) which beneficially
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owns, or has the right to acquire beneficial ownership of, 10% or more of the
then outstanding shares of capital stock of the entity (except for
acquisitions for passive investment purposes only in circumstances where the
person or group qualifies for and files a Schedule 13G with respect thereto);
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. Softdesk has
agreed to cease any and all existing activities, discussions or negotiations
with any parties conducted prior to the signing of the Agreement with respect
to any of the foregoing. Softdesk has agreed to notify Autodesk as promptly as
practicable (i) if any inquiry or proposal is made or any information or
access is requested in writing in connection with an Acquisition Proposal or
potential Acquisition Proposal and (ii) of the significant terms and
conditions of any such Acquisition Proposal. In addition, subject to the other
provisions set forth in this section, from and after the date of the Agreement
until the earlier of the Effective Time and termination of the Amended
Agreement pursuant to its terms, Softdesk has agreed that it and its
subsidiaries will not, and will instruct its directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person, entity
or group (other than Autodesk); provided, however, that nothing in the Amended
Agreement will prohibit the Softdesk Board from taking and disclosing to its
stockholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, Softdesk may, to the extent its Board of
Directors determines, in good faith, after consultation with outside legal
counsel, that its fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements described in this paragraph, furnish information to any person,
entity or group after such person, entity or group has delivered to Softdesk
in writing, an unsolicited bona fide Acquisition Proposal which the Softdesk
Board in its good faith reasonable judgment determines, after consultation
with its independent financial advisors, would result in a transaction more
favorable to the stockholders of Softdesk from a financial point of view than
the Merger and for which financing, to the extent required, is then committed
or which, in the good faith reasonable judgment of the Softdesk Board (based
upon the advice of independent financial advisors), is reasonably capable of
being financed by such person, entity or group, and which is likely to be
consummated (a "Superior Proposal"). In the event Softdesk receives a Superior
Proposal, nothing contained in the Amended Agreement will prevent the Softdesk
Board from approving such Superior Proposal or recommending such Superior
Proposal to its stockholders, if the Softdesk Board determines that such
action is required by its fiduciary duties under applicable law; provided,
however, that Softdesk has agreed not to accept or recommend to its
stockholders, or enter into any agreement concerning, a Superior Proposal for
a period of not less than seven days after the receipt by Autodesk of a copy
of such Superior Proposal. Softdesk has also agreed to not provide any non-
public information to a third party unless (i) Softdesk provides such non-
public information pursuant to a nondisclosure agreement with terms regarding
the protection of confidential information at least as restrictive as such
terms in the confidentiality agreement between Autodesk and Softdesk entered
into in connection with the Merger; and (ii) such non-public information is
the same information previously provided to Autodesk.
BREAK UP FEES; EXPENSES
Except as set forth below, all fees and expenses incurred in connection with
the Amended Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is
consummated.
Softdesk has agreed that, in the event that the required approval of
Softdesk's stockholders contemplated by the Amended Agreement has not been
obtained by reason of the failure to obtain the required vote upon a vote
taken at a meeting of Softdesk stockholders convened for such purpose,
Softdesk will immediately pay to Autodesk $750,000. Softdesk has also agreed
that in the event the Amended Agreement is terminated because (a) Softdesk
accepts a Superior Proposal (in the absence of Autodesk having suffered an
event which constitutes a material adverse effect) or (b) the Softdesk Board
(i) recommends a Superior Proposal to the Softdesk stockholders, (ii) fails to
convene a stockholders' meeting as required by the Amended Agreement, (iii)
fails to
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<PAGE>
recommend approval of the Amended Agreement and the Merger or withholds,
withdraws or modifies in a manner adverse to Autodesk its recommendation in
favor of the Merger, or (iv) fails to reject an Acquisition Proposal within
ten days of its making (in each case in the absence of Autodesk having
suffered an event which constitutes a material adverse effect), Softdesk will
immediately pay to Autodesk $2,500,000. Furthermore, Softdesk has agreed that
in the event that the Amended Agreement is terminated as a result of any of
the occurrences described in this paragraph, and within six months of such
termination Softdesk enters into any transaction which gives effect to an
Acquisition Proposal by a third party, Softdesk will pay to Autodesk, upon the
consummation of such transaction, $5,000,000 minus any amounts previously paid
under circumstances described in the preceding sentences. The occurrence of
any of the foregoing events, among other events, will also entitle Autodesk to
exercise its rights under the Amended Option Agreement. See "--Stock Option
Agreement."
CONDITIONS TO THE MERGER
The respective obligations of each party to the Amended Agreement to effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions: (a) the Amended Agreement shall have been
approved and adopted by the requisite vote under applicable law by the
stockholders of Softdesk; (b) the SEC shall have declared the Registration
Statement effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement, shall have been initiated or threatened in writing by the SEC; (c)
no court, administrative agency or commission or other governmental authority
or instrumentality shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger; (d) Softdesk and Autodesk shall each have received
substantially identical written opinions from their counsel, Hale and Dorr LLP
and Wilson Sonsini Goodrich & Rosati, Professional Corporation, respectively,
in form and substance reasonably satisfactory to them, to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code (except that if the respective counsel to each party does not
render such an opinion, this condition shall be deemed satisfied with respect
to such party if counsel to the other party provides such opinion to such
party); (e) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated by the reviewing
agency and any similar government requirements shall have been satisfied or
complied with.
In addition, the obligations of Softdesk to consummate and effect the Merger
are subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, exclusively
by Softdesk: (a) the representations and warranties of Autodesk and Merger Sub
contained in the Amended Agreement shall be true and correct on and as of the
Effective Time, except for changes contemplated by the Amended Agreement and
except for those representations and warranties which address matters only as
of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Effective Time, except, in all such cases where the failure to be so true and
correct, would not have a material adverse effect on Autodesk (provided that
any determination with regard to a material adverse effect on Autodesk will be
made without regard to any materiality qualification or particular dollar
threshold in any particular representation), and Softdesk shall have received
a certificate to such effect signed on behalf of Autodesk by the President and
Chief Operating Officer of Autodesk; (b) Autodesk and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by the Amended Agreement to be performed or complied with
by them on or prior to the Effective Time, and Softdesk shall have received a
certificate to such effect signed on behalf of Autodesk by the President and
Chief Operating Officer of Autodesk; (c) Softdesk shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel to Autodesk, in a form reasonably acceptable to Softdesk; and (d) the
shares of Autodesk Common Stock issuable to stockholders of Softdesk pursuant
to the Merger and such other shares required to be reserved for issuance upon
exercise of options assumed in the Merger shall have been authorized for
listing on the Nasdaq upon official notice of issuance.
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Further, the obligations of Autodesk and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Autodesk: (a) the representations and warranties of
Softdesk contained in the Amended Agreement shall be true and correct on and
as of the Effective Time, except for changes contemplated by the Amended
Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as
of such particular date), with the same force and effect as if made on and as
of the Effective Time, except, in all such cases, where the failure to be so
true and correct would not have a material adverse effect (as defined) on
Softdesk (provided that any determination with regard to a material adverse
effect on Softdesk will be made without regard to any materiality
qualification or particular dollar threshold in any particular
representation), and Autodesk and Merger Sub shall have received a certificate
to such effect signed on behalf of Softdesk by the President and the Chief
Financial Officer of Softdesk; (b) Softdesk shall have performed or complied
in all material respects with all agreements and covenants required by the
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Autodesk shall have received a certificate to such effect signed on
behalf of Softdesk by the President and the Chief Financial Officer of
Softdesk; (c) Autodesk shall have received a legal opinion from Hale and Dorr
LLP, counsel to Softdesk, in a form reasonably acceptable to Autodesk; (d)
each of David C. Arnold, Jesse F. Devitte, David A. Paine and August Grasis
III shall have entered into a Non-Competition Agreement with Autodesk or
Merger Sub in the form attached as Exhibit D to the Amended Agreement, and
such agreements shall be in full force and effect; further, Softdesk shall
have used its best efforts to cause certain other employees of Softdesk to
enter into Non-Competition Agreements with Autodesk or Merger Sub; and (e)
each of David C. Arnold, Jesse F. Devitte, David A. Paine and August Grasis
III shall have entered into a Voting Agreement with Autodesk in the form
attached as Exhibit B to the Amended Agreement, and such agreements shall be
in full force and effect.
TERMINATION OF THE AMENDED AGREEMENT
The Amended Agreement provides that it may be terminated at any time prior
to the Effective Time of the Merger, whether before or after approval of the
Merger by the stockholders of Autodesk and Softdesk: (a) by mutual written
consent duly authorized by the Boards of Directors of Autodesk and Softdesk;
(b) by either Autodesk or Softdesk if the Merger shall not have been
consummated by May 31, 1997 (provided, however, that the right to so terminate
the Amended Agreement shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of the Amended Agreement); (c) by either Autodesk or
Softdesk if a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, which order,
decree or ruling is final and nonappealable; (d) by either Autodesk or
Softdesk if the required approval of the stockholders of Softdesk contemplated
by the Amended Agreement shall not have been obtained by reason of the failure
to obtain the required vote upon a vote taken at a meeting of stockholders
duly convened therefor or at any adjournment thereof (provided that the right
to so terminate the Amended Agreement shall not be available to Softdesk where
the failure to obtain stockholder approval of Softdesk shall have been caused
by the action or failure to act of Softdesk in breach of the Amended
Agreement); (e) by either Autodesk or Softdesk, if Softdesk shall have
accepted a Superior Proposal or if the Softdesk Board or Directors recommends
a Superior Proposal to the stockholders of Softdesk; (f) by Autodesk, if the
Softdesk Board shall have (i) failed to convene the Softdesk stockholders
meeting as required by the Amended Agreement, (ii) failed to recommend
approval of the Amended Agreement and the Merger in the proxy statement to be
delivered to the Softdesk stockholders or withheld, withdrawn or modified in a
manner adverse to Autodesk its recommendation in favor of the Merger, or (iii)
failed to reject an Acquisition Proposal within ten days of its making; (g) by
Softdesk, upon a breach of any representation, warranty, covenant or agreement
on the part of Autodesk set forth in the Amended Agreement if (i) as a result
of such breach the conditions set forth in subsections (a) and (b) of the
second to last paragraph of the preceding section would not be satisfied as of
the time of such breach and (ii) such breach shall not have been cured by
Autodesk within ten business days following receipt by Autodesk of written
notice of such breach
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from Softdesk; (h) by Autodesk, upon a breach of any representation, warranty,
covenant or agreement on the part of Softdesk set forth in the Amended
Agreement if (i) as a result of such breach the conditions set forth in
subsections (a) and (b) of the last paragraph of the preceding section would
not be satisfied as of the time of such breach and (ii) such breach shall not
have been cured by Softdesk within ten business days following receipt by
Softdesk of written notice of such breach from Autodesk; (i) by Softdesk, if
there shall have occurred any event or condition which constitutes a material
adverse effect with respect to Autodesk since the date of the Amended
Agreement which condition or event shall not have been ameliorated such that
it is no longer a material adverse effect within ten business days following
receipt by Autodesk of notice from Softdesk (provided that, for purposes of
events or conditions described in this subsection (i), as well as for purposes
of the preceding section on the conditions to the Merger, an event or
condition which constitutes a material adverse effect shall not be deemed to
have occurred with respect to Autodesk as a result of (i) any events or
conditions affecting the economy or Autodesk's industry in general, (ii) any
events or conditions resulting from the execution and/or announcement of the
Amended Agreement or (iii) in and of itself, any change in the market price of
Autodesk Common Stock); (j) by Autodesk, if there shall have occurred any
event or condition which constitutes a material adverse effect with respect to
Softdesk since the date of the Amended Agreement which condition or event
shall not have been ameliorated such that it is no longer a material adverse
effect within ten (10) business days following receipt by Softdesk of notice
from Autodesk (provided that, for purposes of events or conditions described
in this subsection (j) as well as for purposes of the preceding section on the
conditions to the Merger, an event or condition which constitutes a material
adverse effect shall not be deemed to have occurred with respect to Softdesk
as a result of (i) any events or conditions affecting the economy or
Softdesk's industry in general, (ii) any events or conditions resulting from
the execution and/or announcement of the Amended Agreement or (iii) the
failure of the revenue and/or net income of Softdesk for the quarter ending
December 31, 1996 to meet the published expectations of financial analysts or
Softdesk management's internal projections), or (k) by Autodesk, in the event
that the average of the closing prices of Autodesk Common Stock as quoted on
the Nasdaq for the five trading days immediately preceding the scheduled
Closing Date is less than $16.00 per share, unless Softdesk agrees, within two
business days after notice of Autodesk's intention to terminate the Amended
Agreement, to consummate the Merger at a fixed Exchange Ratio of 0.9375 shares
of Autodesk Common Stock for each share of Softdesk Common Stock.
STOCK OPTION AGREEMENT
As an inducement to Autodesk to enter into the Agreement, Softdesk entered
into the Option Agreement. The Option Agreement was subsequently amended as an
inducement to Autodesk to enter into the amendment to the Agreement. Pursuant
to the Amended Option Agreement, Softdesk granted Autodesk the right, under
certain conditions, to purchase up to 1,195,095 shares of Softdesk Common
Stock by paying to Softdesk $11.715 per share for each share purchased under
the Option.
Subject to certain conditions, the Option may be exercised in whole or in
part by Autodesk (i) in the event the approval of the Softdesk stockholders
required by the Amended Agreement shall not have been obtained by reason of
the failure to obtain the required vote upon a vote taken at a meeting of
Softdesk stockholders duly convened therefor or at any adjournment thereof,
(ii) in the event that Softdesk shall have accepted a Superior Proposal or if
the Softdesk Board of Directors shall have recommended a Superior Proposal to
the Softdesk stockholders, (iii) in the event that the Softdesk Board of
Directors shall have failed to convene the stockholders meeting required by
the Amended Agreement, failed to recommend approval of the Amended Agreement
and the Merger in the proxy statement to be provided to the Softdesk
stockholders in connection with the Merger, or withheld, withdrawn or modified
in a manner adverse to Autodesk its recommendation in favor of the Merger, or
failed to reject an Acquisition Proposal within ten days of its making or (iv)
the acquisition by any person of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
which beneficially owns, or has the right to acquire beneficial ownership of,
50% or more of the then outstanding shares of capital stock of Softdesk (any
of the events specified in clauses (i), (ii), (iii) or (iv) of this sentence
are referred to herein as an "Exercise Event"). The Amended Option Agreement
terminates upon the earlier of (a) the Effective Time,
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(b) 180 days following the termination of the Amended Agreement if an Exercise
Event shall have occurred on or prior to the date of such termination, or (c)
the date on which the Amended Agreement is terminated if an Exercise Event
shall not have occurred on or prior to such date; provided, however, that with
respect to clause (b) of this sentence, if the Option cannot be exercised by
reason of any applicable government order or waiting period continuing in
force, then the Option shall not terminate until the tenth business day after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal. Notwithstanding the foregoing, the Option may not
be exercised if Autodesk is in breach in any material respect of any of its
covenants or agreements contained in the Amended Agreement.
In the event that any of the actions or occurrences described in clauses
(ii) or (iii) of the preceding paragraph takes place, then, upon Autodesk's
request, Softdesk shall purchase from Autodesk any shares acquired by Autodesk
pursuant to the Option at an exercise price equal to the average closing sale
price of Softdesk Common Stock on the Nasdaq during the five trading days
ending on the trading days immediately preceding the date on which Autodesk
gives notice of such request.
VOTING AGREEMENTS
Each of David C. Arnold, Jesse F. Devitte, David A. Paine and August Grasis
III, (who beneficially own as of December 31, 1996 an aggregate of 1,161,785
of the outstanding shares of Softdesk Common Stock representing approximately
19% of the votes entitled to be cast by holders of Softdesk Common Stock
issued and outstanding as of December 31, 1996), has entered into a Voting
Agreement with Autodesk. Pursuant to each Voting Agreement, each of the
foregoing Softdesk stockholders has agreed to vote in favor of approval of the
Amended Agreement and the Merger and any matter that could reasonably be
expected to facilitate the Merger, and against approval of any proposal made
in opposition to or competition with consummation of the Merger.
AFFILIATE AGREEMENTS
Each of the directors and executive officers of Softdesk have entered into
agreements restricting sales, dispositions or other transactions reducing
their risk of investment in respect of the shares of Softdesk Common Stock
held by them prior to the Merger and the shares of Autodesk Common Stock
received by them in the Merger so as to comply with the requirements of
applicable federal securities and tax laws.
NON-COMPETITION AGREEMENTS
Prior to the Effective Time and as a condition to Autodesk's obligations
with respect to the Merger, each of David C. Arnold, Jesse F. Devitte, David
A. Paine and August Grasis III shall have entered into a Non-Competition
Agreement with Autodesk. Each Non-Competition Agreement requires that, during
the period commencing on the Closing Date and ending two years after the
Closing Date, the Employee will not, directly or indirectly, (i) participate
or engage in the design, development, manufacture, production, marketing, sale
or servicing of any product, or the provision of any service, that directly or
indirectly relates to or competes with Softdesk's or Autodesk's products or
services related in any way to CAD software, (ii) induce or attempt to induce
any person who at the time of such inducement is an employee or Softdesk or
Autodesk to perform work or services for any other person other than Autodesk
or Softdesk, or (iii) permit the name of Employee to be used in connection
with a competitive business.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Softdesk Board with respect to the
Merger, stockholders of Softdesk should be aware that certain officers and
directors of Softdesk have interests in the Merger, including those referred
to below, that present them with potential conflicts of interest. The Softdesk
Board was aware of these potential conflicts and considered them in its
deliberations concerning the Merger.
The Amended Agreement provides that Autodesk will assume Softdesk's
outstanding stock options under the Softdesk Stock Option Plans, which options
shall become exercisable in full as a result of the Merger and
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thereafter be exercisable for Autodesk Common Stock. The weighted average
exercise price of such options as of December 31, 1996 was $11.41 per share.
In light of the premium reflected in the Exchange Ratio, Softdesk's officers
and directors holding stock options will thus receive a significant benefit
from the Merger in the form of the higher value of shares issuable upon
exercise of their options. Officers of Softdesk will not receive or be
entitled to any other payments by virtue of the Merger.
In connection with the anticipated Merger, Autodesk has entered into an oral
agreement with each of David C. Arnold and Jesse F. Devitte pursuant to which
Messrs. Arnold and Devitte will receive certain employment and stock
compensation packages consistent with such individuals' anticipated employment
with Autodesk following the Merger. Pursuant to Mr. Arnold's agreement with
Autodesk, Mr. Arnold will receive (i) a base salary of $225,000 per year, (ii)
a target bonus equal to 50% of base salary, subject to Autodesk's financial
performance and achievement of other corporate goals and (iii) an option to
purchase 200,000 shares of Autodesk Common Stock at an exercise price per
share equal to the closing price per share of Autodesk Common Stock as
reported on the Nasdaq on the Closing Date. Mr. Arnold's option will become
exercisable with respect to 20% of the shares subject to the option on each
anniversary of the Closing Date. Pursuant to Mr. Devitte's agreement with
Autodesk, Mr. Devitte will receive (i) a base salary of $175,000 per year,
(ii) a target bonus equal to 40% of base salary, subject to Autodesk's
financial performance and achievement of other corporate goals and (iii) an
option to purchase 75,000 shares of Autodesk Common Stock at an exercise price
per share equal to the closing price per share of Autodesk Common Stock as
reported on the Nasdaq on the Closing Date. Mr. Devitte's option will become
exercisable with respect to 20% of the shares subject to the option on each
anniversary of the Closing Date.
The Amended Agreement provides that, from and after the Effective Time, the
Softdesk Subsidiary will fulfill and honor in all respects the indemnification
obligations of Softdesk to officers and directors, employees and agents of
Softdesk immediately prior to the Effective Time pursuant to the provisions of
the Certificate of Incorporation and the Bylaws of Softdesk as in effect
immediately prior to the Effective Time. For a period of two years after the
Effective Time, Autodesk shall ensure that the Softdesk Subsidiary fulfills
the foregoing obligations. The Amended Agreement also provides that the
Certificate of Incorporation and Bylaws of the Softdesk Subsidiary will
contain the provisions with respect to indemnification and elimination of
liability for monetary damages set forth in the Certificate of Incorporation
and Bylaws of Softdesk, which provisions will not be amended, repealed or
otherwise modified for a period of three years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
at the Effective Time, were directors, officers, employees or agents of
Softdesk, unless such modification is required by law.
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UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combining financial statements
have been prepared to give effect to the Merger using the purchase method of
accounting.
The unaudited pro forma condensed combining balance sheet as of October 31,
1996 gives effect to the Merger as if it had occurred on October 31, 1996, and
combines the unaudited condensed consolidated balance sheet of Autodesk as of
October 31, 1996 and the audited consolidated balance sheet of Softdesk as of
December 31, 1996.
The unaudited pro forma condensed combining statements of income combine the
historical consolidated statements of income of Autodesk for the year ended
January 31, 1996 and the nine months ended October 31, 1996, and of Softdesk
for the year ended December 31, 1995 and the nine months ended December 31,
1996, respectively, in each case as if the Merger had occurred at the
beginning of the earliest period presented.
The following unaudited pro forma condensed combining financial statements
are presented for illustrative purposes only and are not necessarily
indicative of the financial position or results of operations that would have
actually been reported had the Merger occurred at the beginning of the periods
presented, nor are they necessarily indicative of future financial position or
results of operations. Autodesk retained valuation professionals to assist it
in the determination of the value to be assigned to the individual assets
acquired, including intangible assets and in-process research and development.
The results of this valuation are included in the pro forma adjustments to the
condensed combining balance sheet. However, the final purchase price
allocation is not yet complete as Autodesk's management is still awaiting
certain information related to the purchase. While the pro forma information
has been presented based on the best information currently available to
Autodesk's management, the final allocation could change, and any changes
could affect the pro forma financial information. The types of information
that Autodesk is awaiting include management's plans regarding utilization and
redeployment of Softdesk's assets and operations. Management is still
evaluating the utility and deployment of the assets and operations acquired in
this transaction. The magnitude of the costs to be incurred or asset
impairments related to "exiting" any of the acquired operations is still being
assessed.
These unaudited pro forma condensed combining financial statements are based
upon the respective historical consolidated financial statements of Autodesk
and Softdesk and should be read in conjunction with the respective historical
consolidated financial statements and notes thereto of Autodesk and Softdesk
included elsewhere in this Proxy Statement/Prospectus, and do not incorporate,
nor do they assume, any benefits from cost savings or synergies of operations
of the Combined Company.
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UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET
OCTOBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AUTODESK SOFTDESK ADJUSTMENTS COMBINED
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 87,759 $ 1,958 $ -- $ 89,717
Marketable securities............ 72,842 9,088 -- 81,930
Accounts receivable, net......... 86,384 9,259 -- 95,643
Inventories...................... 9,012 729 -- 9,741
Deferred income taxes............ 26,791 1,245 -- 28,036
Prepaid expenses and other
current assets.................. 16,086 1,405 -- 17,491
-------- ------- -------- --------
Total current assets........... 298,874 23,684 -- 322,558
Marketable securities, including a
restricted Autodesk balance of
$28,000 at October 31, 1996....... 93,265 849 -- 94,114
Computer equipment, furniture, and
leasehold improvements, net....... 48,354 5,461 -- 53,815
Capitalized software and purchased
technologies...................... 17,768 -- -- 17,768
Other assets....................... 18,902 1,352 25,475 (b) 45,729
-------- ------- -------- --------
$477,163 $31,346 $ 25,475 $533,984
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 22,486 $ 2,064 $ -- $ 24,550
Accrued compensation............. 18,258 1,358 -- 19,616
Accrued income taxes............. 62,774 144 -- 62,918
Other accrued liabilities........ 34,082 3,810 3,000 (b) 43,892
3,000 (b)
-------- ------- -------- --------
Total current liabilities...... 137,600 7,376 6,000 150,976
Deferred income taxes.............. 275 -- 5,325(b) 5,600
Litigation accrual................. 29,021 -- 29,021
Other liabilities.................. 1,907 -- -- 1,907
Put warrants....................... 64,500 -- -- 64,500
Stockholders' equity:
Common stock..................... 141,472 60 (60)(b) 234,592
93,120 (a)
Additional paid-in capital....... -- 21,826 (21,826)(b) --
Retained earnings................ 103,640 2,176 (2,176)(b) 48,640
(55,000)(b)
Foreign currency translation
adjustment...................... (1,252) (92) 92 (b) (1,252)
-------- ------- -------- --------
Total stockholders' equity..... 243,860 23,970 14,150 281,980
-------- ------- -------- --------
$477,163 $31,346 $ 25,475 $533,984
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
48
<PAGE>
AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
AUTODESK, INC. SOFTDESK, INC.
FISCAL YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
JANUARY 31, 1996 DECEMBER 31, 1995 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $534,167 $41,737 $ -- $575,904
Costs and expenses:
Cost of revenues...... 66,812 6,119 2,000 (a) 74,931
Marketing and sales... 183,550 14,499 -- 198,049
Research and
development.......... 78,678 10,116 -- 88,794
General and
administrative....... 76,100 3,126 3,845 (a) 83,071
Nonrecurring charges.. -- 2,309 -- 2,309
-------- ------- ------- --------
Total costs and
expenses........... 405,140 36,169 5,845 447,154
-------- ------- ------- --------
Income from operations.. 129,027 5,568 (5,845) 128,750
Interest and other
income, net............ 9,253 488 -- 9,741
-------- ------- ------- --------
Income before income
taxes.................. 138,280 6,056 (5,845) 138,491
Provision for income
taxes.................. 50,492 2,477 (1,333)(a) 51,636
-------- ------- ------- --------
Net income.............. $ 87,788 $ 3,579 $(4,512) $ 86,855
======== ======= ======= ========
Net income per share.... $ 1.76 $ 0.58 $ 1.65
======== ======= ========
Shares used in computing
net income per share... 49,800 6,161 52,681
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
49
<PAGE>
AUTODESK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
AUTODESK, INC. SOFTDESK, INC.
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA PRO FORMA
OCTOBER 31, 1996 DECEMBER 31, 1996 ADJUSTMENTS COMBINED
----------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $381,673 $25,548 $ -- $407,221
Costs and expenses:
Cost of revenues...... 49,134 4,520 1,500 (a) 55,154
Marketing and sales... 150,125 11,364 -- 161,489
Research and
development.......... 69,471 7,029 -- 76,500
General and
administrative....... 55,455 2,508 2,884 (a) 60,847
Nonrecurring charges.. 4,738 1,400 -- 6,138
-------- ------- ------- --------
Total costs and
expenses........... 328,923 26,821 4,384 360,128
-------- ------- ------- --------
Income (loss) from
operations............. 52,750 (1,273) (4,384) 47,093
Interest and other
income, net............ 4,471 311 -- 4,782
-------- ------- ------- --------
Income (loss) before
income taxes........... 57,221 (962) (4,384) 51,875
Provision for income
taxes.................. 21,643 167 (1,000)(a) 20,810
-------- ------- ------- --------
Net income (loss)....... $ 35,578 $(1,129) $(3,384) $ 31,065
======== ======= ======= ========
Net income (loss) per
share.................. $ 0.75 $ (0.19) $ 0.62
======== ======= ========
Shares used in computing
net income (loss) per
share.................. 47,480 6,004 50,288
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combining financial
statements.
50
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(1) PERIODS COMBINED
The Autodesk condensed consolidated statements of income for the year ended
January 31, 1996 have been combined with the Softdesk condensed consolidated
statements of income for the year ended December 31, 1995. Additionally the
Autodesk condensed consolidated statements of income for the nine months ended
October 31, 1996 have been combined with the Softdesk condensed consolidated
statements of income for the nine months ended December 31, 1996.
Autodesk's October 31, 1996 condensed consolidated balance sheet has been
combined with Softdesk's December 31, 1996 condensed consolidated balance
sheet.
(2) PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma condensed combined financial statements reflect
the issuance of 2,815,563 shares of Autodesk Common Stock in exchange for an
aggregate of 6,020,019 shares of Softdesk Common Stock (outstanding as of
December 31, 1996) in connection with the Merger, assuming an Exchange Ratio
of 0.4677 as set forth in the following table.
<TABLE>
<S> <C>
Softdesk Common Stock outstanding as of December 31, 1996......... 6,020,019
Exchange Ratio.................................................... 0.4677
----------
Number of shares of Autodesk Common Stock exchanged............... 2,815,563
Number of shares of Autodesk Common Stock outstanding
as of January 31, 1997........................................... 45,107,608
----------
Number of shares of Autodesk Common Stock outstanding
after completion of the Merger................................... 47,923,171
==========
</TABLE>
The actual number of shares of Autodesk Common Stock to be issued will be
determined at the Effective Time based on an Exchange Ratio determined by
dividing $15.00 by the average of the closing prices of Autodesk Common Stock
for the five trading days immediately preceding the Closing Date and the
number of shares of Softdesk Common Stock outstanding on that date.
(3) PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
OCTOBER 31, 1996
BALANCE SHEET ----------------
<C> <S> <C>
(a) Record Autodesk Common Stock issued and Softdesk
options assumed to complete the Merger.............. $ 93,120,000
(b) Purchase accounting adjustments:
Direct costs of transaction.......................... (3,000,000)
Eliminate Softdesk Equity:
Common stock......................................... (60,000)
Additional paid-in capital........................... (21,826,000)
Retained earnings.................................... (2,176,000)
Foreign currency translation adjustment.............. 92,000
Personnel redeployment and related costs............. (3,000,000)
Charge related to write-off of in-process research
and development..................................... (55,000,000)
Deferred taxes provided for intangibles assets
acquired............................................ (5,325,000)
Intangible assets and goodwill....................... 25,475,000
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JANUARY 31, 1996 OCTOBER 31, 1996
STATEMENT OF INCOME ----------------- -----------------
<C> <S> <C> <C>
(a) Amortization of intangibles:
Cost of revenues.................. $ 2,000,000 $ 1,500,000
General and administrative
expense.......................... $ 3,845,000 $ 2,884,000
Tax provision..................... $(1,333,000) $ (1,000,000)
</TABLE>
Intangible assets include value allocated to the assembled workforce,
trademarks and trade names, developed technology, and goodwill. These
intangible assets are being amortized on a straight-line basis over lives of 4
to 5 years.
The pro forma condensed combining statements of income exclude the $55 million
nonrecurring charge for in-process research and development resulting from the
Merger based upon the preliminary purchase price allocation.
(4) TRANSACTION COSTS AND MERGER RELATED EXPENSES
(a) Autodesk estimates it will incur direct transaction costs of
approximately $2.5-$3.5 million associated with the Merger consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges.
(b) The unaudited pro forma condensed combined balance sheet gives effect to
estimated direct transaction costs of $3 million, $3 million for personnel
redeployment and related costs, and an additional significant charge to
operations totaling $55 million based on the preliminary purchase price
allocation, as if such costs and expenses had been incurred as of October 31,
1996. These costs and expenses are not reflected in the unaudited pro forma
condensed combined statements of income. Softdesk's results for the nine
months ended December 31, 1996, include costs associated with the Merger of
$1.4 million. As a result of the Merger, Autodesk and Softdesk expect to incur
an additional significant charge to operations, which is currently expected to
be $3 million to $4 million, after the Merger is consummated, to reflect costs
associated with integrating the two companies. The accompanying unaudited pro
forma condensed combining financial statements do not reflect any such
additional costs which may ultimately be incurred. There can be no assurance
that the Combined Company will not incur additional charges to reflect costs
associated with the Merger or that management will be successful in its
efforts to integrate the operations of the two companies.
(5) CONFORMING ADJUSTMENTS
No adjustments have been made to conform the accounting policies of the
combined companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(6) PRO FORMA PER SHARE COMPUTATIONS
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in Autodesk's and Softdesk's
historical statements of operations:
<TABLE>
<CAPTION>
FISCAL NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, OCTOBER 31,
1996 1996
----------- -----------
<S> <C> <C>
Shares used in per share calculation (in thousands,
except the exchange ratio):
Historical--Autodesk................................ 49,800 47,480
Historical--Softdesk................................ 6,161 6,004
Exchange Ratio.................................... 0.4677 0.4677
------- ------
2,881 2,808
------- ------
Pro forma combined.................................. 52,681 50,288
======= ======
</TABLE>
52
<PAGE>
AUTODESK
BUSINESS
BACKGROUND
Autodesk is a leader in the development and marketing of design and drafting
software and multimedia tools, primarily for the business and professional
environment. Autodesk's flagship product AutoCAD is one of the world's leading
computer aided design ("CAD") tools, with an installed base of 1.5 million
units worldwide. Autodesk has structured its business to address five key
market segments reflecting the Autodesk customer base and target markets: AEC,
MCAD, GIS, Data Management and Multimedia. Autodesk's AEC customers utilize
Autodesk software alone and in combination with software provided by
Autodesk's third-party developers. Autodesk's MCAD customers include
mechanical engineers, designers and drafters. Autodesk's GIS products provide
easy-to-use mapping and GIS technology to help businesses and governments
manage their assets and infrastructure. Autodesk Data Management products
allow users to organize, access, share, view and manage design-related
information. Autodesk addresses the multimedia market through its Kinetix
division, the leader in PC-based 3D modeling, visualization and animation
software, providing products for digital media and design professionals.
In February 1995, Autodesk realigned its internal marketing and development
organizations around the five key market groups that most closely match
Autodesk's customer base. Each market group incorporates product development,
quality assurance, technical publications and product and industry marketing.
Architecture, Engineering and Construction ("AEC"). The architecture,
engineering, construction and facilities management industries utilize
software from Autodesk and third-party developers to manage every phase of a
building's life cycle--from conceptual design through construction,
maintenance and renovation. CAD is an integral part of today's building design
and construction process. Autodesk believes that the majority of its CAD sales
are directed to the AEC industry.
Mechanical Computer-Aided Design ("MCAD"). Autodesk's Mechanical CAD Market
Group is dedicated to providing mechanical engineers, designers and drafters
with advanced, value-based software solutions that help solve their
professional design challenges. Autodesk's MCAD products include Autodesk
Mechanical Desktop, AutoCAD Designer and AutoSurf.
Geographic Information Systems ("GIS"). Autodesk's GIS Market Group strategy
is to provide easy-to-use mapping and GIS technology to help businesses and
governments manage their assets and infrastructure. The GIS Market Group is
assisting automated mapping/facilities managers, as well as GIS and CAD users
to share mapping, GIS and associated information in a corporate environment.
Autodesk's GIS products include AutoCAD Map, Autodesk MapGuide and AutoCAD
Data Extension ("ADE").
Data Management ("DM"). The Data Management Market Group develops and
markets products that allow users to organize, access, share, view and manage
design-related information. DM products offered by Autodesk include Autodesk
WorkCenter and Autodesk View, as well as products from Autodesk Data
Publishing which publishes pre-formatted product and reference libraries for
specific markets.
Kinetix. The Kinetix division of Autodesk (formerly Autodesk's Multimedia
Market Group) is devoted to bringing powerful 3D content-creation software to
computer-industry professionals focused on film, video, interactive games and
design visualization. Products offered from this market group include 3D
Studio MAX, 3D Studio and AutoVision.
In addition to the five market groups discussed above, Autodesk has
established an Advanced Products Group ("APG") which focuses on providing a
new generation of tools for a much broader market. The goal of APG is to
expand Autodesk's traditional customer base of architects and engineers by
creating, for example, products for individuals in associated trades, such as
landscaping and interior design. The first in a series of APG retail products,
Picture This Home! Kitchen, was launched on January 15, 1997.
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<PAGE>
PRODUCTS
Autodesk's primary CAD software products include AutoCAD, AutoCAD LT and
AutoSketch.
AutoCAD
AutoCAD software is a general-purpose CAD tool used independently and in
conjunction with specific applications designed to work with AutoCAD in fields
ranging from architecture and mechanical design to plant design and mapping.
Professionals utilize AutoCAD for design, modeling, drafting, mapping,
rendering and management tasks. The most current version, AutoCAD Release 13,
was introduced in November 1994. AutoCAD runs on MS-DOS, Windows 95, Windows
NT for both Intel and Alpha, Windows 3.1 and certain UNIX-based platforms (Sun
Solaris, HP-UX, Silicon Graphics IRIX and IBM AIX). The installed base of
AutoCAD exceeds 1.5 million units. Because AutoCAD's .DWG files are portable
across many platforms and operating systems, it is a viable solution for
customers with multiple computer systems who need to exchange drawing files in
such an environment.
Advanced AutoCAD functionality includes a comprehensive 2D and 3D drafting
feature set. AutoCAD also has integrated 3D solid modeling, rendering,
extensive 2D geometry such as NURBS (nonuniform rational B-splines) and
ellipses, associative hatching, streamlined dimensioning and text editing with
a built-in spell checker.
AutoCAD software's open-system architecture allows users to adapt AutoCAD to
unique professional requirements with any of more than 4,500 independently
developed add-on applications. Independent application developers can use the
AutoCAD Runtime Extension ("ARX") programming environment to take advantage of
the re-architected core technology contained in AutoCAD Release 13, which
incorporates object-oriented programming to provide a foundation for the
development of custom, market-specific applications.
Sales of AutoCAD and AutoCAD updates accounted for approximately 80 percent
of Autodesk's revenues in fiscal years 1996 and 1995 as compared to
approximately 85 percent in fiscal year 1994 and 70 percent in the nine month
period ended October 31, 1996. Autodesk currently anticipates that the next
release of AutoCAD will commence shipping in the first half of the fiscal year
ending January 31, 1998.
Autodesk is committed to enhancing AutoCAD software's core technology while
at the same time extending Autodesk's reach with complementary products of
varying price and functionality, some of which are described below.
AutoCAD LT
AutoCAD LT for the Windows 3.1 and Windows 95 operating systems is a low-
cost CAD package offering a wide range of 2D and basic 3D drafting
capabilities. With an installed base of more than 300,000 seats, AutoCAD LT is
intended for CAD managers, designers and engineers who need a powerful, stand-
alone CAD tool, but who do not require AutoCAD's advanced feature set. AutoCAD
LT software contains an extensive 2D drafting toolset as well as 3D lines and
polylines with quick shading and hidden-line removal. Other features include
Aerial View for panning and zooming and Paper Space for scaling, annotating
and assembling multiple drawing views before plotting. Operating in the
Windows environment with pull-down menus, customizable toolbar, toolbox,
menus, and scripts, as well as dialog boxes and icons, AutoCAD LT is easy to
learn and use. AutoCAD LT supports the Windows Clipboard, as well as Object
Linking and Embedding, which allows users to link AutoCAD LT drawings to other
Windows applications such as Microsoft Word or Excel. AutoCAD LT for Windows
95 has complete data compatibility with AutoCAD Release 13, which allows the
exchange of drawings without requiring translation, ensuring greater speed and
accuracy.
AutoSketch
AutoSketch for Windows is a low-cost, entry-level 2D drafting package that
can be used for creating technical diagrams, architectural layouts, electrical
drawings, mechanical plans, information graphics, and
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<PAGE>
presentations. AutoSketch offers easy tool customization; 13 library packs
with more than 2,000 predrawn symbols; extensive editing capabilities; double-
precision geometry; and the ability to write .DWG files for AutoCAD and
AutoCAD LT users.
AutoCAD OEM
AutoCAD OEM ("Original Equipment Manufacturer") for Windows-based operating
systems is a selectively-licensed CAD engine offering a complete application-
development environment for creating and delivering targeted or niche
solutions with scaled feature sets. It is for developers, system integrators
and commercial software developers who require an embeddable CAD system which
gives them the ability to scale and control the application feature set.
AutoCAD OEM provides developers with a complete toolkit of AutoCAD features
and application-programming interfaces ("API") including object-oriented ARX
capabilities, a full suite of drawing and editing functions as well as
AutoLISP, a LISP API and the AutoCAD Development System, a C programming
interface. These capabilities enable development of new products for new
markets untapped by traditional CAD products and solutions.
Autodesk's Mechanical CAD products include Autodesk Mechanical Desktop and
the Autodesk Mechanical Library, which are discussed below.
Mechanical Desktop
Autodesk Mechanical Desktop software is an integrated software application
that unites advanced 2D and 3D mechanical design capabilities for PCs. The
Mechanical Desktop contains integrated modules for parametric feature-based
solid modeling, surface modeling, and assembly modeling, 2D design/drafting
and bi-directional associative drafting, as well as the Autodesk IGES
Translator for AutoCAD Release 13, which enables users to accurately and
efficiently exchange all versions of IGES (Initial Graphics Exchange
Specification)-formatted files. Autodesk Mechanical Desktop 1.1, which began
shipping in August 1996, includes 3D graphics visualization capabilities and
improvements in the accuracy of precise hidden line removal for parts and
components, as well as improved part modeling, surface modeling and drawing
management. The Mechanical Desktop is compatible with other Autodesk product
offerings, including Autodesk WorkCenter for technical document and workflow
management.
Autodesk Mechanical Library
Available on CD-ROM via a regularly updated subscription service from
Autodesk Data Publishing, the Autodesk Mechanical Library currently consists
of two titles: PartSpec and MaterialSpec. PartSpec contains more than 500,000
parts from over 70 manufacturers and MaterialSpec contains more than 25,000
material types. Sophisticated search capabilities allow users to search the
PartSpec database by product, manufacturer, part number or performance
specifications. Once a part is located, users can insert a part drawing
directly into an AutoCAD drawing. PartSpec and the Mechanical Library also
seamlessly integrate with the Autodesk Mechanical Desktop.
Autodesk's GIS Market Group offers a family of GIS products, tools and
developer programs to address the unique requirements of customers who use
geographic information. These products are discussed below:
AutoCAD Map
AutoCAD Map software is the first AutoCAD-based automated-mapping product
for professional planners, utility managers and technicians who create and
maintain their own maps. Built with AutoCAD software, AutoCAD Map focuses on
five key areas: digital map creation; analysis; maintenance of up-to-date
maps; data exchange; and publishing. The application programming interface
("API") in AutoCAD Map lets developers build vertical applications for
industries such as telecommunications, utilities, oil and gas, state and local
government and natural resource and environmental engineering. AutoCAD Map
also contains the object-oriented power of ARX ("AutoCAD Runtime Extension"),
a C++ application development environment that
55
<PAGE>
allows custom applications to operate directly within the AutoCAD Release 13
system architecture. As a result, there are more than 75 developers who
support the AutoCAD Map platform.
MapGuide
Released in October 1996, MapGuide is a Web-based GIS technology that lets
corporate customers and developers use the Internet and business Intranets to
deploy geographic information systems that support live updates of maps and
data. Suited for a wide range of users--from GIS professionals to the casual
computer user--MapGuide lets business and government organizations use the
Internet to access and query digital maps and permits users to display and
analyze geographic data for applications that include tracking customers,
allocating resources, and managing facilities and infrastructure.
AutoCAD Data Extension
AutoCAD Data Extension ("ADE") software is an add-on program that
incorporates AutoCAD drawings with database records and other documents into
one integrated environment. The graphical information created with ADE allows
users to locate data within a set of AutoCAD drawings based upon entity
location; properties such as color, layer, or linetype; or associated data.
Well suited for multi-user work environments, ADE software provides
simultaneous access to an organization's entire drawing database. Entity-
locking and user-access controls monitor changes to source drawings and
prevent accidental overwrites. Other features include data management tools
that automatically link drawing objects to database records and related
documents.
Autodesk's principal data management programs, Autodesk WorkCenter and
Autodesk View, are discussed below.
Autodesk WorkCenter
Windows-based Autodesk WorkCenter software is an easily customized software
system for managing technical documents and automating workflow for design
teams. Its built-in management tools allow users to organize documents
according to specific needs; check documents in and out of a secured,
multiuser environment; and automatically manage revisions over time. With
workflow automation tools such as electronic notification, document
distribution, approvals, and task routing with all relevant documents
attached, Autodesk WorkCenter permits users to track projects easily and
manage the flow of workgroup information. Its customizable interface and
unique SmartView Folders feature allow users such as architects, mechanical
engineers, or facilities managers to tailor the program using terminology and
document/project organization schemes that work for them.
Fully integrated with AutoCAD for Windows, Autodesk WorkCenter offers CAD
document redlining and extensive viewing capabilities and works with more than
150 types of electronic documents, including text, spreadsheet, graphics,
database, and CAD files. Thus, managers can view CAD drawings even though they
may be unfamiliar with CAD software. The software also allows users to compare
two drawings, and then highlights their differences. In September 1996,
Autodesk introduced WorkCenter for the Web, the first commercially released
product to extend the reach and impact of WorkCenter design document
management beyond LAN-based AutoCAD design teams. WorkCenter for the Web lets
design team members quickly and easily share WorkCenter-managed AutoCAD
drawings and related documents through a company Intranet or the Internet.
Autodesk View
Autodesk View is a low-cost CAD preview, view, and redline tool for design
teams. The most current version, Autodesk View 1.1, supports Microsoft Windows
NT and Windows 95 and includes additional AutoCAD Release 13 viewing
functionality. Autodesk View supports more than 150 file formats common to
drafters, designers, and managers, including office productivity formats. With
Autodesk View, project managers can distribute AutoCAD files and related
documents to users in a workgroup who, regardless of their CAD
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<PAGE>
proficiency, need to view and comment on them, and be assured that the
original documents will not be altered in the process.
Autodesk Data Publishing
Autodesk's Data Management Market Group also includes product offerings from
Autodesk Data Publishing ("ADP") which publishes pre-formatted product and
reference libraries for specific markets. ADP titles include PartSpec and
MaterialSpec (previously described) and PlantSpec, and provides purchased
parts information to users in the process manufacturing industry.
PlantSpec
PlantSpec is an intelligent digital library shipping on a CD-ROM for the
process and power industry that brings multiple plant component manufacturers'
product information together in a single digital format. Similar to PartSpec,
PlantSpec includes graphical and texture information in a standard format,
including .DWG blocks, for thousands of parts from multiple manufacturers in
the process manufacturing industry which significantly reduces the time needed
to locate and re-draw manufacturer parts drawings in AutoCAD designs.
The principal product offerings from the Kinetix division are discussed
below.
3D Studio MAX
3D Studio MAX software, which began shipping in the first quarter of fiscal
year 1997, is a 3D modeling and animation software package specifically
written to take advantage of advanced features offered by the Windows NT
operating system. With real-time interface, multiple-processor support, and 3D
graphics acceleration capabilities, 3D Studio MAX delivers workstation-class
performance and functionality to PCs.
The easily navigated, intuitive interface eliminates many of the commonly
accepted boundaries between modeling, rendering, and animation, and offers
instant feedback; users can see the results of their actions, in real time, as
they are applied. Shaded views with real-time feedback allow users to
visualize natural, real-world environments in which they can directly
manipulate objects, regardless of scene complexity. Because 3D Studio MAX
software maintains a data history of geometry creation and modification, users
can return to and change any step, at any time, without having to redo prior
work. 3D Studio MAX is also the only environment that can run Character
Studio, a character-animation and skinning plug-in software product offered by
Autodesk.
3D Studio
3D Studio is a graphics package for creating professional-quality 3D
modeling and animation. This PC-based software product, running in a DOS
environment, provides a full complement of modeling, animation, and rendering
tools that help users create richly textured, workstation-quality images and
animations. In addition, 3D Studio and AutoCAD files are easily exchanged and
allow for the development of advanced engineering or architectural
visualizations. This product is well suited for animation designers and can be
used to create corporate presentations, broadcast animations, industrial
design visualizations, crime reenactments, and architectural walk-throughs, as
well as for education and training.
AutoVision
AutoVision software helps users create photorealistic still renderings and
is integrated completely within AutoCAD software. With AutoVision, AutoCAD
users can produce high-impact images and render, light, and compare multiple
views of a single drawing. AutoVision is compatible with Autodesk 3D Studio
and Autodesk's Texture Universe software, a collection of ready-to-use,
digitized textures and backgrounds offering further visualization
capabilities.
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<PAGE>
PRODUCT DEVELOPMENT AND ENHANCEMENT
The computer industry is characterized by rapid technological change in
computer hardware, operating systems, and software. To keep pace with this
change, Autodesk maintains an aggressive program of new product development.
Autodesk dedicates considerable resources to research and development to
further enhance its existing products and to create new products and
technologies. During fiscal years 1996, 1995, and 1994, and the first nine
months of fiscal year 1997, Autodesk incurred $78,678,000, $65,176,000,
$56,231,000, and $69,471,000, respectively, for software design, development,
product localization, and project-management activities (excluding capitalized
software development costs of approximately $2,100,000 in fiscal year 1995; no
software development costs were capitalized during years 1996 and 1994 or
during the first three quarters of fiscal year 1997). Research and development
expenses as a percentage of net revenues for the third quarter of fiscal year
1997 increased to 20 percent from 15 percent in the third quarter of the prior
fiscal year. Actual research and development spending increased by 21 percent
in absolute dollars on a year over year basis due to the addition of software
engineers and increased personnel costs, costs associated with the development
of new and enhanced products, including the next release of AutoCAD, and the
translation of certain of these products into foreign languages. Autodesk
anticipates that research and development expenses will increase in fiscal
year 1997 over the prior fiscal year as a result of acquisitions and product
development efforts by Autodesk's market groups.
The majority of Autodesk's basic research and product development has been
performed in the US, while translation and localization of foreign-market
versions are generally performed by development teams or contractors in the
local markets. Autodesk's European product-related functions, including
software development, localization, quality assurance, technical publications,
and production are centralized in Neuchatel, Switzerland.
Autodesk intends to continue recruiting and hiring experienced software
developers and to consider the licensing and acquisition of complementary
software technologies and businesses. In addition, Autodesk will continue to
actively collaborate with and support independent software developers who
offer products that enhance and complement AutoCAD software and other products
Autodesk offers.
The software products offered by Autodesk are internally complex and may
contain errors ("bugs"), as is the case generally with computer software,
especially when first introduced. Despite extensive product testing and
quality control, there can be no assurance that errors will not be found in
Autodesk's products. Such errors could result in damage to Autodesk's
reputation, loss of revenues, or lack of market acceptance of its products,
any of which could have a material and adverse effect on Autodesk's business
and consolidated results of operations.
Certain of Autodesk's product development activities are performed by
independent firms and contractors while other technologies are licensed from
third parties. Autodesk generally either owns or has licenses for use of the
software developed by third parties. Because talented development personnel
are in high demand, there can be no assurance that independent developers,
including those who have developed products for Autodesk in the past, will be
able to provide development support to Autodesk in the future. Similarly,
there can be no assurance that Autodesk will be able to obtain and renew
license agreements on favorable terms, if at all, which could have a material
and adverse effect on Autodesk's business and consolidated results of
operations.
Additionally, there can be no assurance that Autodesk's development efforts
will result in the timely introduction of new products or that such new
products will be commercially successful. Failure to successfully develop new
products or delays in the introduction of these new products including the
next version of AutoCAD which is currently anticipated to ship in the first
half of the fiscal year ending January 31, 1998, or lower-than-anticipated
demand for these products could have a material and adverse effect on
Autodesk's business and consolidated results of operations.
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MARKETING AND SALES
Autodesk's customer-related operations are divided into three geographic
regions: the Americas, Europe, and Asia/Pacific. Autodesk's products are
marketed worldwide through a network of domestic and foreign offices. Autodesk
distributes its software products primarily through a network of more than
4,000 independent distributors and dealers (value-added resellers or "VARs")
who distribute Autodesk products to end users in more than 130 countries.
VARs, including both independent owners and computer store franchisees, are
supported by Autodesk and its subsidiaries through technical training,
periodic publications, the Autodesk Forum, an electronic bulletin board on the
CompuServe network, and Autodesk's Home Page on the Internet.
In addition, Autodesk works directly with dealer and distributor sales
organizations, computer manufacturers, other software developers, and
peripherals manufacturers through cooperative advertising, promotions, and
trade-show presentations. Autodesk also holds annual "Expos" throughout the
world. These dedicated trade shows, incorporated within major industry trade
shows, highlight Autodesk's products, as well as a number of third-party
products. Autodesk also employs mass-marketing techniques such as direct
mailings and advertising in business and trade journals. Further, Autodesk
supports user groups dedicated to the exchange of information related to the
use of Autodesk's products.
Domestically, Autodesk distributes its products primarily through its
authorized dealer network. Other domestic sales are made principally to large
corporations, governmental agencies, educational institutions, and for certain
low-end CAD products, end-users. Substantially all of Autodesk's international
sales are made to dealers and distributors, which are supported by Autodesk's
foreign subsidiaries and international sales organizations. Certain
international sales result from direct exports from the United States.
Autodesk's ability to effectively distribute its products depends in part
upon the financial and business condition of its VAR network. Although
Autodesk has not to date experienced any material problems with its VAR
network, computer software dealers and distributors are typically not highly
capitalized, have tended to experience difficulties during times of economic
contraction and during periods of technology-market price pressure, and may do
so in the future. No single customer accounted for more than 10 percent of
Autodesk's consolidated revenues in fiscal year 1996, 1995, or 1994. For the
nine-month period ending October 31, 1996, one international distributor,
Computer 2000 AG, accounted for 11 percent of Autodesk's consolidated
revenues. The loss of or a significant reduction in business with any one of
Autodesk's major international distributors or large US dealers could have a
material adverse effect on Autodesk's business and consolidated results of
operations.
Autodesk intends to continue to make its products available in foreign
languages and expects that foreign sales will continue to contribute a
significant portion of its consolidated revenues. Foreign revenues, including
export sales from the US to foreign customers, accounted for approximately 64
percent, 61 percent, and 58 percent of revenues in fiscal years 1996, 1995,
and 1994, respectively and 67 percent of revenues in the nine-month period
ended October 31, 1996.
CUSTOMER AND DEALER SUPPORT
Autodesk requires each authorized dealer and distributor to provide a
professional level of technical support to customers by employing full-time,
trained, technical-support personnel. Autodesk supports its dealers and
distributors through technical product training, sales training classes, and
direct telephone support. While Autodesk generally does not provide direct
end-user support, Autodesk offers online support to customers through
Autodesk's Home Page on the Internet and to customers who log onto one of the
Autodesk Forums on CompuServe. The four Autodesk Forums are the AutoCAD Forum,
the Autodesk Beta Forum, the Autodesk Multimedia Forum, and the Autodesk
Retail Products Forum. These forums make available to users answers to
technical questions and tips and techniques to assist users of Autodesk
products. The Autodesk Forum also allows Autodesk to make available important
product-support information simultaneously to dealers and customers.
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Responding to the increasing demand for industry-specific customer services,
Autodesk offers authorized Autodesk dealers training and support under two
programs: the Autodesk Premier Support Center ("APSC") program and the
Autodesk Systems Center ("ASC") Solutions Training. The APSC program requires
participating dealers to provide a high level of technical support with
special expertise in a specified vertical industry. The ASC Solutions Training
Program requires dealers to provide superior industry-specific application
training to end-users of Autodesk products. Both programs require that the
dealers meet certain qualifications in order to receive an industry medallion
and APSC and ASC Solutions Training status.
As of October 31, 1996, Autodesk had more than 900 Autodesk Training Center
("ATC") sites throughout the world. These accredited training centers offer
in-depth education and training in computer-aided design skills on AutoCAD and
other Autodesk products, as well as on related, independently developed
software.
Customers have formed Autodesk user groups as forums for education and to
suggest product enhancements and development of new products. The North
American Autodesk User Group ("NAAUG"), officially recognized by Autodesk,
sponsors an annual meeting held concurrently with the Autodesk University user
show; publishes a quarterly newsletter; independently evaluates Autodesk
products; compiles user feature and functionality requirements; and offers
telecourses taught by its membership on CompuServe. In addition there are
local user groups in Europe, Asia/Pacific, and the Americas focused on
expanding the use of Autodesk products.
DEVELOPER PROGRAMS
One of Autodesk's key strategies is to maintain an open-architecture
software product design to facilitate third-party development of peripheral
and complementary products. This open-architecture design enables customers
and third parties to customize Autodesk's products for a wide variety of
highly specific uses. Autodesk offers several programs that provide marketing,
sales, and technical support and programming tools to Autodesk Registered
Developers worldwide who have, to date, developed more than 4,500 commercially
available add-on applications for Autodesk products. Although Autodesk derives
no direct revenue from these application developers, Autodesk believes that
the availability and use of such add-on products enhance sales opportunities
for Autodesk's core products.
Autodesk also licenses its industry-standard component technologies to
selected developers through the Autodesk OEM Program. Currently, the OEM
Program includes a CAD engine and engines for 3D graphics, drawing access, and
rendering. Autodesk's OEM Program provides the technology for qualified
developers to create and deliver suites of scaleable products that focus on
solving customer needs in specialized markets. It also leverages Autodesk's
technological and market leadership, enables developers to take cost-effective
advantage of a growing trend in software engineering technology, and provides
customers with an opportunity to migrate to fully extensible, custom, high-end
Autodesk solutions.
To support the growth of third-party developers worldwide, whose
applications extend and enhance the functionality of Autodesk's products,
Autodesk established the Virtual Corporation Partner Program ("VCPP") during
fiscal year 1995. This program provides sales, marketing, technical, and
financial support to Autodesk Strategic Developers whose efforts broaden and
enhance the functionality of Autodesk software.
In fiscal year 1996, Autodesk introduced the Mechanical Application
Initiative ("MAI") partner program which is aimed at the development and
marketing of products which can be integrated with Autodesk's MCAD products.
MAI partners participate with Autodesk in product marketing and development
activities. In October 1995, an initial application programming interface was
delivered to MAI partners to support their development of applications
compatible with Autodesk's MCAD product offerings.
BACKLOG
Autodesk typically ships products within one to two weeks after receipt of
an order, which is common in the computer software industry. Accordingly,
Autodesk does not maintain significant backlog and backlog as of any
particular date is not representative of actual sales for any succeeding
period.
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COMPETITION
The software industry has limited barriers to entry, and the availability of
desktop computers with continually expanding capabilities at progressively
lower prices contributes to the ease-of-market entry. Because of these and
other factors, competitive conditions in the future are likely to intensify.
Increased competition could result in price reductions, reduced revenues and
profit margins, and loss of market share, which would adversely affect
Autodesk's business, consolidated results of operations and financial
condition.
The AutoCAD family of products competes directly with other CAD software,
including that of MicroStation by Bentley Systems, Inc.; Personal Designer and
CADDS by Computervision Corporation; MICRO CADAM which is developed and
supported by CADAM Systems Company, Inc; and CADKEY by Cadkey, Inc. In the
low-cost CAD segment, AutoCAD LT competes directly with Corel Visual CADD,
software developed by Numera Software and marketed by Corel Corporation, and
indirectly with Visio Technical by Visio Corporation and TurboCADD 2D/3D by
ISMI. Autodesk's MCAD products compete with Parametric Technology
Corporation's Pro/Engineer; SolidWorks 95 from SolidWorks Corporation;
TriSpectives from 3D/Eye; the I-DEAS Master Series from Structural Dynamics
Research Corporation; and the CATIA and CADAM products offered by Paris-based
Dassault Systemes and marketed and sold by IBM. Autodesk's data management
products compete with various low-end file management systems such as AM
Workflow from Cyco Software BV, as well high end product data management
software solutions including offerings from Sherpa Corporation and Metaphase.
Autodesk's data management products also compete with generic document
management products including offerings from Documentum, Inc. and PC DOCS,
Inc. AutoCAD Map competes most directly with MicroStation Geographics from
Bentley Systems, Inc, and GIS product lines offered by Environmental Systems
Research Institute, Inc. and Intergraph Corporation. Autodesk also faces
competition in its foreign markets from a number of products offered by
foreign-based companies.
Product offerings from the Kinetix division--3D Studio MAX, 3D Studio and
AutoVision--are currently available on IBM PCs and compatible computers. The
primary competition in the multimedia software market consists of products
available on personal computers and computer systems offered by Silicon
Graphics, Inc. including multimedia product offerings from Alias|Wavefront, a
wholly owned, independent subsidiary of Silicon Graphics, Inc. Products
competing with 3D Studio MAX and 3D Studio software include Softimage 3D by
Softimage Inc., a wholly owned subsidiary of Microsoft Corporation, Lightwave
3D by NewTek, Inc., and trueSpace 2 and trueSpace/SE by Caligari Corporation.
3D Studio Release 4 is also a viable alternative application to costlier
graphics systems available only on computers offered by Silicon Graphics, Inc.
AutoVision software competes with two third-party add-on products, AccuRender
from Robert McNeel & Associates and RenderStar by RenderStar Technology BV.
Autodesk believes that the principal factors affecting competition in its
markets are price, product reliability, performance, range of useful features,
continuing product enhancements, reputation, and training. In addition, the
availability of third-party application software is a competitive factor
within the CAD market. Autodesk believes that it competes favorably in these
areas and that its competitive position will depend, in part, upon its
continued ability to enhance existing products, and to develop and market new
products.
INTELLECTUAL PROPERTY AND LICENSES
Autodesk protects its intellectual property through copyright, trade secret,
patent, and trademark laws. For substantially all AutoCAD sales outside of
North America, Autodesk uses software protection locks to inhibit unauthorized
copying. Nonetheless, there can be no assurance that Autodesk's intellectual
property rights can be successfully asserted in the future or will not be
invalidated, circumvented or challenged. In addition, the laws of certain
foreign countries where Autodesk's products are distributed do not protect
Autodesk's intellectual property rights to the same extent as the laws of the
US. The inability of Autodesk to protect its proprietary information could
have a material adverse effect on Autodesk's business and consolidated results
of operations.
From time to time, Autodesk receives claims alleging violation of a third
party's intellectual property, including patent rights. Any disputes involving
Autodesk's intellectual property rights or those of another party
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could lead to costly litigation which could have a material adverse effect on
Autodesk's business and consolidated results of operations.
Autodesk retains ownership of software it develops. All software is licensed
to users and provided in object code pursuant to either shrink-wrap, embedded
or on-line licenses or executed license agreements. These agreements contain
restrictions on duplication, disclosure and transfer.
Autodesk believes that because of the limitations of laws protecting its
intellectual property and the rapid, ongoing technological changes in both the
computer hardware and software industries, it must rely principally upon
software engineering and marketing skills to maintain and enhance its
competitive market position.
Autodesk has an in-house antipiracy program focused on pursuing companies
and individuals who illegally duplicate, sell or install Autodesk's software
products. Software piracy is in some cases a felony under US federal law,
which allows copyright and patent holders to protect and enforce their rights
as owners of intellectual property.
PRODUCTION
Production of Autodesk software products involves duplication of the
software media and the printing of user manuals. The purchase of media and
transfer of the software programs onto media for distribution to customers are
performed by Autodesk and by licensed subcontractors. Media for Autodesk's
products include CD-ROMs and disks and are available from multiple sources.
User manuals for Autodesk products and packaging materials are produced to
Autodesk specifications by outside sources. Domestic production is performed
in leased facilities operated by Autodesk. Certain product assembly is also
performed by independent third party contractors. International production is
performed in leased facilities in Switzerland and Australia and by independent
third-party contractors in Ireland, Japan and Singapore. To date, Autodesk has
not experienced any material difficulties or delays in production of its
software and documentation.
EMPLOYEES
As of January 31, 1997, Autodesk had 2,044 full-time employees (1,379 in
North America, 471 in Europe, and 194 in Asia/Pacific), of whom 624 were in
software development and quality assurance, 930 in marketing and sales, 111 in
production, and 379 in general and administrative positions. Autodesk believes
that its future success will depend, in part, on its ability to continue to
attract and retain highly skilled technical, marketing, support, and
management personnel.
None of Autodesk's employees in the United States is subject to a collective
bargaining agreement, and Autodesk has never experienced a work stoppage.
Management believes that its employee relations are good.
PROPERTIES
Autodesk's executive offices and those related to product development,
domestic marketing, and sales and production are located in leased office
space in northern California. Autodesk also leases office space in various
locations throughout the US for local sales and technical support personnel.
Autodesk's foreign subsidiaries lease office space for their operations.
Autodesk owns substantially all equipment used in its facilities.
LEGAL PROCEEDINGS
In October 1992, Vermont Microsystems, Inc. ("VMI") filed a complaint
against Autodesk in the US District Court for the District of Vermont,
alleging among other things, misappropriation of trade secrets. In October
1994, the case was tried before a Magistrate of the US District Court for the
District of Vermont. In December 1994, the US District Court ruled in favor of
VMI on the trade secret claim and Autodesk recorded a litigation charge of
$25.5 million as a result of a judgment in this matter. Autodesk appealed that
judgment, and VMI cross-appealed, before the US Court of Appeals for the
Second Circuit in January 1996. In July 1996, the
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Court of Appeals affirmed the lower court's finding of liability but remanded
the award for damages back to the US District Court for the District of
Vermont to reconsider the appropriate calculation of damages. VMI's cross-
appeal was denied by the appellate court. On December 23, 1996, the US
District Court for the District of Vermont reduced VMI's award to $7,753,410,
plus interest. VMI subsequently filed a motion to amend the judgment, which
motion was granted by the court, and judgment was entered in the amount of
$14,209,390, plus interest. Because additional motions or appeals may yet be
filed, Autodesk has not reflected the reduction of damages in its financial
statements.
Tektronix, Inc. has filed a complaint in the US District Court for the
District of Oregon alleging infringement by Autodesk of US Patent No.
4,734,690. Autodesk believes that it has meritorious defenses to the
allegations set forth in the complaint and intends to defend itself vigorously
in this action. The Company is still evaluating the claims in this matter.
Management believes the ultimate outcome of this matter will not be material
to Autodesk's consolidated financial position, results of operations or cash
flows.
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AUTODESK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION IN "AUTODESK MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS TREND ANALYSIS AND
OTHER FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE FACTORS SET FORTH ELSEWHERE HEREIN, INCLUDING "--CERTAIN RISK
FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS" AND "RISK FACTORS."
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues,
consolidated statement of operations data for the periods indicated. These
operating results are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED ENDED
JANUARY 31, OCTOBER 31,
------------------------ -------------
1996 1995 1994 1996 1995
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues......................... 100% 100% 100% 100% 100%
Costs and expenses:
Cost of revenues................... 13 14 16 13 12
Marketing and sales ............... 34 34 34 39 34
Research and development........... 15 14 14 18 14
General and administrative......... 14 14 14 15 14
Nonrecurring charges............... -- 6 -- 1 --
------ ------ ------ ----- -----
Total costs and expenses......... 76 82 78 86 74
------ ------ ------ ----- -----
Income from operations............... 24 18 22 14 26
Interest and other income, net....... 2 2 2 1 2
------ ------ ------ ----- -----
Income before income taxes........... 26 20 24 15 28
Provision for income taxes........... 9 7 9 6 10
------ ------ ------ ----- -----
Net income ...................... 17% 13% 15% 9% 18%
====== ====== ====== ===== =====
</TABLE>
NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
Net revenues. Autodesk's net revenues for the nine months ended October 31,
1996 were $381.7 million which represented a 6 percent decrease from the same
period of the prior fiscal year. Revenue decreases were noted in the Americas
and Europe of 14 percent and 6 percent, respectively, reflecting slowdowns in
the US dealer channel, Germany, Switzerland, and France. The reductions
reflect lower sales of AutoCAD and AutoCAD updates as the current release
enters the end of its product life. Net revenues for the first nine months of
fiscal year 1997 were also negatively impacted by approximately $14.0 million
when compared to the same period of the prior fiscal year due to changes in
foreign exchange rates. Autodesk's revenues were negatively impacted by a
stronger US dollar versus the Japanese yen and German mark, partially offset
by favorable variances versus the Italian lire and Swedish krona. The
decreased revenues as compared to the prior fiscal year were partially offset
by revenues from new and enhanced products introduced during fiscal year 1997,
most notably Autodesk Mechanical Desktop, AutoCAD LT for Windows 95, Autodesk
Map and 3D Studio MAX. International sales, including exports from the US,
accounted for approximately 67 percent of Autodesk's revenues in the first
nine months of fiscal year 1997 as compared to 64 percent for the same period
of fiscal year 1996.
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For the three- and nine - month periods in fiscal year 1996 ended October
31, 1995, product returns, which are accounted for as a reduction of revenues,
were 11 percent and 9 percent of consolidated net revenues, respectively. For
the comparable periods in fiscal year 1997, product returns were 8 percent and
9 percent of consolidated net revenues. While Autodesk experienced a decrease
in product returns in absolute dollars during the first nine months of fiscal
year 1997, management anticipates that product returns in future periods will
continue to be impacted by product update cycles, new product releases, and
software quality
Autodesk believes that net revenues in the coming quarters will be
negatively impacted by an anticipated slowdown in sales of AutoCAD and related
updates as AutoCAD Release 13 nears the end of its product life cycle. As a
result, AutoCAD revenues are expected to continue to decline as a percentage
of consolidated revenues. While Autodesk expects that new products introduced
in recent quarters, including 3D Studio MAX, AutoCAD LT for Windows 95,
Autodesk Map and Autodesk Mechanical Desktop, will partially offset the
decrease in AutoCAD revenues, Autodesk currently does not anticipate revenue
growth on a sequential basis in the quarter ending January 31, 1997. Autodesk
expects, however, that following the commencement of shipping the next release
of AutoCAD, which is currently anticipated to occur in the first half of the
fiscal year ending January 31, 1998, AutoCAD sales will increase as a
percentage of consolidated revenues. While Autodesk has anticipated a slowdown
and subsequent increase in AutoCAD revenues based on historical experiences
and anticipated market conditions, any variations from Autodesk's current
expectations may have a material impact on Autodesk's financial results.
Delays in the introduction of the next version of AutoCAD or other new and
enhanced products planned for the coming quarters, or failure to achieve
significant customer acceptance for these new products, may have a material
adverse effect on Autodesk's revenues and consolidated results of operations
in future periods. Additionally, continued slowdowns in the Americas,
particularly in the US, and in various European markets including Germany and
Italy, could also have a material adverse effect on Autodesk's business and
consolidated results of operations.
Cost of revenues. Cost of revenues as a percentage of net revenues increased
approximately one-half of one percent in the first nine months of fiscal year
1997 as compared to the same period of the prior fiscal year. Gross margins in
fiscal year 1997 were adversely impacted by the mix of products sales and, to
a lesser extent, the impact of increased fixed costs on a lower net revenue
base. Revenues from commercial versions of AutoCAD, which historically have
yielded a higher gross margin than many of Autodesk's other commercial
products, decreased as a percentage of consolidated revenues. Similarly, the
portion of revenue contributed by AutoCAD LT, which has a lower gross margin
than commercial versions of AutoCAD, increased as a percentage of total
revenues. In the future, cost of revenues as a percentage of net revenues may
be impacted by the mix of product sales, royalty rates for licensed technology
embedded in Autodesk's products and the geographic distribution of sales.
Marketing and sales. Marketing and sales expenses increased from 34 percent
of net revenues in the first nine months of fiscal year 1996 to 39 percent in
the same period of fiscal year 1997. Actual spending increased 9 percent as a
result of higher employee costs as well as marketing and sales costs
associated with the launch of AutoCAD LT for Windows 95 and AutoCAD Map.
Autodesk expects to continue to invest in marketing and sales of its products,
to develop market opportunities and to promote Autodesk's competitive
position. Accordingly, Autodesk expects marketing and sales expenses to
continue to be significant, both in absolute dollars and as a percentage of
net revenues.
Research and development. Research and development expenses as a percentage
of net revenues for the first nine months of fiscal year 1997 increased to 18
percent from 14 percent in the same period of the prior fiscal year. Actual
research and development spending increased by 19 percent in absolute dollars
on a year over year basis due to the addition of software engineers, expenses
associated with the development of new and enhanced products, including the
next release of AutoCAD, and the translation of certain of these products into
foreign languages. Autodesk anticipates that research and development expenses
will increase in future periods as a result of acquisitions and product
development efforts by Autodesk's market groups. Additionally, Autodesk
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intends to continue recruiting and hiring experienced software developers and
to consider the licensing and acquisition of complementary software
technologies and businesses.
General and administrative. General and administrative expenses were 15
percent of net revenues for the nine months ended October 31, 1996 as compared
to 14 percent in the same period of fiscal year 1996. Actual spending remained
relatively flat between the periods and reflected increased costs associated
with recent acquisitions offset by lower professional fees. Autodesk currently
expects that general and administrative expenses will increase moderately in
future periods to support spending on infrastructure, including continued
investment in Autodesk's worldwide information systems, and to a lesser
extent, as a result of recent acquisitions.
Nonrecurring charges. During the nine months ended October 31, 1996,
Autodesk acquired assets from Argus Technologies, Inc. ("Argus") as well as
the outstanding stock of Teleos Research ("Teleos"). These were accounted for
using the purchase method of accounting, with the purchase price being
principally allocated to capitalized software, purchased technologies and
intangible assets. Approximately $3.2 million of the Teleos purchase price and
$1.5 million of the Argus purchase price represented the value of in-process
research and development that had not yet reached technological feasibility
and had no alternative future use. These amounts were charged to operations
during the nine-month period ended October 31, 1996. Additional consideration
may also be payable in the future to the former shareholders of Argus and
Teleos based on product milestones and operating results, which amounts are
expected to be allocated to intangible assets and amortized on a straight-line
basis over two-to-five year periods.
The results of Argus and Teleos have been included in Autodesk's
consolidated financial statements from the respective acquisition dates. In
the near term, Autodesk expects that operating expenses associated with these
acquisitions and other acquisitions completed during the first nine months of
fiscal year 1997 will exceed revenues, resulting in a negative impact of up to
$0.02 per share in the fourth quarter of fiscal year 1997.
The Combined Company expects to incur a significant non-recurring charge to
operations in the quarter in which the Merger is consummated estimated to be
in the range of $50 million to $60 million with respect to in-process research
and development based on the preliminary purchase price allocation. As a
result of the Merger, Autodesk and Softdesk also expect to incur an additional
significant charge to operations, which is currently expected to be $3 million
to $4 million, after the Merger is consummated, to reflect costs associated
with integrating the two Companies. There can be no assurance that the
Combined Company will not incur additional charges to reflect costs associated
with the Merger or that management will be successful in its efforts to
integrate the operations of the two Companies.
Interest and other income. Interest and other income for the nine months
ended October 31, 1996 was $4.5 million as compared to $7.3 million in the
same period of the prior fiscal year. Interest income was $5.3 million for the
first nine months of fiscal year 1997 as compared to $8.2 million in the same
period of the prior fiscal year. The decrease in interest income from the same
period of the prior fiscal year resulted from lower average cash balances and
lower interest rates on Autodesk's international investment portfolio.
Income taxes. Autodesk's effective income tax rate was 37.8 percent for the
nine-month period ended October 31, 1996 as compared to 36.5 percent in the
same period of the prior fiscal year. The increase in the effective income tax
rate resulted from a one-time charge for acquired in-process research and
development recorded in the second quarter of fiscal year 1997 associated with
the Teleos acquisition, which is not deductible for income tax purposes,
partially offset by a reduction in the effective income tax rate attributable
to increased foreign earnings which are taxed at rates lower than the US
statutory rate.
As a result of the Merger, Autodesk's effective income tax rate in the
period in which the transaction is consummated will increase significantly as
a result of the nonrecurring charge for in-process research and development
expected to be recorded in connection with the Merger which is not deductible
for income tax purposes.
FISCAL YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
Net revenues. Autodesk's consolidated net revenues increased 18 percent to
$534.2 million in fiscal year 1996 from $454.6 million in fiscal year 1995.
Autodesk achieved net revenue growth in all sales geographies,
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the most significant occurring in Autodesk's European operations. Growth in
revenues resulted from higher sales of AutoCAD software, Autodesk's flagship
product, as well as increased sales of multimedia, data management and low-end
CAD product offerings, most notably AutoCAD LT.
Sales of AutoCAD and AutoCAD updates increased from the prior fiscal year
while continuing to represent approximately 80 percent of consolidated net
revenues. Worldwide demand for AutoCAD remained strong in fiscal year 1996,
resulting in the sale of 233,000 new licenses compared to 203,000 in the prior
fiscal year. Fiscal year 1996 AutoCAD update revenue resulted principally from
sales of the most current AutoCAD version, AutoCAD Release 13, which was
released in the fourth quarter of fiscal year 1995. AutoCAD update revenue
increased 17 percent over the previous fiscal year to approximately $49
million in fiscal year 1996.
When viewed by geography, fiscal year 1996 net revenues increased 33
percent, 23 percent and 3 percent in Europe, Asia/Pacific and the Americas,
respectively, compared to fiscal year 1995 growth in these regions of 15
percent, 25 percent, and 4 percent. Foreign revenues, including export sales
from the United States, accounted for approximately 64 percent, 61 percent,
and 58 percent of revenues in fiscal years 1996, 1995 and 1994, respectively.
The weaker value of the dollar, relative to international currencies,
favorably affected fiscal year 1996 international revenues by approximately
$18.8 million compared to fiscal year 1995. Fiscal year 1995 sales were also
favorably impacted by currency fluctuations by approximately $12.0 million
compared to fiscal year 1994. Since most of Autodesk's international
production costs and operating expenses are incurred in foreign currencies,
the net impact of exchange rate fluctuations on income from operations is less
than on revenues.
A summary of revenues by geographic area is presented in Note 9 of Notes to
Autodesk Consolidated Financial Statements.
Autodesk records product returns as a reduction of revenues. In fiscal years
1996, 1995, and 1994, product returns, consisting principally of stock
rotation, totaled $51.2 million or 9 percent of consolidated revenues, $28.6
million or 6 percent of consolidated revenues, and $7.7 million or 2 percent
of consolidated revenues, respectively. Returns of AutoCAD products accounted
for 79 percent, 75 percent, and 88 percent of total product returns in fiscal
years 1996, 1995, and 1994, respectively. More specifically, returns of
AutoCAD Release 13 products accounted for $29.5 million in fiscal year 1996.
In fiscal year 1996, product returns were higher in each successive quarterly
period, increasing to 10 percent and 12 percent of consolidated revenues in
the third and fourth fiscal quarters, respectively. Management attributed the
increase in the product returns in fiscal year 1996 primarily to product
rotation associated with performance issues with initial versions of the
AutoCAD Release 13 software, the number and complexity of associated
corrective releases to the software, and, ultimately, certain customer
dissatisfaction with these corrective releases. Fiscal year 1996 product
returns were, to a lesser extent, also impacted by transition and update
cycles related to the introduction of new and enhanced products, including
AutoCAD Designer, 3D Studio, and AutoCAD LT. Fiscal year 1995 product returns
increased relative to fiscal year 1994 primarily due to product rotation of
previous versions of AutoCAD associated with the introduction of AutoCAD
Release 13. An increase in the number of Autodesk vertical market
applications, including AutoVision and AutoCAD Data Extension, the
introduction of Autodesk's next generation retail-CAD product offering,
AutoCAD LT, and the elimination of the Generic CADD product family also
contributed to an increase in product returns in fiscal year 1995 as compared
to the prior fiscal year.
The nature and technical complexity of Autodesk's software is such that
defect corrections have occurred in the past and may occur in future releases
of AutoCAD and other products offered by Autodesk. Performance issues
associated with AutoCAD Release 13 were more substantial than Autodesk had
experienced with previous AutoCAD releases. The total cost of corrective
actions was also likely more substantial, although the nature of such costs
does not lend itself to quantification. Autodesk believes the corrective costs
include not only the salary and other associated expenses for time spent by
the engineering staff, but also costs relating to the diversion of resources
in Autodesk's distribution channel and sales organization, the potential
impact of delays on other research and development projects and damage to the
Autodesk and AutoCAD brand names.
Direct commissions paid to dealers represented 2 percent of net revenues in
both fiscal years 1996 and 1995 and increased to $12.7 million in fiscal year
1996 from $10.7 million in fiscal year 1995. This increase resulted from
higher sales to national accounts and US educational institutions. The
decrease in direct commissions in
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fiscal year 1995 when compared to fiscal year 1994 resulted from a reduction in
the domestic commission rate in the last half of fiscal year 1994, partially
offset by increased national account and education sales in the US.
Cost of revenues. Cost of revenues includes the purchase of disks and compact
discs (CD-ROMs), costs associated with transferring Autodesk's software to
electronic media, printing of user manuals and packaging materials, freight,
royalties, amortization of capitalized software development costs and, in
certain foreign markets, software protection locks. The improved gross margin
in fiscal years 1996 and 1995 resulted from ongoing cost-control measures,
primarily in the areas of purchasing, disk duplication, assembly, packaging and
shipping, and the increased use of lower-cost CD-ROM media.
Marketing and sales. Marketing and sales expenses include salaries, sales
commissions, travel and facility costs for Autodesk's marketing, sales, dealer
training and support personnel. These expenses also include programs aimed at
increasing revenues, such as advertising, trade shows and expositions, as well
as various sales and promotional programs designed for specific sales channels.
While remaining constant as a percentage of net revenues, fiscal year 1996
marketing and sales expenses increased from the prior fiscal year due to an
increase in personnel costs, sales incentive programs, continued expansion in
the sales geographies, and expenses to support Autodesk's market group
structure. Fiscal year 1995 marketing and sales expenses increased over fiscal
year 1994 primarily due to worldwide marketing programs to support releases of
new and enhanced products, including AutoCAD Release 13.
Research and development. Research and development expenses consist
principally of salaries and benefits for software engineers, contract
development fees, expenses associated with product translations, costs of
computer equipment used in software development, and facility expenses. Total
research and development spending, including capitalized expenses, increased
$11.4 million or 17 percent during fiscal year 1996 due to the addition of
software engineers, costs associated with the development of new and enhanced
products, and the translation of certain of these products into foreign
languages. Research and development spending, including capitalized expenses,
in fiscal year 1995 increased $11.1 million from fiscal year 1994 as a result
of development costs for software products such as AutoCAD Release 13 and
expenses for product localization. Autodesk capitalized product development
expenses of $2.1 million in fiscal year 1995 and none in fiscal years 1996 and
1994.
General and administrative. General and administrative expenses include
Autodesk's information systems, human resources, finance, legal, purchasing and
other administrative operations. The increase in these expenses in fiscal year
1996 resulted from higher personnel costs associated with increased operations
and expenses to upgrade and maintain Autodesk's worldwide information systems,
partially offset by a reduction in legal expenses. The increase in general and
administrative expenses in fiscal year 1995 over fiscal year 1994 resulted
primarily from legal expenses incurred in connection with the litigation
discussed below and from higher personnel and facility costs.
Nonrecurring charges. In December 1994, a $25.5 million judgment was entered
against Autodesk on a claim of trade secret misappropriation brought by Vermont
Microsystems, Inc. ("VMI"). Autodesk recorded this nonrecurring charge in the
fourth quarter of fiscal year 1995, resulting in a $0.33 reduction in net
income per share. Autodesk appealed the judgment, and VMI cross-appealed,
before the US Court of Appeals for the Second Circuit, in January 1996. In July
1996, the Court of Appeals affirmed the lower court's finding of liability but
remanded the award of damages back to the US District Court for the District of
Vermont to reconsider the appropriate calculation of damages. On December 23,
1996, the District Court reduced VMI's award to approximately $7.8 million,
plus interest from the date of the initial award. VMI subsequently filed a
motion to amend the judgment, which motion was granted by the court, and
judgment was entered in the amount of $14,209,390, plus interest. Because
additional motions or appeals may yet be filed, Autodesk has not reflected the
reduction of damages in its financial statements.
Interest and other income. Interest income was $10.6 million, $8.0 million
and $7.9 million for fiscal years 1996, 1995 and 1994, respectively. The
increase in fiscal year 1996 interest income from the prior fiscal year
resulted from a greater average balance of cash, cash equivalents and
marketable securities, partially offset by lower interest rates on Autodesk's
international investment portfolio when compared to the same period in the
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prior fiscal year. Interest and other income for fiscal years 1996 and 1995
was net of interest expense of $1.8 million and $0.2 million, respectively,
associated with the VMI judgment.
Autodesk has a hedging program to minimize foreign exchange gains or losses,
where possible, from recorded foreign-denominated assets and liabilities. This
program involves the use of forward foreign exchange contracts in the primary
European and Asian currencies. Autodesk does not currently attempt to hedge
foreign-denominated revenues and expenses not yet incurred. Gains (losses)
resulting from foreign currency transactions primarily in Europe and
Asia/Pacific, which are included in interest and other income, were $554,000,
($1,043,000), and ($969,000) in fiscal years 1996, 1995, and 1994,
respectively.
Provision for income taxes. See Note 3 of Notes to the Autodesk Consolidated
Financial Statements for an analysis of the differences between the US
statutory and effective income tax rates.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
Autodesk operates in a rapidly changing environment that involves a number
of risks, some of which are beyond the Autodesk's control. The following
discussion highlights some of these risks and the possible impact of these
factors on future results of operations.
Fluctuations in quarterly operating results. Autodesk has experienced
fluctuations in operating results in interim periods in certain geographic
regions due to seasonality and general economic conditions in these markets.
Autodesk's operating results in Europe during the third fiscal quarter are
usually impacted by a slow summer period while the Asia/Pacific operations
typically experience seasonal slowing in the third and fourth fiscal quarters.
Autodesk typically receives and fulfills a majority of its orders within the
quarter, with a substantial portion occurring in the third month of the fiscal
quarter. As a result, Autodesk may not learn of a revenue shortfall until late
in a fiscal quarter. Additionally, Autodesk's operating expenses are based in
part on its expectations for future revenues and are relatively fixed in the
short term. Any revenue shortfall below expectations could have an immediate
and significant adverse effect on results of operations.
Similarly, shortfalls in Autodesk's revenues or earnings from levels
expected by securities analysts could have an immediate and significant
adverse effect on the trading price of Autodesk Common Stock. Moreover, the
price of Autodesk Common Stock is subject to the volatility generally
associated with software and technology stocks and may also be affected by
broader market trends unrelated to Autodesk's performance.
Product concentration. Autodesk derives a substantial portion of its
revenues from sales of AutoCAD, AutoCAD updates, and adjacent computer-aided
design ("CAD") products which are interoperable with AutoCAD. As a result, any
factor adversely affecting sales of AutoCAD and AutoCAD updates, including
such factors as product life cycle, market acceptance, product performance and
reliability, reputation, price competition, and the availability of third-
party applications, could have a material adverse effect on Autodesk's
business and consolidated results of operations and financial condition. The
current version of AutoCAD, Release 13, is entering the later stages of its
product life cycle which is expected to result in lower AutoCAD sales in
future periods. While Autodesk has anticipated a slowdown in AutoCAD revenues
based on historical experiences and expected market conditions, any variations
from Autodesk's current expectations may have a material impact on Autodesk's
financial results.
A substantial portion of Autodesk's CAD sales, including sales of AutoCAD
and AutoCAD updates, are used by the AEC industry. Autodesk's product sales to
the AEC markets, particularly in the US and in various European markets,
including Germany, France, and Italy, relative to prior periods, have slowed
due in part to general market conditions and short-term growth is not
anticipated for these markets. Contraction in the AEC industry in other
markets where Autodesk operates or a greater than anticipated slowdown in the
US and Europe could have a material adverse effect on Autodesk's business and
consolidated results of operations in future periods.
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Product development and introduction. The software products offered by
Autodesk are internally complex and, despite extensive testing and quality
control, may contain errors or defects ("bugs"), especially when first
introduced. In fiscal year 1996, Autodesk experienced quality and performance
issues associated with AutoCAD Release 13, including issues related to
compatibility with certain hardware platforms and peripheral equipment,
interoperability problems with products designed to work in conjunction with
AutoCAD Release 13 and other issues associated with the software's object-
oriented design. These factors resulted in a high rate of product returns in
fiscal year 1996. While Autodesk believes the AutoCAD Release 13 performance
issues have been satisfactorily addressed, there can be no assurance that
defects or errors will not be discovered in future releases of AutoCAD and
other software products offered by Autodesk. Such defects or errors could
result in corrective releases to Autodesk's software products, damage to
Autodesk's reputation, loss of revenues, an increase in product returns, or
lack of market acceptance of its products, any of which could have a material
and adverse effect on Autodesk's business and consolidated results of
operations.
The software industry is characterized by rapid technological change as well
as changes in customer requirements and preferences. Autodesk believes that
its future results will depend largely upon its ability to offer products that
compete favorably with respect to price, reliability, performance, range of
useful features, continuing product enhancements, reputation and training.
Delays or difficulties including the discovery of product defects similar to
those experienced with AutoCAD Release 13, may result in the delay or
cancellation of planned development projects, including the next version of
AutoCAD which is currently anticipated to ship in the first half of the fiscal
year ending January 31, 1998, could have a material and adverse effect on
Autodesk's business and consolidated results of operations. Further, increased
competition in the market for design, mapping, multimedia, data management or
data publishing software products could also have a negative impact on
Autodesk's business and consolidated results of operations.
Certain of Autodesk's product development activities are performed by
independent firms and contractors while other technologies are licensed from
third parties. Autodesk generally either owns or has an exclusive license for
use of the software developed by third parties. Because talented development
personnel are in high demand, there can be no assurance that independent
developers, including those who have developed products for Autodesk in the
past, will be able to provide development support to Autodesk in the future.
Similarly, there can be no assurance that Autodesk will be able to obtain and
renew license agreements on favorable terms, if at all, and any failure to do
so could have a material adverse effect on Autodesk's business and
consolidated results of operations.
International revenues. Autodesk anticipates that international revenues
will continue to account for a significant portion of its consolidated
revenues. Risks inherent in Autodesk's international sales include the
following: unexpected changes in regulatory practices and tariffs;
difficulties in staffing and managing foreign operations; longer collection
cycles; potential changes in tax laws; greater difficulty in protecting
intellectual property; and the impact of fluctuating exchange rates between
the US dollar and foreign currencies in markets where Autodesk does business.
During the first nine months of the fiscal year ending January 31, 1997,
changes in exchange rates from the same period of the prior fiscal year have
adversely impacted revenues principally due to changes in the Japanese yen and
German mark. Autodesk's international results may also be impacted by general
economic and political conditions in these foreign markets including a current
slowdown in the German market and its adverse impact on other European markets
where Autodesk operates. There can be no assurance that these and other
factors will not have a material adverse effect on Autodesk's future
international sales and consequently on Autodesk's business and consolidated
results of operations.
Dependence on distribution channels. Autodesk sells its software products
primarily to distributors and dealers (value-added resellers or "VARs").
Autodesk's ability to effectively distribute its products depends in part upon
the financial and business condition of its VAR network. Although Autodesk has
not to date experienced any material problems with its VAR network, computer
software dealers and distributors typically are not highly capitalized and
have experienced difficulties especially during times of economic contraction
and may do so in the future. The loss of, or a significant reduction in,
business with any one of Autodesk's major
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international distributors or large US dealers could have a material adverse
effect on Autodesk's business and consolidated results of operations in future
periods.
Product returns. With the exception of certain European distributors,
agreements with the Company's VARs do not contain specific product-return
privileges. However, Autodesk permits its VARs to return product in certain
instances, generally during periods of product transition and during update
cycles. In fiscal year 1996, Autodesk experienced a higher level of product
returns than in fiscal years 1995 and 1994, most notably in the US, which
management attributed to performance issues associated with initial versions
of AutoCAD Release 13 software. While Autodesk believes that product returns
will decrease in absolute dollars in fiscal year 1997, management anticipates
that product returns in future periods will continue to be impacted by product
update cycles, new product releases, and software quality.
Autodesk establishes reserves, including reserves for stock balancing and
product rotation, based on estimated future returns of product and after
taking into account channel inventory levels, the timing of new product
introductions, and other factors. While the Company maintains strict measures
to monitor channel inventories and to provide appropriate reserves, actual
product returns may differ from the Company's reserve estimates, and such
differences could be material to Autodesk's consolidated financial statements.
Intellectual property. Autodesk protects its intellectual property through
copyright, trade secret, patent, and trademark laws. There can be no assurance
that such measures will be adequate to protect Autodesk's proprietary
intellectual property or that claims or infringement of third parties'
intellectual property rights will not occur. In the normal course of business,
Autodesk receives and makes inquiries with regard to possible patent
infringement. Disputes regarding patent infringement or violations of other
intellectual property rights could lead to costly litigation or licensing
arrangements. Where deemed advisable, Autodesk may seek licenses or to
negotiate settlements. Costs incurred in the future to litigate intellectual
property ownership issues or to negotiate license rights could negatively
impact future results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities, which consist primarily of
high-quality municipal bonds, tax-advantaged money market instruments and US
Treasury notes, totaled $253.9 million at October 31, 1996 compared to $272.4
million at January 31, 1996. (Both amounts include a restricted balance of
$28.0 million related to a litigation judgment. See "Autodesk--Business--Legal
Proceedings.") During the first nine months of fiscal year 1997, Autodesk
generated $72.3 million in cash from operations and realized cash proceeds of
$17.6 million from the issuance of shares through employee stock option and
stock purchase programs. These increases were partially offset by cash used to
purchase 2,207,000 shares of Autodesk Common Stock ($67.0 million) under an
ongoing, systematic repurchase program and under a 5.0 million share
repurchase program approved by Autodesk's Board of Directors in August 1996;
to purchase computer equipment, furniture, and leasehold improvements ($15.3
million); to effect businesses combinations ($9.7 million); and to pay
dividends on Autodesk Common Stock ($8.1 million).
In August 1996, the Autodesk announced a stock repurchase program under
which Autodesk may purchase up to 5 million shares of Autodesk Common Stock in
open market transactions as market and business conditions warrant. Autodesk
may also utilize equity options as part of its repurchase program. This
program is in addition to shares previously reserved pursuant to an on-going
and systematic repurchase plan to reduce the dilutive effect of common stock
to be issued under Autodesk's stock option plans.
In connection with the new repurchase program, Autodesk sold put warrants to
an independent third party in September 1996 that entitle the holder of the
warrants to sell 3 million shares of Autodesk Common Stock to Autodesk at
$21.50 per share. Additionally, Autodesk purchased call options that entitle
Autodesk to buy 2 million shares of Autodesk Common Stock at $25.50 per share.
The put warrants and call options expire in
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September 1997. The premiums received with respect to the equity options
totaled $8.1 million and equaled the premiums paid. Consequently, there was no
exchange of cash. The amount related to Autodesk's maximum potential
repurchase obligation under the put warrants has been reclassified from
stockholders' equity to put warrants at October 31, 1996. Autodesk has the
right to settle the put warrants with stock or a cash settlement equal to the
difference between the exercise price and market value at the date of
exercise. These securities had no significant dilutive effect on net income
per share for the periods presented.
Autodesk's principal commitments to use cash at October 31, 1996 include
payments of operating leases for facilities and Autodesk's potential put
warrant obligation under its new stock repurchase program.
Autodesk hedges a portion of its exposure on certain intercompany
receivables denominated in foreign currencies using forward foreign exchange
contracts in European and Asian currencies. Autodesk's material unhedged
monetary assets, liabilities and commitments denominated in currencies other
than the US dollar at October 31, 1996, consisted of cash and cash
equivalents, marketable securities and operating lease commitments.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancement of
existing products; financing anticipated growth; dividend payments;
repurchases of Autodesk Common Stock; and the possible acquisition of
businesses, software products or technologies complementary to Autodesk's
business. Autodesk believes that its existing cash, cash equivalents,
marketable securities, available line of credit and cash generated from
operations will be sufficient to satisfy its currently anticipated cash
requirements.
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AUTODESK MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The executive officers and directors of Autodesk and their ages as of
January 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carol A. Bartz.......... 48 Chairman of the Board and Chief Executive Officer
Eric B. Herr............ 48 President; Chief Operating Officer; Acting Vice
President, AEC Market Group
Joseph H. Astroth, 40 Vice President, GIS Market Group
Ph.D...................
Robert M. Carr.......... 40 Vice President, AutoCAD Market Group
John E. Calonico ....... 40 Vice President, Finance and Acting Chief Financial
Officer
Larry L. Crume.......... 52 Vice President, Kinetix
James D. D'Arezzo....... 45 Vice President, Corporate Marketing
Dominic J. Gallello..... 41 Vice President, MCAD Market Group, Vice President,
Data Management Group and Vice President, Data
Publishing
John E. Lynch........... 40 Vice President, Advanced Products Group
Stephen McMahon......... 55 Vice President, Human Resources
Tom Norring ............ 51 Vice President, Asia/Pacific
Marcia K. Sterling...... 53 Vice President, Business Development, and General
Counsel
Godfrey R. Sullivan..... 42 Vice President, Americas
Michael E. Sutton....... 51 Vice President, Europe
Mark A. Bertelsen....... 52 Director
Crawford W. Beveridge... 51 Director
J. Hallam Dawson........ 60 Director
Mary Alice Taylor....... 46 Director
Morton Topfer........... 59 Director
</TABLE>
CAROL A. BARTZ joined Autodesk in April 1992 and has served as Chief
Executive Officer and Chairman of the Board since May 1992. Ms. Bartz served
as President from May 1992 through September 1996. Prior to joining Autodesk,
from 1983 to April 1992, Ms. Bartz held various positions at Sun Microsystems,
Inc., including Vice President, Worldwide Field Operations (July 1990 to April
1992). Ms. Bartz is a director of AirTouch Communications, Cadence Design
Systems, Inc., Network Appliance, Inc., Cisco Systems, Inc. and BEA Systems,
Inc.
ERIC B. HERR has been Autodesk's President and Chief Operating Officer and
Acting Vice President, AEC Market Group since September 1996. Mr. Herr served
as the Chief Financial Officer from the time he joined Autodesk in May 1992
until September 1996. From December 1992 through January 1995, Mr. Herr served
as Vice President, Emerging Businesses. From January 1995 to May 1995, Mr.
Herr served as Vice President, Finance, and Administration. From May 1990 to
May 1992, he served as Vice President of Finance and Planning, Sun
Microsystems, Inc.
DR. JOSEPH H. ASTROTH has served as Vice President, GIS Market Group, since
joining Autodesk in January 1996. From September 1989 through December 1995,
Dr. Astroth held various positions with Graphic Data Systems Corporation
including Director, Environmental Market Group from January 1993 to June 1994,
and Vice President of Product Management, Engineering, from June 1994 to
December 1995.
ROBERT M. CARR has served as Vice President, AutoCAD Market Group, since
September 1996. Mr. Carr joined Autodesk in November 1993 and served as Vice
President, Core Technology Group, through January 1995, and Vice President,
Engineering from January 1995 through September 1996. From September 1987 to
August 1993, Mr. Carr served as Vice President of Software Development of Go
Corporation, a company he co-founded.
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JOHN E. CALONICO, has served as Vice President, Finance since May 1995 and
as Acting Chief Financial Officer since September 1996. Mr. Calonico joined
Autodesk in 1990 as Corporate Controller and served in this capacity through
May 1995. Prior to joining Autodesk, Mr. Calonico was a senior manager with
Ernst and Young, LLP.
LARRY L. CRUME has served as Vice President and General Manager, Kinetix
(formerly Autodesk's Multimedia Market Group), since joining Autodesk in
October 1995. From March 1990 through September 1994, Mr. Crume worked at
Lotus Development Corporation, serving as Vice President, International
Business Development, from January 1990 to April 1993, and as Vice President,
Electronic Messaging Division, from April 1993 to September 1994. From that
time until joining Autodesk, Mr. Crume was an independent consultant.
JAMES D. D'AREZZO has served as Vice President, Corporate Marketing since
joining Autodesk in February 1994. Mr. D'Arezzo served as Vice President, Data
Management Market Group from February 1996 through September 1996. From
February 1994 through December 1995, Mr. D'Arezzo served as Vice President,
Corporate Marketing, and Vice President, GIS and DM Market Groups. From
November 1993 to January 1994, Mr. D'Arezzo served as the Vice President of
Corporate Business Development for Banyan Systems. From July 1990 to November
1993, Mr. D'Arezzo served as Banyan's Vice President of Marketing.
DOMINIC J. GALLELLO has served as Vice President, MCAD Market Group since
January 1995 and as Vice President, Data Management Group and as Vice
President, Data Publishing since November 1996. Mr. Gallello served as Vice
President, Asia/Pacific from the time he joined Autodesk in October 1992 until
July 1996. From February 1995 to August 1995, Mr. Gallello served as Acting
Vice President, MCAD Market. From April 1981 to October 1992, he held various
positions with Intergraph Corporation, including President, Intergraph Japan,
from June 1986 to October 1992.
JOHN E. LYNCH joined Autodesk in May 1986 and has served as Vice President,
Advanced Product Group, since January 1995, Chief Technical Officer from
February 1995 through September 1996, and Vice President, AEC/FM Market Group
from September 1995 through September 1996.
STEPHEN MCMAHON has served as Vice President, Human Resources, since joining
Autodesk in July 1992. From July 1987 to July 1992, Mr. McMahon served as
Senior Director, Human Resources, for Apple Computer, Inc.
TOM NORRING has served as Vice President, Asia Pacific since joining
Autodesk in June 1996. Prior to joining Autodesk, Mr. Norring served as Vice
President of Asia Pacific and Latin America and in a variety of international
management positions for Hitachi Data Systems from 1978 to 1996.
MARCIA K. STERLING joined Autodesk in October 1995 as Vice President,
Business Development, and General Counsel. From September 1982 to October
1995, she practiced corporate and securities law at Wilson Sonsini Goodrich &
Rosati, where she was a member.
GODFREY R. SULLIVAN has served as Vice President, the Americas, since
joining Autodesk in October 1992 and as Acting Vice President, AEC/FM Market
Group, from February 1995 to September 1995. Mr. Sullivan held various
positions with Apple Computer, Inc. from June 1984 to September 1992,
including Vice President and General Manager, Business Markets Division, from
April 1992 to September 1992 and Vice President and General Manager, US
Reseller Operations, from July 1991 to March 1992.
MICHAEL E. SUTTON has served as Vice President, Europe, since June 1993. Mr.
Sutton joined Autodesk in October 1987 as a sales and marketing director in
the United Kingdom. Mr. Sutton was the Managing Director of Autodesk's United
Kingdom subsidiary from January 1990 to January 1992. From January 1992 to
February 1993, Mr. Sutton served as Northern Region Manager, Europe, and from
February 1993 to May 1993, he served as acting Vice President, Europe.
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MARK A. BERTELSEN has been a director of Autodesk since 1992. Mr. Bertelsen
joined the law firm of Wilson Sonsini Goodrich & Rosati, outside legal counsel
to Autodesk, in January 1972, and became a member of the firm in January 1977.
CRAWFORD W. BEVERIDGE has been a director of Autodesk since 1993. Mr.
Beveridge has served as the Chief Executive Officer of Scottish Enterprise, an
economic development company, since January 1991. Mr. Beveridge is a director
of US Smaller Companies Investment Trust.
J. HALLAM DAWSON has been a director of Autodesk since 1988. Mr. Dawson has
served as Chairman of IDI Associates, a private investment bank specializing
in Latin America, since September 1986.
MARY ALICE TAYLOR has been a director of Autodesk since 1995. Ms. Taylor has
served as Executive Vice President of Worldwide Operations and Technology for
CitiCorp since January 1997. Ms. Taylor served as Vice President of Federal
Express Corporation from 1985 to September 1991 and as Senior Vice President
of Federal Express Corporation from September 1991 to December 1996. Ms.
Taylor is a director of Perrigo, Inc. and Allstate Insurance, Inc.
MORTON TOPFER has been a director of Autodesk since 1995. Mr. Topfer has
served as Vice Chairman of Dell Computer Corporation since June 1994. From
March 1971 to June 1994, Mr. Topfer was the Executive Vice President of
Motorola, Inc.
There is no family relationship between any director or executive officer of
Autodesk.
COMPENSATION OF DIRECTORS
Autodesk pays an annual fee of $25,000 to each director who is not an
employee of or consultant to Autodesk (currently six persons), of which not
more than fifty percent (50%) can be cash and the balance must be restricted
stock issued at the rate of $1.20 worth of stock for each $1.00 of cash
compensation foregone. Directors do not receive fees for Board or Board
Committee meetings attended.
The Autodesk 1990 Directors' Option Plan provides for the automatic grant of
nonstatutory options to outside directors of Autodesk. Upon being elected or
appointed to the Autodesk's Board of Directors, each outside director is
granted an option to purchase 15,000 shares of the Autodesk Common Stock, with
subsequent annual grants of 10,000 shares. Options granted under the 1990
Directors' Option Plan vest in annual installments cumulatively as to thirty-
four percent (34%), thirty-three percent (33%) and thirty-three percent (33%),
respectively, of the shares subject to an option for a total vesting period of
three years. The exercise price of options granted under the 1990 Directors'
Option Plan is equal to the fair market value of Autodesk Common Stock on the
date of grant.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by
Autodesk's Chief Executive Officer and Autodesk's four other most highly
compensated officers whose salary plus bonus exceeded $100,000 during the last
fiscal year (collectively the "Autodesk Named Executive Officers") for
services rendered to Autodesk during the fiscal years ended January 31, 1997,
1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#) COMPENSATION(2)
- --------------------------- ------ ------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C>
Carol A. Bartz.......... 1997 $ 515,000$ -- 560,000 $ 39,000
Chairman of the Board 1996 475,000 229,284 -- 38,500
and Chief Executive 1995 445,000 148,986 -- 37,500
Officer
Eric B. Herr............ 1997 $ 320,000$ -- 280,000 $ 3,000
President and Chief 1996 310,000 124,926 -- 2,500
Operating Officer 1995 290,000 80,011 -- 1,500
Dominic J. Gallello..... 1997 $ 275,000$ -- 210,000 $ 3,000
Vice President, MCAD 1996 250,000 125,500 20,000 2,500
Market Group, Vice 1995 235,000 64,837 -- 1,500
President, Data
Publishing and Acting
Vice President, Data
Management Group
Godfrey R. Sullivan..... 1997 $ 260,000$ -- 191,000 $ 3,000
Vice President, 1996 260,000 104,858 20,000 2,500
Americas 1995 245,000 67,595 -- 1,500
Michael E. Sutton....... 1997 $ 250,000$ -- 70,000 $179,241
Vice President, Europe 1996 222,500 89,806 20,000 99,000
1995 210,000 58,459 -- --
</TABLE>
- --------
(1) Represents incentive bonuses for achievement of corporate, individual and
organizational objectives in fiscal years 1996 and 1995.
(2) Amounts reported for fiscal year 1997 consist of: (i) matching
contributions by Autodesk to one of Autodesk's pre-tax savings plans (Ms.
Bartz $2,500, Mr. Herr $2,500, Mr. Gallello $2,500 and Mr. Sullivan
$2,500); (ii) Autodesk contributions to one of Autodesk's pre-tax plans
(Ms. Bartz $500, Mr. Herr $500, Mr. Gallello $500 and Mr. Sullivan $500);
(iii) $36,000 paid to Ms. Bartz for the purpose of reimbursing her for
certain transportation expenses; (iv) $100,000 paid to Mr. Sutton as a
cost of living adjustment related to his location in Switzerland; (v)
$3,104 paid by Autodesk for health insurance premiums on behalf of Mr.
Sutton; and (vi) $76,137 paid by Autodesk into an employee retirement fund
on behalf of Mr. Sutton. Amounts reported for fiscal year 1996 consist of:
(i) matching contributions by Autodesk to one of Autodesk's pre-tax
savings plans (Ms. Bartz $2,000, Mr. Herr $2,000, Mr. Gallello $2,000 and
Mr. Sullivan $2,000; (ii) Autodesk contributions to one of Autodesk's pre-
tax plans (Ms. Bartz $500, Mr. Herr $500, Mr. Gallello $500 and Mr.
Sullivan $500); (iii) $36,000 paid to Ms. Bartz for the purpose of
reimbursing her for certain transportation expenses; and (iv) $99,000 paid
to Mr. Sutton as a cost of living adjustment related to his location in
Switzerland. Amounts reported for fiscal year 1995 consist of: (i)
matching contributions by Autodesk to one of Autodesk's pre-tax savings
plans (Ms. Bartz $1,000, Ms. Herr $1,000, Mr. Gallello $1,000 and Mr.
Sullivan $1,000); (ii) Autodesk contributions to one of Autodesk's pre-tax
plans (Ms. Bartz $500, Mr. Herr $500, Mr. Gallello $500 and Mr. Sullivan
$500); and (iii) $36,000 paid to Ms. Bartz for the purpose of reimbursing
her for certain transportation expenses.
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OPTION GRANTS
The following table sets forth information regarding options to purchase
Autodesk Common Stock granted to the Autodesk Named Executive Officers during
the fiscal year ended January 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED(#) IN FISCAL YEAR(1) PER SHARE DATE 5% 10%
- ------------------------ ---------- ----------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Carol A. Bartz.......... 60,000 $36.50 3/20/06 $1,377,279 $ 3,490,296
500,000 $23.125 9/11/06 $7,271,594 $18,427,647
------- ----------- ------------
560,000 10.5% $ 8,648,873 $ 21,917,943
Eric B. Herr............ 180,000 $36.50 3/20/06 $4,131,838 $10,470,888
100,000 $23.125 9/11/06 $1,454,319 $ 3,685,529
------- ----------- ------------
280,000 5.3% $ 5,586,157 $ 14,156,417
Dominic J. Gallello..... 30,000 $36.50 3/20/06 $ 688,640 $ 1,745,148
30,000 $23.125 9/11/06 $ 436,296 $ 1,105,659
150,000 $27.625 12/18/06 $ 2,605,982 $ 6,604,070
------- ----------- ------------
210,000 3.9% $ 3,730,918 $ 9,454,877
Godfrey R. Sullivan..... 21,000 $36.50 3/20/06 $ 482,048 $ 1,221,604
20,000 $23.125 9/11/06 $ 290,864 737,106
150,000 $27.625 12/18/06 $ 2,605,982 6,604,070
------- ----------- ------------
191,000 3.6% $ 3,378,894 $ 8,562,780
Michael E. Sutton....... 30,000 $36.50 3/20/06 $ 688,640 $ 1,745,148
40,000 $23.125 9/11/06 $ 581,728 $ 1,474,212
------- ----------- ------------
70,000 1.3% $ 1,270,368 $ 3,219,360
</TABLE>
- --------
(1) Total number of options granted to employees during fiscal year 1997 was
5,324,938.
(2) The 5% and 10% assumed annual rates of appreciation are specified in SEC
rules and do not represent Autodesk's estimate or projection of future
stock price growth.
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OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the Autodesk Named Executive
Officers, certain information concerning stock options exercised during
Autodesk's 1997 fiscal year, and the number of shares of Autodesk Common Stock
subject to both exercisable and unexercisable stock options as of January 31,
1997. Also reported are values for "in-the-money" options that represent the
positive spread between the respective exercise prices of outstanding stock
options and the fair market value of Autodesk Common Stock as of January 31,
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END(#) FISCAL YEAR END
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carol A. Bartz.......... -- -- 960,000 860,000 $15,720,000 $9,162,500
Eric B. Herr............ -- -- 350,000 280,000 $ 4,768,750 $ 850,000
Dominic J. Gallello..... -- -- 126,667 283,333 $ 750,000 $1,230,000
Godfrey R. Sullivan..... -- -- 196,667 264,333 $ 1,425,000 $1,220,000
Michael E. Sutton....... -- -- 68,907 145,573 $ 389,000 $ 729,000
</TABLE>
CERTAIN TRANSACTIONS
In April 1992, the Company entered into an agreement with Carol A. Bartz
which provides for a minimum base salary of $400,000, incentive bonus of up to
eighty percent (80%) of base salary, a one-time employment bonus of $250,000
(to compensate for a foregone bonus) and the grant of options to purchase
2,000,000 shares (as adjusted to reflect the October 1994 two-for-one stock
split) of Common Stock vesting over five years of employment. The agreement
provides for a severance payment equal to two years' base salary and incentive
compensation in the event Ms. Bartz's employment is terminated without cause
within two years after commencement of employment or one year after a change
of control of the Company not approved by the Board of Directors or two years'
base compensation in the event Ms. Bartz's employment is terminated without
cause under any other circumstances. The vesting of Ms. Bartz's options will
accelerate upon a change of control.
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<PAGE>
AUTODESK STOCK INFORMATION
AUTODESK PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Autodesk Common
Stock as of January 31, 1997 for the following: (i) each person or entity who
is known by Autodesk to own beneficially more than 5% of the outstanding
shares of Autodesk Common Stock ("Autodesk Principal Stockholders"); (ii) each
of Autodesk's directors; (iii) each of the Autodesk Named Executive Officers;
and (iv) all directors and executive officers of Autodesk as a group:
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
---- --------------------- ---------------------
<S> <C> <C>
AUTODESK PRINCIPAL
STOCKHOLDERS:(3)
Jurika & Voyles, Inc. .......... 3,551,960 7.87%
1999 Harrison Street
Suite 700
Oakland, CA 94612
Goldman, Sachs & Co. ........... 2,530,307 5.61%
80 Broad Street
New York, NY 10004
DIRECTORS:
Carol A. Bartz(4)............... 983,561 2.13%
Mark A. Bertelsen(5)............ 25,496 *
Crawford W. Beveridge(6)........ 26,329 *
J. Hallam Dawson(7)............. 42,096 *
Mary Alice Taylor(8)............ 7,995 *
Morton Topfer(9)................ 7,995 *
OTHER AUTODESK NAMED EXECUTIVE
OFFICERS:
Eric B. Herr(10)................ 393,561 *
Dominic J. Gallello(11)......... 140,062 *
Godfrey R. Sullivan(12)......... 207,480 *
Michael E. Sutton(13)........... 78,907 *
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (19
PERSONS)(14): 2,531,793 5.32%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(1) The number and percentage of shares beneficially owned is determined
under the rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also
any shares which the individual has the right to acquire within sixty
days of January 31, 1997, through the exercise of any stock option or
other right. Unless otherwise indicated in the footnotes, each person has
sole voting and investment power (or shares such powers with his or her
spouse) with respect to the shares shown as beneficially owned.
(2) Number of shares deemed outstanding includes 45,107,608 outstanding as of
January 31, 1997, plus any shares subject to stock options held by the
person or persons in question that are exercisable within 60 days of
January 31, 1997.
(3) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Exchange Act.
(4) Includes options to purchase 980,000 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(5) Includes options to purchase 25,001 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
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<PAGE>
(6) Includes options to purchase 25,834 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(7) Includes options to purchase 40,401 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(8) Includes options to purchase 7,500 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(9) Includes options to purchase 7,500 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(10) Includes options to purchase 390,000 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(11) Includes options to purchase 136,667 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(12) Includes options to purchase 203,667 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(13) Includes options to purchase 78,907 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(14) Includes options to purchase 2,487,366 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
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<PAGE>
PRO FORMA STOCK OWNERSHIP OF AUTODESK PRINCIPAL STOCKHOLDERS AND DIRECTORS
The following table sets forth certain information regarding the beneficial
ownership of Autodesk Common Stock on a pro forma basis for the Autodesk
Principal Stockholders, each of Autodesk's directors and all directors and
executive officers of Autodesk as a group. This table provides information
based on the following two scenarios: (i) that 0.4677 shares of Autodesk
Common Stock are issued in exchange for one share of Softdesk Common Stock in
the Merger (which exchange ratio was calculated based on $32.07, the average
of the closing prices of Autodesk Common Stock as quoted on the Nasdaq for the
five trading days immediately preceding February 19, 1997), and (ii) that
0.9375 shares of Autodesk Common Stock are issued in exchange for one share of
Softdesk Common Stock in the Merger, which amount represents the largest
fractional share of Autodesk Common Stock issuable per share of Softdesk
Common Stock without triggering Autodesk's right to terminate the Amended
Agreement. Because the actual number of shares of Autodesk Common Stock to be
issued pursuant to the Merger will not be fixed until the Effective Time, the
beneficial ownership at the Effective Time of the persons and entities listed
in the following table may differ from the information presented in the table:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
BENEFICIALLY BENEFICIALLY
OWNED AFTER THE OWNED AFTER THE
MERGER ASSUMING MERGER ASSUMING
SHARES BENEFICIALLY OWNED EXCHANGE RATIO OF EXCHANGE RATIO OF
NAME AFTER THE MERGER(1) 0.4677(2) 0.9375(3)
---- ------------------------- ----------------- -----------------
<S> <C> <C> <C>
AUTODESK PRINCIPAL
STOCKHOLDERS:(4)
Jurika & Voyles,
Inc. ................ 3,551,960 7.41% 7.00%
1999 Harrison Street
Suite 700
Oakland, CA 94612
Goldman, Sachs &
Co. ................. 2,530,307 5.28% 4.99%
85 Broad Street
New York, N.Y.
DIRECTORS:
Carol A. Bartz(5)..... 983,561 2.01% 1.90%
Mark A. Bertelsen(6).. 25,496 * *
Crawford W.
Beveridge(7)......... 26,329 * *
J. Hallam Dawson(8)... 42,096 * *
Mary Alice Taylor(9).. 7,995 * *
Morton Topfer(10)..... 7,995 * *
ALL DIRECTORS AND
EXECUTIVE OFFICERS AS A
GROUP
(19 PERSONS) (11)..... 2,531,793 5.02% 4.76%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(1) The number and percentage of shares beneficially owned is determined
under rules of the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty days of January 31,
1997, through the exercise of any stock option or other right. Unless
otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with
respect to the shares shown as beneficially owned.
(2) Number of shares deemed outstanding includes 47,923,171 shares that would
be outstanding after the Merger assuming an exchange ratio of 0.4677,
plus any shares subject to stock options held by the person or persons in
question that are exercisable within 60 days of January 31, 1997.
(3) Number shares deemed outstanding includes 50,751,376 shares that would be
outstanding after the Merger assuming an exchange ratio of 0.9375, plus
any shares subject to stock options held by the person or persons in
question that are exercisable within 60 days of January 31, 1997.
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<PAGE>
(4) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Exchange Act.
(5) Includes options to purchase 980,000 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(6) Includes options to purchase 25,001 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(7) Includes options to purchase 25,834 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(8) Includes options to purchase 40,401 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(9) Includes options to purchase 7,500 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(10) Includes options to purchase 7,500 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
(11) Includes options to purchase 2,487,366 shares of Autodesk Common Stock
exercisable within 60 days of January 31, 1997.
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<PAGE>
SOFTDESK
BUSINESS
BACKGROUND
Softdesk develops, markets and supports CAD application software products
primarily for professionals, non-professional office users and home users in
the AEC market. Softdesk's integrated application software is used by civil
engineers, surveyors, architects, home builders, building services engineers,
structural engineers, facilities managers, mapping professionals and home and
office users worldwide to automate the design and engineering process, from
large infrastructure engineering projects to single-family home or office
design. The majority of Softdesk's products are designed for use in
conjunction with AutoCAD(R). Softdesk also has products which run on
DataCAD(R), developed by Cadkey, Inc., the CornerStone Toolkit developed by
ARITEK Systems, Inc., and Softdesk's own proprietary Drafix(R) CAD software.
The products operate on Microsoft Windows(R) and DOS-based personal computers.
Softdesk sells its products worldwide and maintains several international
offices and subsidiaries. Softdesk believes it operates in a single business
segment: CAD application software for the AEC market.
Softdesk focuses its resources on providing AEC products and services which
meet the design and drafting needs of civil engineers, surveyors and
architects in both large and small organizations as well as home users
throughout the world. Softdesk believes it is one of the world's leading
suppliers of integrated technical application software for the AEC and related
markets. Softdesk's strategy is to support the operating systems, databases,
spreadsheets and word processing systems most widely used in the AEC market.
This allows users to leverage existing investments in desktop software.
Softdesk intends to support new operating systems and applications which
become broadly accepted in the AEC market.
Softdesk pursues new technology and the development of products by both
internal development and through the strategic acquisition of other companies.
PRODUCTS, SUPPORT AND MAINTENANCE
Softdesk's products are organized into the following product families:
Civil/Survey, Building Design and Engineering, Imaging/Scanning, Productivity,
Spirit and Mid-Range and Retail Products. These products are primarily used by
civil engineers, surveyors, architects, building services engineers,
structural engineers, facilities managers, and small office and home users. A
significant portion of Softdesk's products are integrated for use with one
another, which enables users to add new modules easily to their existing
Softdesk solution. In addition, most of Softdesk's products include a similar
graphical user interface which makes it easier for end-users to learn to use
other Softdesk products. The number of products offered by Softdesk exceeds
50.
Professional Products
Softdesk's professional products automate the entire building, site, and
utilities project workflow, including analysis, planning, design, construction
documentation, management and operations. Softdesk's modules are integrated to
enable multiple disciplines to work together and to make it easy to add new
modules to the Softdesk system, as required. Suggested retail prices for
Softdesk's professional products range from approximately $400 to $7,500 per
seat. The professional product families include the following:
Civil/Survey. The Civil/Survey product family offers a fully integrated set
of products that can be combined to create a custom configuration to suit the
individual or corporate needs of civil engineers or surveyors. This product
family includes COGO (Coordinate Geometry) which performs a variety of tasks
including setting and manipulating points, lines and curves, labeling metes
and bounds, special line types, and survey symbols. Tools within COGO are used
throughout all other Civil/Survey software modules. Another significant
product in this family is Survey which downloads survey field data from
industry-standard data collectors as well as batch mode input and performs a
wide variety of analyses and survey calculations. Survey
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<PAGE>
also offers user-defined command line coordinate geometry, mathematical
adjustment, geodetic coordinate transformations, sun and starshot
calculations, and traverse and sideshot entry.
Building Design and Engineering. The Building Design and Engineering product
family offers a fully integrated set of products for the design of projects
ranging from single-family homes to multilevel high-rise complexes. This
product family includes Auto-Architect which is used for designing, inputting
and editing architectural design elements in plan, elevation and three-
dimension (also see Spirit). Auto-Architect automates design and documentation
of walls, stairways and roofs through parametric generation of two-dimension
and three-dimension models. It also includes capabilities for space planning
and automatic door and window schedule generation. Also in this product family
is Building Base which draws architectural baseplans for use as underlays for
engineering drawings and facilities management. Building Base also provides
tools for drafting and editing of basic architectural plans in two-dimension.
Imaging/Scanning. The Imaging/Scanning product family offers a range of
products for working with scanned paper drawings on a computer (which are
typically in raster format) that can coexist on the same network as a CAD
system (which are typically in vector format). Imaging products work with
hybrid raster/vector files and are designed to share file formats, plotter
configurations, network plot queuing and file locking. Included in this family
are: CAD Overlay(R) ESP which is a powerful drawing conversion and raster
editing tool for engineering-size drawings offering the capability to plot
raster and vector hybrid data simultaneously; CAD Overlay Classic, which
displays a scanned image of a drawing as a template or backdrop over which a
CAD model can be constructed; CAD Overlay GSX which provides sophisticated
raster display, image enhancement and plotter capabilities using satellite
imaging, scanned photographs or color TIFF images; and CAD Overlay LFX, an
application module for use with CAD Overlay ESP which adds fast, semi-
automatic line-tracing technology to automate conversion of scanned paper
drawings.
Productivity. The Productivity family of products consists of stand-alone
software tools designed to enhance the productivity of AutoCAD users. These
products may be used in conjunction with, or independently from, Softdesk's
other application software modules. The main product in this family is Core, a
powerful foundation which provides true integration between certain product
families and offers a unified framework for commonly needed features, managing
Softdesk applications and drawings, and a smooth transition between Softdesk
applications.
Spirit. With the acquisition in January 1996 of SOFT-TECH in Germany,
Softdesk added to its professional product line with the SPIRIT(R) software
family of products. The SPIRIT line is based on the DataCAD engine and
consists of DOS-based architectural software for use in designing the
components of an entire building. SPIRIT also allows for several add-on
modules which enhance the functions and capabilities of the base product for
advanced design work. The Spirit family of products are mostly sold in Germany
and are available in German, English, French and other languages. In order to
facilitate the sale of the SPIRIT software, Softdesk also resells computer
hardware to those customers requiring such systems for the operation of
Softdesk's software.
Mid-Range and Retail Products
Softdesk's mid-range, small office and home user products are based on
Softdesk's proprietary Drafix CAD engine, work with Microsoft Windows and
include software packages for use in residential floor plans, exterior
residential building design and office network layouts. These products range
in price from approximately $50 to $1,000. These products include Drafix CAD
Professional, a Windows-based CAD application which is a powerful and easy to
use 2D drafting, design and technical illustration program; PLANIX Home Design
Suite 3D, a complete home design kit including everything to design a home,
room addition, or landscaping; Most Popular Home Designs, drawing upon 200 of
America's favorite houses from Home Planners, Inc., in which the Homefinder
utility presents a list of plans for review from criteria such as number of
bedrooms, baths, size or style; and Drafix Quick CAD, incorporating the power
and ease of use of Drafix CAD Professional in a Windows-CAD interface.
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<PAGE>
Customer Uses
Softdesk's products have been used in multiple projects around the world.
These projects include an airport in Nanjing, China in which Softdesk's
architectural and structural product lines were used to design an 87-gate
terminal building; the rail track alignment design and the ballast
calculations for the British Rail tracks of the English Channel Tunnel; the
site civil engineering and architectural master planning for a resort city in
Australia; the digital terrain modeling and trail design for a ski area in New
England; the site design and earthwork calculations for a desalination plant
in the Middle East; civil site engineering, structural, architectural
construction for new Disney theme park attractions; and the designing of the
Neubau World Trade Center in Dresden.
Support and Maintenance
In addition to the above mentioned products, Softdesk offers support and
services on its products. Management believes that comprehensive customer
support and service are key to customer satisfaction and loyalty. Significant
emphasis is placed on customer service and support because of the importance
in customer utilization of the entire Softdesk solution of products. By
providing its end-users with training and support services Softdesk believes
that end-users will obtain the maximum benefits offered by its products.
Moreover, the various support services provide Softdesk with incremental
revenue opportunities.
Softdesk's Corporate Services Group coordinates all of the end-user support
services offered by Softdesk. Its responsibilities include the review of
products and product documentation, technical presentations at trade shows and
seminars and product demonstrations for major accounts, among others. This
group coordinates Softdesk's software maintenance and direct support programs
in addition to supporting user groups and offering consulting services.
SALES AND MARKETING
The objective of Softdesk's marketing group is to increase the visibility of
Softdesk and its products among the general AEC market with specific emphasis
on Softdesk's resellers and its target end-users. This group is responsible
for the development of Softdesk's marketing materials, the presence of
Softdesk at various trade shows and seminars, and various advertising, public
relations and promotional campaigns undertaken by Softdesk. Softdesk has also
initiated a program to place its products in various educational institutions
as a means of increasing familiarity with its products among young
professionals in the AEC market.
The objective of Softdesk's sales group is to properly match the appropriate
product available for sale with the perceived correct sales channel and to
assist in the sales process in whatever manner is required until the sale is
completed. Softdesk utilizes resellers, distributors, a direct sales force,
telemarketing and retail outlets as sales channels.
Softdesk has established field sales forces located in several cities in the
United States and in Canada, Germany, Mexico, Singapore and the United
Kingdom. Each member of Softdesk's field sales force has a background in
either engineering or architecture and is technically proficient in the use
and demonstration of most of Softdesk's products. During the three years ended
December 31, 1996, 1995 and 1994, Softdesk spent $15,070,000, $14,499,000 and
$10,830,000, respectively, on these activities.
Softdesk's professional products are primarily sold through a large reseller
network complemented by a sales team which manages and supports the reseller
network and serves certain strategic accounts. The network totals more than
375 resellers and is comprised of over 275 dealers serving North America and
over 100 distributors (resellers which sell to other dealers as well as to
end-users) located in over 70 countries worldwide. Softdesk's resellers also
provide training and support services to Softdesk's end-users.
Softdesk's headquarters-based sales group supports and manages Softdesk's
worldwide reseller network. Softdesk devotes a significant amount of resources
to the education and support of its resellers. Softdesk tracks
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<PAGE>
sales leads and passes them on to the appropriate resellers (by means of an
automated lead tracking system); maintains a registered user database; and
processes sales orders from the reseller channel by means of an on-line order
processing system. Softdesk also distributes by fax a domestic weekly
newsletter, The Reseller News, containing information about Softdesk and its
product offerings; and a quarterly report evaluating the performance of the
reseller. Softdesk also sponsors, in conjunction with its resellers, a number
of end-user seminars.
In order to address market opportunities for AEC software within large
corporations, Softdesk has established field sales forces. In addition to
assisting Softdesk's reseller network, Softdesk's field sales force works in
conjunction with resellers on sales to targeted strategic accounts. To
compensate the resellers for their efforts and to avoid potential conflicts
between Softdesk's field sales force and its resellers, the reseller involved
in the marketing and service for the account receives a commission on the sale
by Softdesk.
Softdesk markets its mid-range, small office and home user products through
various channels. The most significant channel is through retail stores via a
major retail distributor. Softdesk's focus in retail outlets is to gain shelf
space and utilize attractive packaging to optimize the presentation to
customers. Additional product sales are generated through end-user mailings
offering various products or upgrades. In January 1996 Softdesk formed its
Pro-Sales Group which utilizes telemarketing to target specific users based
upon internally generated lists of customer names or purchased lists of firms
or individuals who are likely to have an interest in the product.
Softdesk's strategy for the international distribution of its products
involves the translation of its products into local languages and
establishment of a local marketing and support presence. Certain of Softdesk's
modules are currently available in French, German, Italian, Spanish, and
several other languages. The design of Softdesk's products facilitates their
translation into foreign languages. Softdesk expects that most translations
will be done by a local reseller, with technical assistance from Softdesk.
Softdesk's international revenues totaled 31%, 32% and 42% of net revenues
in fiscal 1996, 1995 and 1994, respectively. Softdesk believes that despite
the decreasing trend, an increasing amount of its future revenues, on both a
total dollar amount and as a percentage of total revenue, will be derived from
international markets.
In the year ended December 31, 1996 Softdesk had one customer (a
distributor) which represented approximately 14% of its yearly net revenue
total. In 1995 and 1994 Softdesk did not have any customer which accounted for
10% or more of its net revenues. Softdesk recognizes the potential effects of
reliance upon a certain product, product line or upon a few significant
customers. Therefore, Softdesk continues to expand its product offerings and
diversify its customer base through both internal growth and through strategic
acquisitions.
Most of Softdesk's revenues and expenses are denominated in the US dollar;
however, a portion are denominated in foreign currencies (primarily the German
Mark). Historically, Softdesk has not experienced any material effects due to
inflation or foreign exchange fluctuations.
Since most of Softdesk's quarterly revenues are from orders received and
shipped in the same quarter it is somewhat difficult for Softdesk to
accurately predict the flow and product mix of revenues. Softdesk's continued
profitability will be dependent upon its ability to effectively market its
existing products, develop and market new products to meet changing customer
demands and to expand its market share through a more diversified product and
customer base.
MATERIALS AND SUPPLIES
Softdesk produces its products using multiple vendors for its materials and
supplies and management considers these items as commodity in nature. There is
no single vendor for which Softdesk believes a suitable alternative source
could not be easily obtained.
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COMPETITION
Competition in the CAD industry is intense. Softdesk currently faces three
basic types of competitors. The first category includes companies offering an
integrated CAD solution. The primary competitors within this group are
Intergraph, Auto-Trol Technology, Computervision and IBM, as well as a number
of smaller companies serving various foreign markets. Softdesk typically faces
competition from this type of company for larger end-users. Most of Softdesk's
competitors within this group have significantly greater financial,
technological and marketing resources than Softdesk.
The second category of competitors includes companies which offer, like
Softdesk, a suite of CAD application software products, many of which are
AutoCAD or Microstation-based. The primary competitors in this category are
Eagle Point Software, Inc. and Nemetschek. Although Softdesk believes that it
enjoys certain advantages over many of its competitors of this type, certain
of these competitors may offer specific solutions which are not available from
Softdesk.
The third category of competitors includes companies which offer low-end
CAD-based products and CAD applications through retail or other end-user sales
strategies. Softdesk's focus in retail outlets is to gain shelf space and
utilize attractive packaging to optimize the presentation to customers. The
competition in this end of the market, which includes Broderbund and The
Learning Company, Inc., is intense.
Softdesk believes that the principal basis of competition in the AEC market
for CAD software are product functionality, product reliability,
price/performance characteristics, ease of product use, end-user support,
distribution networks, range of hardware and software platforms supported, and
corporate reputation. No assurance can be given that Softdesk will be able to
compete successfully against current and future sources of competition or that
the competitive pressures faced by Softdesk will not adversely affect its
business, operating results or financial condition.
INTELLECTUAL PROPERTY
Softdesk relies primarily on a combination of copyright law and trade secret
law to protect its intellectual property. Softdesk has a program in effect to
facilitate timely copyright registration of its software and documentation
with the U.S. Copyright and Patent office. Softdesk also has internal policies
and systems to ensure limited access to and the confidential treatment of its
trade secrets.
Softdesk distributes its products under "shrink-wrap" software license
agreements, which grant end-users licenses to, rather than ownership of,
Softdesk's products and which contain various provisions to protect Softdesk's
ownership of and the confidentiality of the underlying technology. Outside the
United States and Canada, Softdesk's software is generally distributed with a
third party "software lock" which requires an authorization code generated by
Softdesk's internal systems to enable the software to function. Softdesk also
requires its employees and other parties with access to its confidential
information to execute agreements prohibiting the unauthorized use or
disclosure of Softdesk's technology. In addition, Softdesk periodically
reviews its proprietary technology for patentability.
Despite these precautions, it may be possible for a third party to
misappropriate Softdesk's technology or to develop similar technology
independently. In addition, effective copyright and trade secret protection
may not be available in every foreign country in which Softdesk's products are
distributed, and "shrink-wrap" licenses, which are not signed by the end-user,
may be unenforceable in certain jurisdictions.
Certain technology used in Softdesk's products is licensed from third
parties. Royalties are calculated and paid monthly or quarterly on a per copy
fee or percentage of revenues basis.
Softdesk has a worldwide trademark program to promote proper use and
registration of its primary trademarks. Softdesk's name "Softdesk," its logos
and certain products are registered as trademarks of Softdesk in the United
States and several foreign jurisdictions.
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Softdesk believes that, due to the rapid pace of technological innovation
within the CAD industry, Softdesk's ability to establish and maintain a
position of technology leadership in the industry is more dependent upon the
skills of its product development personnel than upon the legal protections
afforded its existing technology.
Softdesk is not currently engaged in any material disputes with other
parties with respect to the ownership or use of Softdesk's proprietary
technology. However, there can be no assurance that other parties will not
assert technology infringement claims against Softdesk in the future. The
litigation of such claims may involve significant expense and management time.
In addition, if any such claim were successful, Softdesk could be required to
pay monetary damages and may also be required to either refrain from
distributing the infringing product or obtain a license from the party
asserting the claim (which license may not be available on commercially
reasonable terms).
PRODUCT DEVELOPMENT
Softdesk believes that its future success will depend upon its ability to
enhance its existing products and develop and introduce new products which
keep pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its end-users. Softdesk intends to expand
its existing product offerings and to introduce new application products for
all levels of the AEC market. While Softdesk expects that certain of its new
products will be developed internally, Softdesk may, based on timing and cost
considerations, expand its product offerings through acquisitions as it has in
the past. During the three years ended December 31, 1996, 1995 and 1994,
Softdesk spent $9,562,000, $10,116,000 and $7,613,000, respectively, on these
activities.
Softdesk currently offers in excess of 50 software products. Softdesk
releases enhanced versions of its software modules on a regular basis and
introduces several new products each year. Most of Softdesk's software modules
share the same technological foundation which makes the enhancement of the
entire product line more efficient. Each product development project begins
with a review of the existing end-user requests which is derived from a
database generated by Softdesk's various end-user support programs, interviews
with certain key end-users and competitive analyses. Product specifications
for the development project are then generated, a development team is
assembled, and a detailed development and release schedule is produced.
Softdesk has a separate quality assurance and quality control group.
Application specialists within this group, who generally have several years of
experience with Softdesk's products, handle the "alpha" testing of a new
product. The "beta" testing of a new product is conducted both internally and
by selected end-users and consultants. Softdesk has a separate documentation
group that is dedicated to creating and updating the documentation for each
product.
ENVIRONMENTAL CONDITIONS
Softdesk's facilities are subject to numerous laws and regulations of the
U.S. and foreign countries, as well as state and local jurisdictions, designed
to protect the environment particularly from plant wastes and emissions. In
management's opinion, Softdesk is complying with such laws and regulations and
believes that the compliance with such laws and regulations has not had and
will not have a material adverse effect upon Softdesk's financial condition or
results of operations. Furthermore, Softdesk is not aware that it is the
subject of any actions or proceedings of any named actions from the
Environmental Protection Agency.
EMPLOYEES
As of December 31, 1996 Softdesk had 241 employees, including 10 in
production, 115 in sales and marketing, 85 in product development and 31 in
general and administrative functions. This compares to a total of 273 at
December 31, 1995 and 228 at December 31, 1994. None of Softdesk's employees
are represented by a labor union, and Softdesk believes that its employee
relations are good.
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PROPERTIES
Softdesk's executive headquarters and principal operations are located in
Henniker, New Hampshire, USA. The major portion of the headquarters' facility
is owned by Softdesk with the remainder under a lease which expires in March
1998. In Neustadt, Germany, Softdesk's SOFT-TECH subsidiary operates out of
facilities which are partly owned and partly subject to a lease that expires
in August 1998. The operations of Softdesk Retail Products, located in Kansas
City, Missouri, are subject to a lease that expires in May 1998. Softdesk also
leases development and/or sales offices in various locations throughout the
United States as well as Canada, Mexico, and Singapore. These are short-term
leases and the amounts involved are not material.
Softdesk believes that its current facilities, in addition to certain in-
process construction and planned expansions, will be adequate to meet its near
term requirements and is suitable for the uses intended. The space currently
occupied is near capacity.
LEGAL PROCEEDINGS
Softdesk is not engaged in any material legal proceedings.
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SOFTDESK MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 22, 1996 Softdesk acquired all the outstanding capital stock of
SOFT-TECH Software Technologie GmbH, a German based developer of professional
architectural software. The transaction was accounted for as a pooling of
interests and Softdesk has therefore restated its historical consolidated
financial statements and financial information to reflect the combined
financial condition and results of operations of the two entities for all
periods presented. (See Note 3 to the Consolidated Financial Statements.) The
following discussions refer to the combined consolidated company. These
discussions should be read in conjunction with Softdesk's 1995 Annual Report
on Form 10-K, as amended, for the year ended December 31, 1995 including the
sections therein entitled "Certain Factors That May Affect Future Results".
RESULTS OF OPERATIONS: FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Net revenues decreased approximately 17% during 1996 as compared to 1995.
The revenue decrease was primarily attributable to the decrease in sales of
Softdesk's high-range professional software products, especially its products
for the AutoCAD and AutoCAD related markets, which historically have
represented a majority of Softdesk's total revenues. Softdesk believes that
sales of its software for this market decreased in 1996 because of continued
softness in the AutoCAD and AutoCAD related markets. In addition, Softdesk
believes that the decline of its high-range product sales was also a result of
customers delaying their software purchases until they completed their
purchases of new computer hardware required to transition from a DOS to a
Windows operating environment, on which the latest release of AutoCAD and many
of Softdesk's new releases of software are optimized. To a lesser extent,
Softdesk believes that less favorable economic conditions in Europe,
especially in the AEC market, also contributed to the decline of its revenues
in 1996. Partially offsetting the decline in these software sales was an
increase in sales of Softdesk's low to mid-range product lines, including
Retail products, which Softdesk believes was attributable to the release of
new products during 1996 combined with an expansion of their "shelf space" in
the retail stores that offer these products for sale.
International revenues decreased 22% during 1996 as compared to 1995. The
decline in international revenues was primarily caused by reduced revenues
from Europe, Canada and the Asia/Pacific region, partially offset by increases
in revenues from Latin America. Softdesk believes that the decline in revenues
was primarily a result of the factors discussed above concerning the overall
decrease in total company revenues in 1996 and, to a lesser extent, what
Softdesk believes were less favorable economic conditions, especially in the
AEC market, in these regions during 1996. Softdesk believes that a somewhat
stronger U.S. Dollar, as measured against the major international currencies
during 1996 and as compared to 1995, also contributed to the decline in
international revenues.
The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
IN THOUSANDS
<S> <C> <C> <C> <C>
United States.................................. $23,902 69% $28,111 68%
Europe......................................... 7,296 21 9,292 22
Asia Pacific................................... 1,361 4 1,711 4
Other.......................................... 1,193 4 892 2
Canada......................................... 749 2 1,731 4
------- --- ------- ---
$34,501 100% $41,737 100%
</TABLE>
Softdesk's revenues are primarily denominated in U.S. Dollars. However,
revenues and expenses for foreign operations, particularly Softdesk's German
subsidiary, are usually recorded in the applicable foreign currency and
translated with any applicable foreign exchange adjustments. There were no
foreign exchange transactions
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or translation gains or losses that were material to Softdesk's financial
results in either 1996 or 1995. In addition, during these periods Softdesk's
financial results were not materially affected by inflation.
Total costs and expenses, (excluding other/non-recurring charges in both
1996 and 1995), as a percentage of revenue, increased to approximately 98% of
net revenue in 1996 from approximately 81% of net revenues in 1995. During
this period, revenue decreased 17% on a yearly comparative basis. As a
percentage of revenue, the 17 percentage point yearly comparative increase in
total costs and expenses consisted of a 2 percentage point increase in the
cost of revenues and a 15 percentage point increase in operating expenses. In
absolute dollars operating expenses (excluding other/non-recurring charges in
both 1996 and 1995), increased $246,000 or less than 1% during 1996 as
compared to 1995. These items are more fully discussed below. Although
Softdesk's headcount totaled 241 at the end of 1996 as compared to 273 at the
end of 1995, the yearly average headcount for 1996 was only slightly lower
than in 1995.
Gross profit margin decreased to approximately 83% in 1996 from
approximately 85% in 1995. The decrease was primarily attributable to a shift
in Softdesk's overall product mix toward lower margin products which included
Softdesk's low to mid-range product lines, higher royalty payments, increased
pricing pressures, and, to a lesser extent, the lack of the benefit achieved
through economies of scale which usually occur with increasing revenues, as
was the case during 1995. Softdesk continues to monitor and react to market
events and developments in an attempt to improve its gross margin levels.
Selling and marketing expenses, which include distribution, advertising, and
training, increased approximately 4% in 1996 as compared to 1995. Such costs
represented 44% of net revenues in 1996, as compared to 35% of net revenues in
1995. The increase in these costs resulted from increased trade shows, public
relations and advertising expenses, partially offset by a reduction in
personnel expenses, including commissions. As Softdesk attempts to expand its
sales and marketing programs during the next year, in an effort to increase
its market share and revenues, increased expenditures in sales and marketing
may occur.
Product development expenses, which consist primarily of developers' wages
and benefits, decreased 5% during 1996 from its total during 1995. These costs
represented 28% of net revenues in 1996 as compared to 24% of net revenues in
1995. The decrease in product development expenses was primarily a result of a
lower average headcount which resulted in lower personnel costs and travel
costs, partially offset by higher subcontractor labor costs. There were no
capitalized product development costs, as determined in accordance with
Statement of Financial Accounting Standards No. 86 in 1996 or 1995. Softdesk
may increase its product development expenses or make acquisitions of third
party technologies during the next twelve months to keep pace with the
technological needs of the marketplace, to improve and expand Softdesk's
product lines and to respond to its customers' needs.
General and administrative expenses, which include the costs of Softdesk's
corporate finance, human resource and administrative functions, increased
approximately 7% in 1996 as compared to 1995. These costs represented
approximately 10% of net revenues in 1996, as compared to approximately 7% of
net revenues in 1995. The increase in G&A expense was primarily due to
increased salaries, bad debt expense and higher professional fees. These
increases were somewhat offset by savings generated by the continued
centralization and consolidation of administrative functions on a company-wide
basis. Additional resources may be invested in the general and administrative
areas.
In the fourth quarter of 1996, Softdesk recorded a non-recurring charge of
$1,400,000 related to its proposed merger with Autodesk, Inc. These costs were
primarily for professional fees related to the proposed merger. In 1995,
Softdesk incurred non-recurring charges of $2,309,000, which included $491,000
of purchased research and development costs in connection with the
acquisitions of ARITEK and IdeaGraphix; $827,000 of revaluation of its
purchased product development from prior acquisitions; $300,000 of costs
related to the acquisition of SOFT-TECH; and $691,000 related to non-recurring
charges in connection with certain personnel reductions and office closings.
The $691,000 includes $271,000 of charges related to the reduction in
headcount of 21, $230,000 of lease related costs and $190,000 of other various
costs. The office closings were due primarily to
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management's decision to consolidate the selling and marketing, product
development and general and administrative efforts located in certain
facilities acquired in prior acquisitions.
Net interest income decreased 11%, or $55,000, in 1996 as compared to 1995.
This decrease was primarily due to lower average cash balances earning
interest during 1996 partially offset by lower interest expense during 1996 as
compared to 1995.
Softdesk's consolidated provision for income taxes decreased 85% in 1996 as
compared to 1995, due to the decreased pretax earnings (before the after tax
non-recurring charge) in 1996. Softdesks effective income tax rate decreased
to approximately 38% in 1996 from 41% in 1995 primarily due to the level of
foreign tax provisions and the taxability of certain of the 1996 and 1995 non-
recurring charges included in the accompanying statements of operations.
Softdesk's 1996 net loss of $797,000, or $0.13 per share, included an
other/non-recurring charge of $1,400,000. This compares to a 1995 net income
of $3,579,000 or $0.58 per share, which included an other/non-recurring charge
of $2,309,000.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
Net revenues increased approximately 36% in 1995 as compared to 1994. This
increase was primarily due to an increase in demand for Softdesk's products
caused by several factors, including Softdesk's strategy to bundle various
product modules of a product family on a new media format, the compact disk
("CD"), and by several new product releases and upgrades of existing products
which provided enhanced functionality. Softdesk believes that the new product
offerings combined with the bundling strategy provided Softdesk with both
additional revenue-generating products and helped make Softdesk's overall
product line more attractive. In addition, the increase in annual revenues was
also attributable to the revenues generated by Softdesk's three acquisitions
in 1995 (Foresight, ARITEK and IdeaGraphix). In order to facilitate the sale
of one of its software product lines, Softdesk also resold computer hardware
to those customers requiring such systems for the operation of such software.
The incremental gross margin of any such hardware sales is included in
Softdesk's total revenue. Because most of Softdesk's quarterly revenues are
for products booked and shipped in the same quarter, it is somewhat difficult
for Softdesk to accurately predict the flow and level of future revenues.
International revenue increased approximately 7% in 1995 from its level in
1994; however, it declined to 32% of net revenues in 1995 from 42% in 1994. In
general, the factors discussed above concerning the overall increase in total
Company revenues in 1995 were primarily U.S. focused, leading to a larger
increase in domestic revenues as compared to international revenues. Softdesk
believes that a somewhat weaker U.S. dollar as compared to the major European
currencies during 1995 may have contributed to some of the growth of
international revenues in absolute dollars. However, revenues from Southern
Europe, Mexico and Latin America declined in 1995, as compared to 1994, due to
what Softdesk believes were somewhat less favorable economic conditions in
1995.
The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
IN THOUSANDS
<S> <C> <C> <C> <C>
United States...................................... $28,111 68% $17,891 58%
Europe............................................. 9,292 22 9,661 32
Canada............................................. 1,731 4 1,117 4
Asia Pacific....................................... 1,711 4 1,010 3
Other.............................................. 892 2 903 3
------- --- ------- ---
$41,737 100% $30,582 100%
</TABLE>
The primary currency of Softdesk is the U.S. Dollar. However, revenues and
expenses for foreign operations, particularly Softdesk's German subsidiary,
are usually recorded in the applicable foreign currency
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and translated with any applicable foreign exchange adjustments. There were no
foreign exchange transaction or translation gains or losses which were
material to Softdesk's financial results in either of the years ended December
31, 1995 or 1994. In addition, during these two years Softdesk did not
experience any material effects caused by inflation.
Total costs and expenses (excluding other/non-recurring charges in both 1995
and 1994), as a percentage of revenue, decreased to approximately 81% of
revenue in 1995 from approximately 86% of net revenues in 1994. As a
percentage of revenue, the 5 percentage point decrease in total costs and
expenses consisted of a 2 percentage point decrease in the cost of revenues
and a 3 percentage point decrease in the other costs and expenses. These items
are discussed below. As part of the overall growth of Softdesk during 1995 the
number of employees grew by approximately 20% (year end 1995 compared to year
end 1994) which contributed to the increase, in absolute dollars, in other
costs and expenses. Headcount totaled 273 at the end of 1995 as compared to
228 at the end of 1994.
Gross profit margin increased to approximately 85% in 1995 from
approximately 83% in 1994. The increase was primarily attributable to
economies of scale, a shift in overall product mix toward somewhat higher
margin products in 1995, cost savings generated by Softdesk's use of the CD
media for many of its professional products, and from lower product royalty
payments mainly due to the renegotiation of a royalty agreement in 1995.
Selling and marketing expenses, which include distribution, marketing,
training and a portion of support costs, increased approximately 34% in 1995
as compared to 1994, but remained constant, as a percentage of net revenues,
at approximately 35% in each year. The increase in expenses was primarily a
result of the increased average sales and marketing headcount during 1995
which contributed to increased salary and travel costs. The increase was also
partially attributable to increased trade show, public relations and
advertising expenses in 1995. The increase in revenues in 1995 as compared to
1994 also produced an increase in total commission expense.
Product development expenses, which consist primarily of developers' wages
and benefits and a portion of support costs, increased approximately 33% in
1995, as compared to 1994, but decreased, as a percentage of net revenues, to
approximately 24% in 1995 from approximately 25% in 1994. The increase in
expenses was due to the addition of development staff through hiring,
acquisition and outside contracting. These additional resources were required
to keep pace with advancing changes in Windows and other operating
environments as well as to develop future products and upgrade releases. There
were no capitalized product development costs in 1995 and only an
insignificant amount in 1994, in accordance with Statement of Financial
Accounting Standards No. 86.
General and administrative expenses, which include the costs of Softdesk's
corporate finance, human resource and administrative functions, increased
approximately 18% in 1995 from 1994, but decreased, as a percentage of net
revenues, to approximately 7% from approximately 9% in 1994. The increase in
expenses was due to the addition of staff and higher professional fees, both
of which have increased with the growth of Softdesk. The decline in G&A
expenses, as a percentage of net revenues, was primarily due to the continued
centralization and consolidation of the administrative functions on a company-
wide basis as well as the ability to support increased revenues without a
commensurate increase in the administrative infrastructure during the past two
years.
In 1995, Softdesk incurred non-recurring charges of $2,309,000, which
included $491,000 of purchased research and development costs in connection
with the acquisitions of ARITEK and IdeaGraphix; 827,000 of revaluation of its
purchased product development from prior acquisitions; $300,000 of merger
related costs related to the acquisition of SOFT-TECH; and $691,000 related to
nonrecurring charges in connection with certain personnel reductions and
office closings. The $691,000 includes $271,000 of charges related to the
reduction in headcount of 21, $230,000 of lease related costs and $190,000 of
other various costs. The office closings were due primarily to management's
decision to consolidate the selling and marketing, product development and
general and administrative efforts located in certain facilities acquired in
prior acquisitions. In 1994, Softdesk incurred a total non-recurring charge of
$892,000 which included $530,000 for purchased research and development in
connection with the acquisition of Walter M. Smith Enterprises, Inc. d/b/a
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intelliCADD ("intelliCADD") and a nonrecurring charge of $362,000 in
connection with the acquisition of Image Systems Technologies, Inc. ("Image
Systems"). The charges for purchased research and development represented the
portion of the purchase price assigned to research and development which had
not yet reached technological feasibility and had no future alternative use.
Net interest income decreased approximately 13% in 1995, as compared to
1994, primarily due to significantly higher interest expense in 1995 from a
mortgage related to the purchase of facility space in Germany in March 1995.
In addition, Softdesk had lower average cash balances earning interest during
1995.
Softdesk's combined income tax provision and pro forma income tax adjustment
increased approximately 74% in 1995 as compared to 1994 due to increased
pretax earnings. Softdesk's effective income tax rate increased to
approximately 41% from 35% in 1994 due primarily to non-tax deductible merger
related costs and the inclusion of a favorable pro forma tax adjustment in
1994.
Softdesk's 1995 pro forma net income of $3,579,000, or $0.58 per share,
included an other/non-recurring charge of $2,309,000. This compares to a 1994
pro forma net income of $2,590,000 or $0.46 per share, which included an
other/non-recurring charge of $892,000.
LIQUIDITY AND CAPITAL RESOURCES
Softdesk is currently satisfying its operating cash requirements from its
existing cash balances. As of December 31, 1996, Softdesk had cash, cash
equivalents, short and long term investments of $11,895,000 as compared to
$17,190,000 at December 31, 1995.
The decrease in total cash and investments during 1996 was primarily
attributable to Softdesk's net investment in capital assets ($1,995,000), the
payment of income taxes ($1,739,000), the retirement of a mortgage on a
facility in Germany ($1,227,000), the completion of a software licensing
contract including prepaid royalties ($830,000), and, to a lesser extent,
funds used to complete the SOFT-TECH acquisition. During 1996, Softdesk
received $429,000 from the exercise of stock options and reduced its net
accounts receivable by approximately $901,000.
The purchase of property and equipment was primarily related to the addition
of facility space, computer equipment and software, including a new corporate
MIS and telecommunication system. Planned future capital expenditures are not
expected to have an overall material effect on Softdesk's cash position or its
operations during the next 12 months.
Softdesk invests its cash reserves mainly in debt securities, with
maturities of less than 2 years, issued by the U.S. treasury, other U.S.
government agencies and political subdivisions of the states and
municipalities. Softdesk expects to continue similar conservative investment
policies in the future. Softdesk believes that its existing cash, investments
and projected funds from operations will satisfy Softdesk's working capital
and operating needs for at least the next 12 months.
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SOFTDESK MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
Management information is provided with respect to the following individual
who currently serves as an executive officer of Softdesk and is expected to
serve as an executive officer of Autodesk.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH SOFTDESK
---- --- ----------------------------------------------------
<S> <C> <C>
David C. Arnold........... 41 President, Chief Executive Officer, Treasurer and
Chairman of the Board of Directors.
</TABLE>
DAVID C. ARNOLD is a co-founder of Softdesk and has served as its Chief
Executive Officer, Treasurer and Chairman of the Board since Softdesk's
inception in 1985. Mr. Arnold has served as President of Softdesk from the
Company's inception in 1985 until January 1993, and from December 1993 until
the present.
There is no family relationship between Mr. Arnold and any director or
executive officer of Autodesk.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by one
executive officer of Softdesk who is expected to become an executive officer
of Autodesk upon consummation of the Merger for services rendered to Softdesk
during the fiscal years ended December 31, 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(4)
------------
ANNUAL COMPENSATION
------------------------------- SECURITIES ALL
OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS (#) COMPENSATION(5)
- --------------------------- ---- --------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
David C. Arnold......... 1996 $185,016 -- $22,979(1) -- $4,525
President, Chief
Executive 1995 $150,558 $19,232 $17,455(2) -- $4,428
Officer and Treasurer 1994 $150,558 $24,993 $15,082(3) -- $2,976
</TABLE>
- --------
(1) Reflects $15,979 in expenses related to the lease, insurance and
maintenance of an automobile and $7,000 in expenses related to tax
preparation.
(2) Reflects $16,655 in expenses related to the lease, insurance and
maintenance of an automobile provided by Softdesk and $800 in expenses
related to tax preparation.
(3) Reflects $14,282 in expenses related to the lease, insurance and
maintenance of an automobile provided by Softdesk and $800 in expenses
related to tax preparation.
(4) Softdesk did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive plan payouts during
any fiscal year covered.
(5) Represents matching contributions to Softdesk's Section 401(k) plan in the
amount of $500 for 1996 and $250 for 1995 and 1994, and premiums paid by
Softdesk on life insurance policies for Mr. Arnold's benefit ($4,025,
$4,178 and $2,726 for fiscal years 1996, 1995 and 1994 respectively).
OPTION GRANTS, EXERCISES AND HOLDINGS
During the fiscal year ended December 31, 1996, Softdesk did not grant any
stock options to David C. Arnold, Softdesk's President, Chief Executive
Officer and Treasurer, and the only executive officer of Softdesk who is
expected to serve as an executive officer of Autodesk following the Merger.
Mr. Arnold has never held any options to purchase Softdesk Common Stock.
Accordingly, during the fiscal year ended December 31, 1996, Mr. Arnold did
not exercise any options to purchase Softdesk Common Stock and Mr. Arnold
holds no unexercised "in-the-money" options to purchase Softdesk Common Stock.
95
<PAGE>
CERTAIN TRANSACTIONS
During 1995 and 1996, Softdesk contracted a relative of an
officer/stockholder of Softdesk for the construction of additional facility
space which totaled $192,000 and $521,000, respectively. Softdesk believes the
cost of these transactions represents the fair market value of the services
performed and the terms were at least as favorable to Softdesk as could be
obtained from an unaffiliated third party.
SOFTDESK STOCK INFORMATION
SOFTDESK PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Softdesk
Common Stock as of December 31, 1996 for the following: (i) each person or
entity who is known by Softdesk to own beneficially more than 5% of the
outstanding shares of Softdesk Common Stock (ii) each of Softdesk's directors;
(iii) each of Softdesk's executive officers; and (iv) all directors and
executive officers of Softdesk as a group:
<TABLE>
<CAPTION>
SHARES PERCENTAGE
NAME BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(2)
---- --------------------- ---------------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
FMR Corp. (3)..................... 709,100 11.8
82 Devonshire Street
Boston, MA 02109
David C. Arnold................... 660,000 11.0
c/o Softdesk, Inc.
7 Liberty Hill Road
Henniker, NH 03242
David A. Paine.................... 344,500 5.7
c/o Softdesk, Inc.
7 Liberty Hill Road
Henniker, NH 03242
AIM Management Group, Inc. (4).... 325,000 5.4
11 Greenway Plaza,
Suite 1919
Houston, TX 77046
Scudder, Stevens & Clark, Inc. 313,000 5.2
(5)..............................
345 Park Avenue
New York, NY 10154
OTHER DIRECTORS
Jesse F. Devitte (6).............. 144,223 2.4
James W. Adkisson (7)............. 30,000 *
Louis J. Volpe (8)................ 16,666 *
OTHER EXECUTIVE OFFICERS
R. Drew Ogden (9)................. 23,547 *
John A. Rogers (10)............... 7,804 *
ALL DIRECTORS AND EXECUTIVE 1,226,740 20.0
OFFICERS AS A GROUP (7
PERSONS)(11).....................
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(1) Each person has sole investment and voting power with respect to the
shares indicated as beneficially owned, except as otherwise noted. The
inclusion herein of any shares as beneficially owned does not constitute
an admission of beneficial ownership. In accordance with SEC rules, each
person listed is
96
<PAGE>
deemed to beneficially own any shares issuable upon the exercise of stock
options held by him or her that are currently exercisable or exercisable
within 60 days after December 31, 1996, and any references in these
footnotes to options refers only to such options. This stock ownership
table does not give effect to any acceleration of the exercisability of
stock options that would occur upon the consummation of the Merger.
(2) Number of shares deemed outstanding includes 6,020,019 outstanding as of
December 31, 1996, plus any shares subject to stock options held by the
person in question.
(3) Stock ownership as of March 31, 1996 and based upon a Schedule 13G filed
with the SEC dated as of April 9, 1996.
(4) Stock ownership as of December 31, 1995 and based upon a Schedule 13G
filed with the SEC dated as of February 12, 1996.
(5) Stock ownership as of December 31, 1995 and based upon a Schedule 13G
filed with the SEC dated as of February 7, 1996.
(6) Includes (i) 35,442 shares subject to stock options and (ii) 20,000
shares held by the Jesse F. Devitte 1996 Irrevocable Educational Trust
u/d/t 8/8/96, as to which Mr. Devitte disclaims beneficial ownership.
(7) Includes 20,000 shares subject to stock options.
(8) Comprised of 16,666 shares subject to stock options.
(9) Includes 22,857 shares subject to stock options.
(10) Includes 6,971 shares subject to stock options.
(11) Includes 101,936 shares subject to stock options.
97
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTODESK CAPITAL STOCK
The authorized capital stock of Autodesk consists of 100,000,000 shares of
Common Stock, $0.01 par value per share and 2,000,000 shares of Preferred
Stock, $0.01 par value per share.
Autodesk Common Stock
As of January 31, 1997, there were approximately 45,107,608 shares of
Autodesk Common Stock outstanding, held of record by approximately 1,354
stockholders. Autodesk Common Stock is listed on the Nasdaq under the symbol
"ADSK." Autodesk Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to Autodesk Common Stock. The holders of Autodesk Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of
Autodesk, each share of Autodesk Common Stock is entitled to participate pro
rata in the distribution of all assets remaining after payment of liabilities.
All outstanding shares of Autodesk Common Stock are fully paid and non-
assessable, and the shares of Autodesk Common Stock to be outstanding upon
completion of the Merger will be fully paid and non-assessable.
Holders of Autodesk Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of Autodesk Common
Stock do not have cumulative voting rights in connection with the election of
Directors. The By-laws of Autodesk provide that any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice, and without a vote, if written
consents are obtained from the holders of outstanding Autodesk Common Stock
having not less than the minimum number of votes that would be necessary to
take such action at a meeting at which all shares entitled to vote were
present and voted.
Autodesk sold put warrants to an independent third party in September 1996
that entitle the holder of the warrants to sell 3,000,000 shares of Autodesk
Common Stock to Autodesk at $21.50 per share. Additionally, Autodesk purchased
call options that entitle Autodesk to buy 2,000,000 shares of Autodesk Common
Stock at $25.50 per share. The put warrants and call options expire in
September 1997. The premiums received with respect to the equity options
totaled $8.1 million and equaled the premiums paid. Consequently, there was no
exchange of cash. The amount related to Autodesk's maximum potential
repurchase obligation under the put warrants has been reclassified from
stockholders' equity to put warrants at October 31, 1996. Autodesk has the
right to settle the put warrants with stock or a cash settlement equal to the
difference between the exercise price and market value at the date of
exercise.
Preferred Stock
Autodesk has 2,000,000 shares of Preferred Stock authorized, of which, as of
December 31, 1996, no shares were outstanding. Under Autodesk's Certificate of
Incorporation, the Board of Directors has the authority to issue these shares
of Preferred Stock in one or more series and, subject to limitations
prescribed by law, to fix the designations, rights, powers, and preferences
and the qualifications, limitations or restrictions thereof, of each such
series of Preferred Stock, including without limitation authority to fix the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), and liquidation
preferences of any wholly unissued series of Preferred Stock and the number of
shares constituting any such series and the designation thereof, or any of the
foregoing, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Autodesk Common Stock and the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of
Autodesk.
98
<PAGE>
The Autodesk Board of Directors has designated a series of Preferred Stock
as "Series A Participating Preferred Stock," with a par value of $0.01 per
share and consisting of 100,000 shares, of which, as of December 31, 1996, no
shares were outstanding. The holders of Series A Participating Preferred Stock
are entitled to dividends, if any, as may declared from time to time by the
Board of Directors, in an amount per share equal to 1,000 times the aggregate
per share amount of all cash dividends, and 1,000 times the aggregate per
share amount of all non-cash dividends or other distributions, declared on the
Autodesk Common Stock, subject to adjustment in the event of a stock split.
There are no redemption or sinking fund provisions applicable to the Series A
Participating Preferred Stock. Except as required by law, holders of Series A
Participating Preferred Stock vote together as a class with the holders of
Autodesk Common Stock and are entitled to 1,000 votes for each share of Series
A Participating Preferred Stock on all matters submitted to a vote of the
stockholders of Autodesk, subject to adjustment in the event of a stock
dividend or stock split. In the event of a liquidation, dissolution or winding
up of Autodesk, the holders of Series A Participating Preferred Stock are
entitled to receive $1,000 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, before any distribution may be
made to the holders of shares of stock ranking junior (either as to dividends
or in liquidation preference) to the Series A Participating Preferred Stock,
as well as certain other amounts under circumstances set forth in a
Certificate of Designation filed with the Secretary of State of the State of
Delaware.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Autodesk Common Stock is Harris
Trust & Savings Bank, c/o Shareholder Services, 11th Floor, 311 West Monroe
Street, Chicago, Illinois 60606.
SOFTDESK CAPITAL STOCK
Softdesk's authorized capital stock consists of 15,000,000 shares of
Softdesk Common Stock, $0.01 par value per share, and 1,000,000 shares of
Preferred Stock, $0.01 par value per share.
Softdesk Common Stock
As of December 31, 1996, there were 6,020,019 outstanding shares of Softdesk
Common Stock held of record by approximately 316 holders. Softdesk Common
Stock is listed on the Nasdaq under the symbol "SDSK." The holders of Softdesk
Common Stock are entitled to one vote for each share on all matters submitted
to a vote of stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the Softdesk Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. The holders of Softdesk Common Stock are entitled to share ratably
in all assets of Softdesk which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. The holders of Softdesk
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Softdesk Common Stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of Softdesk
Common Stock are subject to the rights of the holders of shares of any series
of Preferred Stock which Softdesk may issue in the future.
Preferred Stock
The Softdesk Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of Preferred Stock, in one or more
series. Each such series of Preferred Stock will have such number of shares,
designations, preferences, voting powers, qualifications, and special or
relative rights or privileges as shall be determined by the Softdesk Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights. The stockholders have granted the Softdesk Board
of Directors authority to issue the Preferred Stock and to determine its
rights and preferences in order to eliminate delays associated with a
stockholder vote on specific issuances. The rights of the holders of Softdesk
Common Stock will be subject to the rights of holders of any Preferred Stock
issued in the future.
99
<PAGE>
Transfer Agent and Registrar
The transfer agent for the Softdesk Common Stock is the First National Bank
of Boston.
COMPARISON OF CAPITAL STOCK
The following discussion summarizes the material differences between the
rights of holders of Autodesk Common Stock and the rights of holders of
Softdesk Common Stock. As each of Autodesk and Softdesk is organized under and
is subject to the laws of the State of Delaware, these differences arise from
various provisions of the Certificate of Incorporation and By-Laws of each of
Autodesk and Softdesk. This summary does not purport to be complete and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-Laws of each of Autodesk and Softdesk.
Upon consummation of the Merger, the holders of Softdesk Common Stock who
receive Autodesk Common Stock under the terms of the Amended Agreement will
become stockholders of Autodesk. As stockholders of Softdesk, their rights are
currently governed by Delaware law and by the Softdesk Certificate of
Incorporation, as amended (the "Softdesk Certificate"), and By-Laws (the
"Softdesk By-Laws"). As stockholders of Autodesk, their rights will be
governed by Delaware law and by the Autodesk Certificate of Incorporation, as
amended (the "Autodesk Certificate"), and By-Laws (the "Autodesk By-Laws").
Special Meeting of Stockholders
The Softdesk By-Laws provide that special meetings of stockholders may be
called by the President or the Board of Directors. The Autodesk By-Laws
provide that special meetings of stockholders may be called at any time by the
Board of Directors, the Chairman of the Board of Directors, the President, or
by one or more stockholders holding shares in the aggregate entitled to cast
not less than ten percent of the votes of all shares of stock owned by
stockholders entitled to vote at that meeting.
Action by Consent of Stockholders
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting
at which all stockholders were present and voted consent to the action in
writing. The Autodesk By-Laws permit action by majority written consent in
accordance with Delaware law. However, the Softdesk Certificate and the
Softdesk By-Laws provide that any action required or permitted to be taken by
the stockholders of Softdesk may be taken without a meeting only by the
unanimous written consent of the stockholders of Softdesk that would otherwise
be entitled to vote at such meeting.
Cumulative Voting
Neither the Autodesk Certificate nor the Softdesk Certificate provides for
cumulative voting by stockholders in elections of directors.
Classification of the Board of Directors
The Softdesk Certificate and the Softdesk By-Laws provide that the total
number of directors shall be not less than three, with the exact number of
directors fixed from time to time by resolution of the Softdesk Board. The
Softdesk Certificate and the Softdesk By-Laws provide for the division of its
Board of Directors into three classes, as nearly equal in size as possible,
with staggered three-year terms. As a result of such classification, a person
wishing to propose alternative nominees for election to the Softdesk Board of
Directors would be able to propose nominees for only one-third of the Board of
Directors at a time. Neither the Autodesk Certificate nor the Autodesk By-Laws
provide for classes of directors. The Autodesk By-Laws provide that the number
of directors shall be six.
100
<PAGE>
Removal of Directors
The Softdesk Certificate and the Softdesk By-Laws provide that, so long as
the Board of Directors remains classified pursuant to Section 141(d) of the
Delaware General Corporation Law, stockholders may remove a director or the
entire Board of Directors only for cause. The Autodesk By-Laws provide that
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.
Exculpation of Directors
Each of Autodesk and Softdesk has included in its certificate of
incorporation a provision which eliminates the personal liability of its
directors for monetary damages resulting from a breach of fiduciary duty as a
director to the fullest extent permitted by the Delaware General Corporation
Law.
Indemnification of Directors, Officers and Others
The Autodesk By-Laws require Autodesk to indemnify its directors and
officers to the maximum extent and in the manner permitted by the Delaware
General Corporation Law. The Autodesk By-Laws also permit Autodesk to
indemnify its employees and agents (other than directors and officers) to the
maximum extent and in the manner permitted by the Delaware General Corporation
Law. The Softdesk Certificate provides for the indemnification of its
directors and officers to the maximum extent permitted by the Delaware General
Corporation Law, including under circumstances in which indemnification would
otherwise be discretionary.
EXPERTS
The consolidated financial statements of Autodesk at January 31, 1995 and
1996, and for each of the three years in the period ended January 31, 1996,
appearing in this Proxy Statement/Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Softdesk as of December 31, 1995
and 1996, and for each of the three years in the three-year period ended
December 31, 1996, appearing in this Proxy Statement/Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report thereto, and are included
herein in reliance upon the authority of such firm as experts in giving said
reports.
Representatives of Arthur Andersen LLP are expected to be present at the
Softdesk Meeting and will also be available to respond to appropriate
questions from Softdesk stockholders.
LEGAL MATTERS
The validity of the Autodesk Common Stock issuable pursuant to the Merger
will be passed on by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Mark A. Bertelsen, a director of Autodesk,
is also a member of Wilson Sonsini Goodrich & Rosati, Professional
Corporation. Hale and Dorr LLP, Boston, Massachusetts, is acting as counsel
for Softdesk in connection with certain legal matters relating to the Merger
and the transaction contemplated thereby.
101
<PAGE>
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AUTODESK, INC.
ANNUAL AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Consolidated Balance Sheet as of January 31, 1996 and 1995.............. F-3
Consolidated Statement of Income for the Years ended January 31, 1996,
1995 and 1994.......................................................... F-4
Consolidated Statement of Cash Flows for the Years ended January 31,
1996, 1995 and 1994.................................................... F-5
Consolidated Statement of Stockholders' Equity for the Years ended
January 31, 1996, 1995 and 1994........................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheet as of October 31, 1996
(Unaudited)............................................................ F-16
Condensed Consolidated Statement of Income for the Nine Months ended
October 31, 1996 and 1995 (Unaudited).................................. F-17
Condensed Consolidated Statement of Cash Flows for the Nine Months ended
October 31, 1996 and 1995 (Unaudited).................................. F-18
Notes to unaudited Condensed Consolidated Financial Statements.......... F-19
SOFTDESK, INC.
Report of Independent Public Accountants................................ F-20
Consolidated Balance Sheets............................................. F-21
Consolidated Statements of Operations................................... F-22
Consolidated Statements of Stockholders' Equity......................... F-23
Consolidated Statements of Cash Flows................................... F-24
Notes to Consolidated Financial Statements.............................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Autodesk, Inc.
We have audited the accompanying consolidated balance sheets of Autodesk, Inc.
as of January 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended January 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 21(b). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Autodesk, Inc. at January 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended January 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
San Francisco, California
February 20, 1996
F-2
<PAGE>
AUTODESK, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
JANUARY 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $129,305 $195,038
Marketable securities.................................... 64,001 45,316
Accounts receivable, net of allowances of $6,731
($6,457 in 1995)........................................ 93,919 86,340
Inventories.............................................. 9,685 5,769
Deferred income taxes.................................... 33,769 29,915
Prepaid expenses and other current assets................ 17,155 10,707
-------- --------
Total current assets................................... 347,834 373,085
Marketable securities, including a restricted balance of
$28,000
at January 31, 1996...................................... 79,096 15,019
Computer equipment, furniture, and leasehold improvements:
Computer equipment and furniture......................... 106,643 91,557
Leasehold improvements................................... 21,100 20,048
Accumulated depreciation................................. (78,778) (65,090)
-------- --------
Net computer equipment, furniture, and leasehold
improvements.......................................... 48,965 46,515
Capitalized software and purchased technologies........... 22,141 26,406
Other assets.............................................. 19,893 21,051
-------- --------
$517,929 $482,076
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 24,547 $ 21,535
Accrued compensation..................................... 22,441 18,165
Accrued income taxes..................................... 65,517 53,202
Litigation accrual....................................... -- 25,800
Other accrued liabilities................................ 31,790 36,288
-------- --------
Total current liabilities.............................. 144,295 154,990
Deferred income taxes...................................... 1,912 2,625
Litigation accrual......................................... 27,640 --
Other liabilities.......................................... 1,754 977
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 100,000 shares authorized;
46,351
issued and outstanding (47,241 in 1995) ................ 140,765 100,870
Retained earnings........................................ 191,109 215,064
Foreign currency translation adjustment.................. 10,454 7,550
-------- --------
Total stockholders' equity............................. 342,328 323,484
-------- --------
$517,929 $482,076
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AUTODESK, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues......................................... $ 546,884 $ 465,278 $ 418,720
Direct commissions............................... 12,717 10,666 13,124
--------- --------- ---------
Net revenues..................................... 534,167 454,612 405,596
Costs and expenses:
Cost of revenues............................... 66,812 61,725 63,338
Marketing and sales............................ 183,550 154,562 137,788
Research and development....................... 78,678 65,176 56,231
General and administrative..................... 76,100 65,738 58,536
Litigation charge.............................. -- 25,500 --
--------- --------- ---------
Total costs and expenses..................... 405,140 372,701 315,893
--------- --------- ---------
Income from operations........................... 129,027 81,911 89,703
Interest and other income, net................... 9,253 7,233 7,055
--------- --------- ---------
Income before income taxes....................... 138,280 89,144 96,758
Provision for income taxes....................... 50,492 32,538 34,592
--------- --------- ---------
Net income....................................... $ 87,788 $ 56,606 $ 62,166
========= ========= =========
Net income per share............................. $ 1.76 $ 1.14 $ 1.25
========= ========= =========
Shares used in computing net income per share.... 49,800 49,840 49,740
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AUTODESK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 87,788 $ 56,606 $ 62,166
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization............ 25,247 24,989 20,568
Changes in operating assets and
liabilities, net of business
combinations:
Accounts receivable.................... (7,579) (15,068) (8,283)
Inventories............................ (3,850) 3,034 8,049
Deferred income taxes.................. (4,567) (18,334) (9,133)
Prepaid expenses and other current
assets................................ (6,443) (2,898) 923
Accounts payable and accrued
liabilities........................... 3,721 48,017 5,031
Accrued income taxes................... 12,315 8,066 9,532
---------- --------- ---------
Net cash provided by operating activities.... 106,632 104,412 88,853
---------- --------- ---------
INVESTING ACTIVITIES
Purchases of available-for-sale marketable
securities.................................. (224,655) (74,682) (438,405)
Maturities of available-for-sale marketable
securities.................................. 141,893 145,754 426,168
Purchases of computer equipment, furniture,
and leasehold improvements.................. (16,306) (20,019) (21,503)
Business combinations, net of cash acquired.. (7,194) (4,469) (6,536)
Capitalization of software costs and
purchases of software technologies.......... (1,409) (4,958) (2,479)
Other........................................ 8,042 4,642 1,474
---------- --------- ---------
Net cash provided (used) by investing
activities.................................. (99,629) 46,268 (41,281)
---------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock....... 46,424 59,912 47,899
Repurchase of common stock................... (107,976) (89,851) (71,586)
Dividends paid............................... (11,184) (11,307) (11,388)
---------- --------- ---------
Net cash used in financing activities........ (72,736) (41,246) (35,075)
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (65,733) 109,434 12,497
Cash and cash equivalents at beginning of
year........................................ 195,038 85,604 73,107
---------- --------- ---------
Cash and cash equivalents at end of year..... $ 129,305 $ 195,038 $ 85,604
========== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AUTODESK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
THREE-YEAR PERIOD ENDED JANUARY 31, 1996
------------------------------------------------------
FOREIGN
COMMON STOCK CURRENCY TOTAL
---------------- RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT EARNINGS ADJUSTMENT EQUITY
------ -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 31,
1993................... 48,022 $ 67,456 $ 206,274 $(5,897) $ 267,833
Common shares issued
under stock option
and stock purchase
plans.................. 2,634 41,875 -- -- 41,875
Tax effect of stock
options................ -- 6,024 -- -- 6,024
Net income.............. -- -- 62,166 -- 62,166
Dividends paid.......... -- -- (11,388) -- (11,388)
Repurchase of common
shares................. (3,176) (71,586) -- -- (71,586)
Foreign currency
translation
adjustment............. -- -- -- 1,955 1,955
------ -------- --------- ------- ---------
Balances, January 31,
1994................... 47,480 43,769 257,052 (3,942) 296,879
Common shares issued
under stock option
and stock purchase
plans.................. 2,751 49,467 -- -- 49,467
Tax effect of stock
options................ -- 10,445 -- -- 10,445
Net income.............. -- -- 56,606 -- 56,606
Dividends paid.......... -- -- (11,307) -- (11,307)
Repurchase of common
shares................. (2,990) (2,811) (87,040) -- (89,851)
Foreign currency
translation
adjustment............. -- -- -- 11,492 11,492
Unrealized losses on
available-for-sale
securities,
net of tax............. -- -- (247) -- (247)
------ -------- --------- ------- ---------
Balances, January 31,
1995................... 47,241 100,870 215,064 7,550 323,484
Common shares issued
under stock option
and stock purchase
plans.................. 1,781 35,712 -- -- 35,712
Tax effect of stock
options................ -- 10,712 -- -- 10,712
Net income.............. -- -- 87,788 -- 87,788
Dividends paid.......... -- -- (11,184) -- (11,184)
Repurchase of common
shares................. (2,671) (6,529) (101,447) -- (107,976)
Foreign currency
translation
adjustment............. -- -- -- 2,904 2,904
Unrealized gains on
available-for-sale
securities,
net of tax............. -- -- 888 -- 888
------ -------- --------- ------- ---------
Balances, January 31,
1996................... 46,351 $140,765 $ 191,109 $10,454 $ 342,328
====== ======== ========= ======= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
Autodesk, Inc. ("Autodesk" or the "Company"), develops, markets, and sells a
family of design and multimedia software products for use on personal
computers and workstations.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
The asset and liability accounts of foreign subsidiaries are translated from
their respective functional currencies at the rates in effect at the balance
sheet date, and revenue and expense accounts are translated at weighted
average rates during the period. Foreign currency translation adjustments are
reflected as a separate component of stockholders' equity. Gains (losses)
resulting from foreign currency transactions, which are included in interest
and other income, were $554,000, ($1,043,000), and ($969,000) in fiscal years
1996, 1995, and 1994, respectively.
In August 1993, the Company acquired the remaining outstanding stock of
Ithaca Software and in November 1993, purchased the net assets of Woodbourne,
Inc. The aggregate cash purchase price of these two transactions was
approximately $6.5 million. In fiscal year 1995, approximately $3.5 million
was paid to the former Ithaca Software stockholders based on product
milestones and revenues; the additional $3.5 million has been allocated to
intangible assets and is being amortized on a straight-line basis over three
to five year periods. In August 1995, the Company acquired certain assets of
Automated Methods (Pty) Ltd. and during fiscal year 1996 made final payments
to the former Ithaca stockholders based on revenues from specified products.
Cash payments associated with these transactions totaled approximately $7.2
million. Additional consideration may also be payable to the former
shareholders of Automated Methods (Pty) Ltd. based on future revenues from
specified products; these amounts are expected to be allocated to intangible
assets and amortized on a straight-line basis over two-to-five year periods.
These acquisitions were accounted for using the purchase method of accounting
with the purchase price being principally allocated to capitalized software
and purchased technologies, and intangible assets. The results of the acquired
entities, which have not been material in relation to those of the Company,
have been included in the consolidated financial results from the respective
dates of acquisition.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Foreign currency translation
The Company hedges a portion of its exposure on certain intercompany
receivables and payables denominated in foreign currencies using forward
foreign exchange contracts in European and Asian foreign currencies. Gains and
losses associated with exchange rate fluctuations on forward foreign exchange
contracts are recorded currently as other income or loss and offset
corresponding gains and losses on the foreign currency assets being hedged.
The costs of forward foreign exchange contracts are amortized on a straight-
line basis over the life of the contract as interest and other income.
Cash and cash equivalents
The Company considers all highly liquid investments with insignificant
interest rate risk and original maturities of three months or less to be cash
equivalents. Cash equivalents are recorded at cost, which approximates fair
value.
Marketable securities
Marketable securities, consisting principally of high-quality municipal
bonds, tax-advantaged money market instruments, and US treasury notes, are
stated at fair value. Marketable securities maturing within one year that are
not restricted are classified as current assets.
F-7
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS No. 115"). FAS No. 115 has been adopted
prospectively, and the financial statements of prior years have not been
restated. The cumulative effect as of February 1, 1994, of adopting FAS No.
115 was not material.
Under FAS No. 115, the appropriate classification of securities is
determined at the time of purchase and is reevaluated as of each balance sheet
date. The Company has classified all of its marketable securities as
available-for-sale and carries such securities at fair value, with unrealized
gains and losses, net of tax, reported in stockholders' equity until
disposition.
Concentration of credit risk
The Company places its cash, cash equivalents, and marketable securities
with financial institutions with high credit standing and, by policy, limits
the amounts invested with any one institution, type of security, and issuer.
Autodesk's accounts receivable are derived from software sales to a large
number of dealers and distributors in the Americas, Europe, and Asia/Pacific.
The Company performs ongoing evaluations of its customers' financial
conditions and limits the amount of credit extended when deemed necessary, but
generally requires no collateral.
Inventories
Inventories, consisting principally of disks and technical manuals, are
stated at the lower of cost (determined on the first-in, first-out method) or
market.
Computer equipment, furniture, and leasehold improvements
Computer equipment and furniture are depreciated using the straight-line
method over the estimated useful lives of the assets, which range from two to
ten years. Leasehold improvements are amortized on a straight-line basis over
the shorter of the estimated useful life or the lease term.
Capitalized software and purchased technologies
Costs incurred in the initial design phase of software development are
expensed as incurred. Once the point of technological feasibility is reached,
production costs (programming and testing) are capitalized. Certain acquired
software-technology rights are also capitalized. Capitalized software costs
are amortized ratably as revenues are recognized, but not less than on a
straight-line basis over two- to seven-year periods. Amortization expense was
$11,765,000, $7,634,000, and $7,478,000 in fiscal years 1996, 1995, and 1994,
respectively. The actual lives of the Company's capitalized software or
purchased technologies may differ from the Company's estimates, and such
differences could cause carrying amounts of these assets to be reduced
materially.
Royalties
The Company licenses software used to develop components of AutoCAD, AutoCAD
LT, 3D Studio, and certain other software products. Royalties are payable to
developers of the software at various rates and amounts generally based on
unit sales or revenues. Royalty expense was $6,102,000, $5,944,000, and
$5,128,000 in fiscal years 1996, 1995, and 1994, respectively. Such costs are
included as a component of cost of revenues.
Revenue recognition
Autodesk's revenue recognition policy is in compliance with the provisions
of the American Institute of Certified Public Accountants' Statement of
Position 91-1, "Software Revenue Recognition." Revenue is recognized at the
time of shipment, provided that no significant vendor obligations exist and
collection of the resulting receivable is deemed probable. A portion of
revenues related to customer consulting and training obligations is deferred,
while costs associated with certain post-sale customer obligations are
accrued.
F-8
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Autodesk establishes allowances for product returns, including allowances
for stock balancing and product rotation, based on estimated future returns of
product and after taking into consideration channel inventory levels at its
resellers, the timing of new product introductions, and other factors. These
allowances are recorded as direct reductions of accounts receivable. While the
Company maintains strict measures to monitor channel inventories and to
provide appropriate allowances, actual product returns may differ from the
Company's estimates, and such differences could be material to the
consolidated financial statements.
Net income per share
Net income per share is based on the weighted average number of outstanding
common shares and dilutive common stock equivalents.
Common stock split
In October 1994, Autodesk's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock from 50,000,000 to 100,000,000 shares and to effect a
two-for-one split of the Company's common stock in the form of a 100 percent
common stock dividend. All share and per share amounts have been restated to
reflect the stock split.
Recently issued accounting standards
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS No. 121"). FAS No. 121 requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company will adopt FAS No. 121 in the first quarter of fiscal year 1997. Based
on current circumstances, management does not believe the effect of adoption
will be material to the consolidated financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS No. 123") was issued in October 1995 and is
effective for the Company's fiscal year ending January 31, 1997. FAS No. 123
allows for the adoption of a new fair-value-based method or the continued use
of the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB No. 25") to measure compensation expense
for the Company's stock-based compensation plans. The Company intends to
continue to follow APB No. 25 but will be required to make pro forma
disclosures of net income and earnings per share as if the fair-value-based
method had been applied.
NOTE 2. FINANCIAL INSTRUMENTS
Fair values of financial instruments
Estimated fair values of financial instruments are based on quoted market
prices. The carrying amounts and fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1995
--------------------- --------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 129,305 $ 129,305 $ 195,038 $ 195,038
Marketable securities............. 143,097 143,097 60,335 60,335
Forward foreign currency
contracts........................ (143) (143) 25 25
</TABLE>
F-9
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign currency contracts
The Company enters into forward foreign currency contracts to hedge the
value of assets and liabilities recorded in foreign currencies against
fluctuations in exchange rates. Substantially all forward foreign currency
contracts entered into by the Company have maturities of 60 days or less. The
notional amounts of foreign currency contracts were $15.5 million and $10.7
million at January 31, 1996 and 1995, respectively, and were predominantly to
buy Swiss francs. While the contract or notional amount is often used to
express the volume of foreign exchange contracts, the amounts potentially
subject to credit risk are generally limited to the amounts, if any, by which
the counterparties' obligations under the agreements exceed the obligations of
the Company to the counterparties.
Marketable securities
Marketable securities include the following available-for-sale debt
securities at January 31, 1996 and 1995:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
January 31, 1996
Short-Term:
Municipal bonds.................... $ 30,439 $ 85 $ 1 $ 30,523
Time deposits...................... 33,478 -- -- 33,478
-------- ------ ---- --------
63,917 85 1 64,001
-------- ------ ---- --------
Long-Term:
Municipal bonds.................... 47,380 694 3 48,071
US Treasury notes.................. 29,397 608 3 30,002
Time deposits and other............ 1,008 15 -- 1,023
-------- ------ ---- --------
77,785 1,317 6 79,096
-------- ------ ---- --------
$141,702 $1,402 $ 7 $143,097
======== ====== ==== ========
January 31, 1995
Short-Term:
Municipal bonds.................... $ 45,312 $ 6 $143 $ 45,175
Time deposits...................... 141 -- -- 141
-------- ------ ---- --------
45,453 6 143 45,316
-------- ------ ---- --------
Long-Term:
Municipal bonds.................... 15,271 -- 252 15,019
-------- ------ ---- --------
$ 60,724 $ 6 $395 $ 60,335
======== ====== ==== ========
</TABLE>
Long-term US Treasury notes included a restricted balance of $28 million at
January 31, 1996. The contractual maturities of Autodesk's short-term
marketable securities at January 31, 1996, were one year or less while the
Company's long-term marketable securities had contractual maturities of
between one and two years except $3.8 million maturing in three years.
Expected maturities may differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
F-10
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Federal:
Current.................................... $26,711 $29,203 $ 21,516
Deferred................................... (3,392) (13,169) (6,282)
State:
Current.................................... 8,779 9,417 7,884
Deferred................................... (856) (3,839) (1,110)
Foreign:
Current.................................... 19,569 12,252 14,325
Deferred................................... (319) (1,326) (1,741)
--------- --------- ---------
$50,492 $32,538 $ 34,592
========= ========= =========
The principal reasons that the aggregate income tax provisions differ from
the US statutory rate of 35 percent are as follows:
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Income tax provision at statutory rate....... $ 48,398 $ 31,200 $ 33,865
Foreign income taxed at rates different from
the US statutory rate....................... (7,863) (4,916) (4,537)
State income taxes, net of federal benefit... 8,616 4,802 5,277
Tax-exempt interest.......................... (1,668) (1,608) (1,539)
Other........................................ 3,009 3,060 1,526
--------- --------- ---------
$ 50,492 $ 32,538 $ 34,592
========= ========= =========
</TABLE>
Significant sources of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 31,
----------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Net deferred tax assets:
Accrued state income taxes.................................. $ 5,409 $ 4,607
Accrued legal judgment, including accrued interest.......... 12,821 12,360
Reserve for product returns and bad debts................... 9,111 4,136
Reserve for idle facilities................................. 791 2,029
Other....................................................... 5,637 6,783
------- -------
33,769 29,915
------- -------
Net deferred tax liabilities:
Capitalized software........................................ 2,573 4,384
Other....................................................... (661) (1,759)
------- -------
1,912 2,625
------- -------
Net deferred tax assets....................................... $31,857 $27,290
======= =======
</TABLE>
No provision has been made for federal income taxes on unremitted earnings
of certain of the Company's foreign subsidiaries (cumulative $122,257,000 at
January 31, 1996) since the Company plans to indefinitely
F-11
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
reinvest all such earnings. At January 31, 1996, the unrecognized deferred tax
liability for these earnings was approximately $35.8 million. Foreign pre-tax
income was $64,433,000, $34,294,000, and $35,840,000 in fiscal years 1996,
1995, and 1994, respectively.
Cash payments for income taxes were $32,032,000, $32,361,000, and
$28,157,000 for fiscal years 1996, 1995, and 1994, respectively.
NOTE 4. LITIGATION ACCRUAL
In December 1994, the Company recorded a $25.5 million litigation charge as
the result of a judgment against the Company on a claim of trade secret
misappropriation brought by Vermont Microsystems, Inc. ("VMI"). The Company
appealed that judgment, and VMI cross-appealed, before the US Court of Appeals
for the Second Circuit, in January 1996. The Company is awaiting a ruling on
the appeal. Management believes the claims in the case, including a cross-
appeal by VMI for additional damages, are without merit and that the ultimate
resolution of this matter will not have a material adverse effect on the
Company's consolidated financial condition or results of operations. However,
depending on the amount and timing, an unfavorable resolution of this matter
could materially affect the Company's future results of operations or cash
flows in a particular period.
The Company was required by statute to post collateral approximating the
amount of the judgment plus accrued interest. At January 31, 1996, the
Company's long-term marketable securities included a balance of $28.0 million
which is restricted as to its use until final adjudication of this matter.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable lease
agreements. The leases generally provide that the Company pay taxes,
insurance, and maintenance expenses related to the leased assets. Future
minimum lease payments for fiscal years ended January 31 are as follows:
$14,280,000 in 1997; $12,687,000 in 1998; $11,437,000 in 1999; $9,770,000 in
2000; $7,648,000 in 2001; and $32,757,000 thereafter.
Rent expense was $16,992,000, $18,221,000, and $14,806,000 in fiscal years
1996, 1995, and 1994, respectively.
The Company has an unsecured $40 million bank line of credit, which may be
used from time to time to facilitate short-term cash flow. The line of credit
expires in January 1997.
The Company is a party to various legal proceedings arising from the normal
course of business activities. In management's opinion, resolution of these
matters is not expected to have a material adverse impact on the Company's
consolidated results of operations or its financial position. However,
depending on the amount and timing, an unfavorable resolution of a matter
could materially affect the Company's future results of operations or cash
flows in a particular period.
NOTE 6. EMPLOYEE BENEFIT PLANS
Stock Option Plans
Under the Company's stock option plans, incentive and nonqualified stock
options may be granted to officers, employees, directors, and consultants to
purchase shares of the Company's common stock. A maximum of 20,240,000 shares
of common stock have been authorized for issuance under the plans. The
exercise price of the stock options is determined by the Company's Board of
Directors on the date of grant and is at least equal to the fair market value
of the stock on the grant date.
F-12
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
---------- -------------
<S> <C> <C>
Options outstanding at January 31, 1994.............. 8,710,000 $12.56-$28.19
Granted............................................ 2,123,000 $24.25-$38.25
Exercised.......................................... (2,416,000) $12.56-$25.38
Canceled........................................... (420,000) $13.38-$30.25
---------- -------------
Options outstanding at January 31, 1995.............. 7,997,000 $12.56-$38.25
Granted............................................ 2,546,000 $35.25-$49.25
Exercised.......................................... (1,484,000) $12.56-$30.50
Canceled........................................... (368,000) $13.38-$49.25
---------- -------------
Options outstanding at January 31, 1996.............. 8,691,000 $13.38-$49.25
========== =============
Options exercisable at January 31, 1996.............. 3,379,000 $13.38-$38.25
========== =============
Options available for grant at January 31, 1996...... 3,223,000
==========
</TABLE>
Certain employees have disposed of stock acquired through the exercise of
incentive stock options earlier than the mandatory holding period required for
such options. The tax benefits allowed to the Company because of these
dispositions, together with the tax benefits realized from the exercise of
nonqualified stock options, have been recorded as increases to common stock.
Employee Stock Purchase Plan
The Company has an employee stock purchase plan for all employees meeting
certain eligibility criteria. Under the plan, employees may purchase shares of
the Company's common stock, subject to certain limitations, at not less than
85 percent of fair market value as defined in the plan. A total of 2,100,000
shares have been reserved for issuance under the plan. In fiscal years 1996,
1995, and 1994, shares totaling 301,000, 335,000, and 318,000, respectively,
were issued under the plan at average prices of $24.01, $17.90, and $14.30 per
share. At January 31, 1996, a total of 621,000 shares were available for
future issuance under the plan.
Pre-Tax Savings Plans
The Company has pre-tax savings plans covering nearly all US employees that
qualify under Section 401(k) of the Internal Revenue Code. Eligible employees
may contribute up to 15 percent of their pre-tax salary, subject to certain
limitations. The Company makes voluntary contributions and matches a portion
of employee contributions. Company contributions, which may be terminated at
the Company's discretion, were $2,442,000, $1,474,000, and $964,000 in fiscal
years 1996, 1995, and 1994, respectively.
NOTE 7. STOCKHOLDERS' EQUITY
Reincorporation
In August 1994, the Company was reincorporated in the state of Delaware. As
part of this reincorporation, each outstanding share of the California
corporation no par common stock was converted to one share of the Delaware
corporation $0.01 par value common stock.
Preferred Stock
The Company's Certificate of Incorporation authorizes two million shares of
preferred stock, none of which is issued or outstanding. The Board of
Directors has the authority to issue the preferred stock in one or more
F-13
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
series and to fix rights, preferences, privileges and restrictions, including
dividends, and the number of shares constituting any series or the designation
of such series, without any further vote or action by the stockholders.
In December 1995, the Company adopted a Shareholder Rights Plan which
provides existing stockholders with the right to purchase for $200 one one-
thousandth of a share of preferred stock for each share of common stock owned
by the stockholder in the event of certain changes in the Company's ownership.
These rights may serve as a deterrent to certain unauthorized takeover
attempts which are not in the best interests of stockholders. The rights
expire in December 2005.
Common Stock Repurchase Program
During fiscal years 1996, 1995, and 1994, the Company repurchased and
retired a total of 2,671,000, 2,990,000, and 3,176,000 shares of its common
stock at average repurchase prices of $40.43, $30.05, and $22.54,
respectively, pursuant to a systematic repurchase plan approved by the
Company's Board of Directors to reduce the dilutive effect of common stock to
be issued under the Company's employee stock plans. In December 1995, the
Board of Directors continued the program by approving the repurchase of up to
4 million additional shares.
NOTE 8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal years 1996, 1995, and
1994 is as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FISCAL YEAR
----------- ----------- ----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Fiscal year 1996:
Net revenues.......... $138,658 $140,686 $128,537 $126,286 $534,167
Gross margin.......... 121,373 123,324 112,419 110,239 467,355
Income from
operations........... 38,408 38,897 28,046 23,676 129,027
Net income............ 25,977 26,299 19,207 16,305 87,788
Net income per share.. 0.51 0.52 0.38 0.34 1.76
Fiscal year 1995:
Net revenues.......... $106,578 $110,259 $108,179 $129,596 $454,612
Gross margin.......... 91,479 95,123 93,994 112,291 392,887
Income from
operations........... 24,340 24,398 23,230 35,443 107,411
Net income............ 16,446 16,587 15,896 7,677 56,606
Net income per share.. 0.33 0.34 0.32 0.15 1.14
Fiscal year 1994:
Net revenues.......... $101,665 $103,613 $ 98,176 $102,142 $405,596
Gross margin.......... 84,661 86,865 83,481 87,251 342,258
Income from
operations........... 21,830 23,935 21,298 22,640 89,703
Net income............ 15,442 16,471 14,928 15,325 62,166
Net income per share.. 0.31 0.33 0.30 0.31 1.25
</TABLE>
Results for the fourth quarter of fiscal year 1995 included a pre-tax
litigation charge of approximately $26.0 million, resulting in a $0.33
reduction in net income per share.
F-14
<PAGE>
AUTODESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INFORMATION BY GEOGRAPHIC AREA
Information regarding the Company's operations by geographic area at January
31, 1996, 1995, and 1994 and for the fiscal years then ended is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
----------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues:
The Americas
Customers in the United States.................. $195,272 $182,133 $177,833
Customers in Asia/Pacific....................... 42,262 36,513 26,788
Customers in Canada............................. 14,619 15,720 16,173
Other exports................................... 11,103 14,951 11,492
Intercompany revenues........................... 67,728 48,539 48,068
-------- -------- --------
330,984 297,856 280,354
Europe............................................ 211,480 159,110 138,317
Asia/Pacific...................................... 72,148 56,851 48,117
Consolidating eliminations........................ (67,728) (48,539) (48,068)
-------- -------- --------
$546,884 $465,278 $418,720
======== ======== ========
Income from operations:
The Americas.................................... $ 63,843 $ 71,518 $ 56,127
Europe.......................................... 53,696 25,121 24,687
Asia/Pacific.................................... 11,488 10,772 8,889
-------- -------- --------
$129,027 $107,411 $ 89,703
======== ======== ========
Identifiable assets:
The Americas.................................... $306,795 $336,403 $261,347
Europe.......................................... 250,268 211,056 172,328
Asia/Pacific.................................... 73,426 51,761 45,555
Consolidating eliminations...................... (112,560) (117,144) (74,356)
-------- -------- --------
$517,929 $482,076 $404,874
======== ======== ========
</TABLE>
Intercompany revenues consist of royalty revenue payable by the Company's
subsidiaries under software license agreements with the US parent company. At
January 31, 1996, 1995, and 1994, total foreign net equity was $133,213,000,
$88,660,000, and $115,025,000, respectively.
F-15
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
OCTOBER 31,
1996
-----------
(UNAUDITED)
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................................... $ 87,759
Marketable securities............................................. 72,842
Accounts receivable, net.......................................... 86,384
Inventories....................................................... 9,012
Deferred income taxes............................................. 26,791
Prepaid expenses and other current assets......................... 16,086
--------
Total current assets............................................ 298,874
Marketable securities, including a restricted balance of $28,000
at October 31, 1996 and January 31, 1996........................... 93,265
Net computer equipment, furniture, and leasehold improvements....... 48,354
Capitalized software and purchased technologies..................... 17,768
Other assets........................................................ 18,902
--------
$477,163
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................. $ 22,486
Accrued compensation.............................................. 18,258
Accrued income taxes.............................................. 62,774
Other accrued liabilities......................................... 34,082
--------
Total current liabilities....................................... 137,600
Deferred income taxes............................................... 275
Litigation accrual.................................................. 29,021
Other liabilities................................................... 1,907
Put warrants........................................................ 64,500
Stockholders' equity:
Common stock...................................................... 141,472
Retained earnings................................................. 103,640
Foreign currency translation adjustment........................... (1,252)
--------
Total stockholders' equity...................................... 243,860
--------
$477,163
========
</TABLE>
See accompanying notes
F-16
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Revenues...................................................... $391,542 $417,503
Direct commissions............................................ 9,869 9,622
-------- --------
Net revenues.................................................. 381,673 407,881
Costs and expenses:
Cost of revenues............................................ 49,134 50,765
Marketing and sales......................................... 150,125 137,144
Research and development.................................... 69,471 58,246
General and administrative.................................. 55,455 56,375
Charge for acquired in-process research and development..... 4,738 --
-------- --------
328,923 302,530
-------- --------
Income from operations........................................ 52,750 105,351
Interest and other income, net................................ 4,471 7,252
-------- --------
Income before income taxes.................................... 57,221 112,603
Provision for income taxes.................................... 21,643 41,120
-------- --------
Net income.................................................... $ 35,578 $ 71,483
======== ========
Net income per share.......................................... $ .75 $ 1.41
======== ========
Shares used in computing net income per share................. 47,480 50,520
======== ========
</TABLE>
See accompanying notes.
F-17
<PAGE>
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Operating activities
Net income................................................ $ 35,578 $ 71,483
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 24,998 20,195
Charge for acquired in-process research and
development............................................ 4,738 --
Changes in operating assets and liabilities, net of
business combinations.................................. 6,960 (9,629)
-------- --------
Net cash provided by operating activities................. 72,274 82,049
-------- --------
Investing activities
Purchases of available-for-sale marketable securities,
net...................................................... (23,010) (55,141)
Purchases of computer equipment, furniture and leasehold
improvements............................................. (15,304) (13,987)
Business combinations, net of cash acquired............... (9,653) (7,194)
Capitalization of software costs and other................ (8,338) 16,936
-------- --------
Net cash used in investing activities..................... (56,305) (59,386)
-------- --------
Financing activities
Proceeds from issuance of common stock.................... 17,643 44,419
Repurchase of common stock................................ (67,045) (81,314)
Dividends paid............................................ (8,113) (8,498)
-------- --------
Net cash used in financing activities..................... (57,515) (45,393)
-------- --------
Net decrease in cash and cash equivalents................. (41,546) (22,730)
Cash and cash equivalents at beginning of year............ 129,305 195,038
-------- --------
Cash and cash equivalents at end of quarter............... $ 87,759 $172,308
======== ========
</TABLE>
See accompanying notes.
F-18
<PAGE>
AUTODESK, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated financial statements at October 31, 1996 and
1995 and for the nine-month periods then ended are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Stockholders
incorporated by reference in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1996. The results of operations for the
nine months ended October 31, 1996 are not necessarily indicative of the
results for the entire fiscal year ending January 31, 1997.
2. During the nine months ended October 31, 1996, the Company acquired assets
from Creative Imaging Technologies, Inc. ("CIT"), CadZooks, Inc., Argus
Technologies, Inc. ("Argus"), as well as the outstanding stock of Teleos
Research ("Teleos"). The aggregate cash purchase price for these four
transactions was $9.7 million. These acquisitions were accounted for using
the purchase method of accounting with the purchase price being principally
allocated to capitalized software, purchased technologies, and intangible
assets. Approximately $3.2 million of the Teleos purchase price and $1.5
million of the Argus purchase price represented the value of in-process
research and development that had not yet reached technological feasibility
and had no alternative future use. These amounts were charged to operations
during the nine-month period ended October 31, 1996. Additional
consideration may also be payable to the former shareholders of CIT, Argus,
and Teleos based on product milestones and operating results which are
expected to be allocated to intangible assets and amortized on a straight-
line basis over two-to-five year periods.
The operating results of the acquired entities, which have not been
material in relation to those of the Company, have been included in the
consolidated financial results from their respective acquisition dates.
3. In August 1996, the Company announced a stock repurchase program under
which the Company may purchase up to 5 million shares of common stock in
open market transactions as market and business conditions warrant. The
Company may also utilize equity options as part of its repurchase program.
This program is in addition to shares previously reserved pursuant to an
on-going and systematic repurchase plan to reduce the dilutive effect of
common stock to be issued under the Company's stock option plans.
In connection with the new repurchase program, the Company sold put
warrants to an independent third party in September 1996 that entitle the
holder of the warrants to sell 3 million shares of common stock to the
Company at $21.50 per share. Additionally, the Company purchased call
options that entitle the Company to buy 2 million shares of its common
stock at $25.50 per share. The put warrants and call options expire in
September 1997. The premiums received with respect to the equity options
totaled $8.1 million and equaled the premiums paid. Consequently, there was
no exchange of cash. The amount related to the Company's maximum potential
repurchase obligation under the put warrants has been reclassified from
stockholders' equity to put warrants at October 31, 1996. The Company has
the right to settle the put warrants with stock or a cash settlement equal
to the difference between the exercise price and market value at the date
of exercise. These securities had no significant dilutive effect on net
income per share for the periods presented.
4. On December 10, 1996, the Company entered into a merger agreement with
Softdesk, Inc. ("Softdesk"), a leading supplier of AutoCAD-based
application software for the architecture, engineering and construction
(AEC) market, in a transaction anticipated to be accounted for using the
purchase method. The terms of the merger agreement were subsequently
amended on December 19, 1996. If the transaction is consummated under the
terms of the agreement, as amended, Autodesk will issue $15.00 worth of its
common stock for each outstanding share of Softdesk stock, subject to
certain limitations. Based upon closing stock prices on December 31, 1996,
the transaction is valued at approximately $90 million for Softdesk
stockholders.
The merger is expected to close in the first calendar quarter of 1997. The
merger is subject to the approval of Softdesk's stockholders and
appropriate government agencies. The Company estimates that it will incur
direct transaction costs of approximately $2.5 million to $3.5 million and
following the merger additional charges to operations of approximately $3
to $4 million to reflect costs associated with integrating the two
companies.
5. Tektronix, Inc. has filed a complaint in the US District Court for the
District of Oregon alleging infringement by Autodesk of US Patent No.
4,734,690. Autodesk believes that it has meritorious defenses to the
allegations set forth in the complaint and intends to defend itself
vigorously in this action.The Company is still evaluating the claims in
this mater. Management believes the ultimate outcome of this matter will
not be material to Autodesk's consolidated financial position, results of
operations or cash flows.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Softdesk, Inc.:
We have audited the accompanying consolidated balance sheets of Softdesk,
Inc., a Delaware Corporation, and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based upon our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of
Softdesk, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 7, 1997
F-20
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents (Note 2)......................... $ 1,958 $ 4,800
Short-term investments (Note 2)............................ 9,088 7,575
Accounts receivable, net of allowances of $2,973 and $2,161
at December 31, 1996 and 1995............................. 9,259 10,160
Inventory (Note 2)......................................... 729 671
Prepaid expenses and other current assets.................. 1,405 1,402
Deferred income taxes (Note 5)............................. 1,245 751
------- -------
Total current assets..................................... 23,684 25,359
------- -------
Plant, Property and Equipment, at Cost:
Land....................................................... 385 409
Buildings.................................................. 2,564 2,002
Equipment.................................................. 7,232 5,853
Furniture and fixtures..................................... 284 414
------- -------
10,465 8,678
Less--Accumulated depreciation (Note 2).................... 5,004 4,085
------- -------
5,461 4,593
------- -------
Long-Term Investments (Note 2)............................... 849 4,815
Deferred Income Taxes (Note 5)............................... 558 103
Other Assets, Net (Note 4)................................... 794 247
------- -------
$31,346 $35,117
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of mortgage payable (Note 6)............ $ -- $ 34
Accounts payable........................................... 2,064 3,122
Accrued expenses (Note 11)................................. 3,750 4,279
Customer advances.......................................... 1,418 1,350
Accrued income taxes (Note 5).............................. 144 876
------- -------
Total current liabilities................................ 7,376 9,661
------- -------
Mortgage Payable, Less Current Maturities (Note 6)........... -- 1,193
------- -------
Commitments (Note 9)
Stockholders' Equity (Note 10):
Preferred stock, $.01 par value--
Authorized--1,000,000 shares
Issued and outstanding--none.............................. -- --
Common stock, $.01 par value--
Authorized--15,000,000 shares
Issued and outstanding--6,020,019 shares and 5,980,380
shares at
December 31, 1996 and 1995, respectively.................. 60 60
Additional paid-in capital................................. 21,826 21,353
Retained earnings.......................................... 2,176 2,973
Cumulative translation adjustment.......................... (92) (123)
------- -------
Total stockholders' equity............................... 23,970 24,263
------- -------
$31,346 $35,117
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net Revenues....................................... $34,501 $41,737 $30,582
Cost of Revenues................................... 5,974 6,119 5,159
------- ------- -------
Gross profit..................................... 28,527 35,618 25,423
Selling and Marketing Expenses..................... 15,070 14,499 10,830
Product Development Expenses....................... 9,562 10,116 7,613
General and Administrative Expenses................ 3,355 3,126 2,639
Non-recurring Charges (Note 4)..................... 1,400 2,309 892
------- ------- -------
Income (loss) from operations.................... (860) 5,568 3,449
Interest Income.................................... 501 574 584
Interest Expense................................... (68) (86) (20)
------- ------- -------
Income (loss) before provision for income taxes.. (427) 6,056 4,013
Provision for Income Taxes (Note 5)................ 370 2,477 1,644
------- ------- -------
Net income (loss)................................ (797) 3,579 2,369
Pro Forma Tax Adjustment (Note 5).................. -- -- 221
------- ------- -------
Pro forma net income (loss)...................... $ (797) $ 3,579 $ 2,590
======= ======= =======
Pro Forma Net Income (loss) per Common and Common
Equivalent Share (Note 3)......................... $ (.13) $ .58 $ .46
======= ======= =======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding (Note 3)............ 5,999 6,161 5,619
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------
COMMON STOCK UNREALIZED
REDEEMABLE ---------------- HOLDING GAIN
CONVERTIBLE $.01 ADDITIONAL (LOSS) ON CUMULATIVE TOTAL
PREFERRED NUMBER PAR PAID-IN RETAINED AVAILABLE-FOR- TRANSLATION STOCKHOLDERS'
STOCK OF SHARES VALUE CAPITAL EARNINGS SALE SECURITIES ADJUSTMENT EQUITY
----------- --------- ----- ---------- -------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... $ 2,186 3,463,657 $36 $ 657 $ 480 $-- $ 65 $ 1,238
Issuance of shares of
common stock, net of
issuance costs of
$922................... -- 1,554,883 16 15,658 -- -- -- 15,674
Conversion of redeemable
convertible preferred
stock into common
stock.................. (2,186) 556,180 5 2,181 -- -- -- 2,186
Exercise of stock
options................ -- 157,778 1 677 -- -- -- 678
Escrow claim settlement
in connection with
ASG.................... -- (10,084) -- (74) -- -- -- (74)
Tax benefit of
disqualifying
dispositions and
nonqualified stock
options................ -- -- -- 301 -- -- -- 301
Unrealized holding loss
on available-for-sale
securities............. -- -- -- -- -- (58) -- (58)
Cumulative translation
adjustment............. -- -- -- -- -- -- (98) (98)
Dividends declared...... -- -- -- -- (208) -- -- (208)
Net income.............. -- -- -- -- 2,369 -- -- 2,369
------- --------- --- ------- ------ ---- ---- -------
Balance, December 31,
1994................... -- 5,722,414 58 19,400 2,641 (58) (33) 22,008
Issuance of shares in
connection with
acquisition of
Foresight Resources
Corp................... -- 188,561 1 1,234 (3,247) -- -- (2,012)
Exercise of stock
options................ -- 69,405 1 516 -- -- -- 517
Tax benefit of
disqualifying
dispositions and
nonqualified stock
options................ -- -- -- 203 -- -- -- 203
Cumulative translation
adjustment............. -- -- -- -- -- -- (90) (90)
Unrealized holding gain
on available-for-sale
securities............. -- -- -- -- -- 58 -- 58
Net income.............. -- -- -- -- 3,579 -- -- 3,579
------- --------- --- ------- ------ ---- ---- -------
Balance, December 31,
1995................... -- 5,980,380 60 21,353 2,973 -- (123) 24,263
Exercise of stock
options................ -- 39,639 -- 429 -- -- -- 429
Tax benefit of
disqualifying
dispositions and
nonqualified stock
options................ -- -- -- 44 -- -- -- 44
Cumulative translation
adjustment............. -- -- -- -- -- -- 31 31
Net loss................ -- -- -- -- (797) -- -- (797)
------- --------- --- ------- ------ ---- ---- -------
Balance, December 31,
1996................... $ -- 6,020,019 $60 $21,826 $2,176 $-- $(92) $23,970
======= ========= === ======= ====== ==== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)................................. $ (797) $ 3,579 $ 2,369
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 1,172 1,488 1,308
Non-recurring charges............................ 1,400 2,309 892
Deferred income taxes............................ (949) (163) (415)
Foreign currency translation..................... 21 (42) (11)
Change in assets and liabilities, net of assets
acquired in connection with acquisitions:
Accounts receivable............................. 901 (3,612) (1,150)
Inventory....................................... (58) (366) 205
Prepaid expenses and other current assets....... (3) (328) (984)
Accounts payable................................ (1,058) 941 1,140
Accrued expenses................................ (1,929) (1,517) 122
Customer advances............................... 68 115 321
Accrued income taxes............................ (688) 590 (30)
------- ------- --------
Net cash provided by (used in) operating activ-
ities......................................... (1,920) 2,994 3,767
------- ------- --------
Cash Flows From Investing Activities:
Purchase of plant, property and equipment, net.... (1,995) (2,891) (2,048)
Decrease (increase) in other assets............... (592) (104) 92
Purchase of short-term investments, net........... (1,513) (3,153) (4,422)
Sale (Purchase) of long-term investments, net..... 3,966 3,843 (8,658)
Cash paid for acquisitions, net of cash acquired.. -- (172) (1,046)
Purchase of technology............................ -- -- (270)
------- ------- --------
Net cash used in investing activities.......... (134) (2,477) (16,352)
------- ------- --------
Cash Flows From Financing Activities:
Proceeds (payments) from mortgage, net............ (1,227) 1,227 --
Payments to stockholders, net..................... -- -- (122)
Payments of notes payable......................... -- (1,473) (596)
Proceeds from issuance of common stock, net of is-
suance costs..................................... -- -- 15,674
Dividends paid.................................... -- (149) (835)
Proceeds from exercise of stock options........... 429 516 677
------- ------- --------
Net cash provided by (used in) financing activ-
ities......................................... (798) 121 14,798
------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands)
(CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Effect of Exchange Rate Changes on Cash and Cash
Equivalents......................................... $ 10 $ (47) $ (87)
------- ------ -------
Net Increase (Decrease) in Cash and Cash Equiva-
lents............................................... (2,842) 591 2,126
Cash and Cash Equivalents, Beginning of Year......... 4,800 4,209 2,083
------- ------ -------
Cash and Cash Equivalents, End of Year............... $ 1,958 $4,800 $ 4,209
======= ====== =======
Disclosure of Cash Flow Information:
Cash paid during the year for--
Interest........................................... $ 68 $ 8 $ 5
======= ====== =======
Income taxes....................................... $ 1,739 $1,864 $ 1,285
======= ====== =======
Disclosure of Noncash Investing Activities:
The Company acquired certain companies as described
in Note 3. These acquisitions are summarized as
follows
Fair value of assets acquired...................... $ -- $ 794 $ 1,386
Payments in connection with the acquisition........ -- (200) (1,046)
------- ------ -------
Liabilities assumed............................... $ -- $ 594 $ 340
======= ====== =======
Disclosure of Noncash Financing Activities:
Preferred stock converted into common stock upon the
initial
public offering.................................... $ -- $ -- $ 2,186
======= ====== =======
Dividends declared.................................. $ -- $ -- $ 208
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) OPERATIONS AND PROPOSED MERGER
Softdesk, Inc. (the Company) is engaged in the development, production and
sale of software for the architectural, engineering and construction (AEC)
market.
On December 10, 1996, the Company entered into an Agreement and Plan of
Reorganization with Autodesk, Inc. (Autodesk) and a wholly owned subsidiary of
Autodesk, Autodesk Acquisition Corporation (Merger Sub), which was
subsequently amended on December 19, 1996 (as amended, the Agreement).
Pursuant to the terms of the Agreement, (i) Merger Sub will be merged with and
into the Company and the Company will become a wholly owned subsidiary of
Autodesk and (ii) all outstanding shares of common stock of the Company will
be converted into the right to receive that fraction of a share of Autodesk
common stock as is determined by dividing $15.00 by the average of the closing
price of the Autodesk common stock on the NASDAQ for the five trading days
immediately preceding the closing date of the merger. The merger is subject to
approval of Softdesk stockholders and appropriate government agencies. The
Agreement may be terminated prior to the closing date, as defined therein, by
either Softdesk or Autodesk for various reasons, including if the merger shall
not have been consummated by May 31, 1997, provided, however, that the right
to terminate the Agreement shall not be available to any party whose action or
failure to act has been a principal cause of the failure of the Merger to
occur on or before such date if such action or failure to act constitutes a
breach of the Agreement.
As an inducement to Autodesk to enter into the Agreement, Softdesk entered
into a Stock Option Agreement with Autodesk dated December 10, 1996 as amended
on December 19, 1996 pursuant to which Softdesk granted Autodesk the right,
under certain conditions, to purchase up to 1,195,095 shares of Softdesk
Common Stock by paying to Softdesk $11.715 per share for each share purchased
under this option.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies.
(a) Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions may affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(b) Consolidation
The Company's consolidated financial statements include the accounts of its
wholly owned subsidiaries. All material intercompany transactions and balances
have been eliminated in consolidation.
(2) Significant Accounting Policies (Continued)
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market value.
(d) Investments
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this standard, the Company is
required to classify all investments in debt and equity securities into one or
more of the following three categories: held-to-maturity, available-for-sale
or trading. All marketable securities classified as held-to-maturity are
recorded at their amortized cost. Available-for-sale securities are recorded
at fair market value with unrealized gains and losses excluded from earnings
and reported in stockholders' equity. Trading securities are also recorded at
fair market value, and unrealized gains and losses are included in earnings.
F-26
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
At December 31, 1996 and 1995, the Company's investments consisted of debt
securities issued by the U.S. Treasury, other U.S. Government agencies and
political subdivisions of the states and municipalities. As of December 31,
1996 and 1995, these investments were classified as held-to-maturity. All
investments held as of December 31, 1996 and 1995 mature within two years of
investment. The aggregate fair value and costs of the investments were as
follows (in thousands):
<TABLE>
<CAPTION>
1996
-------------------------------------
AMORTIZED COST
--------------------------
FAIR
HELD-TO- AVAILABLE- MARKET
MATURITY MATURITY FOR-SALE TOTAL VALUE
-------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Less than one year..................... $9,088 $-- $9,088 $9,123
------ ------
Greater than one year.................. 849 -- 849 852
====== ======
<CAPTION>
1995
-------------------------------------
<S> <C> <C> <C> <C> <C>
Less than one year..................... $7,575 $-- $7,575 $7,610
------ ------
Greater than one year.................. 4,815 -- 4,815 4,776
====== ======
</TABLE>
(e) Derivative Financial Instruments
SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments requires certain disclosures about derivative
financial instruments, including futures, forward swap and option contracts
and other financial instruments, with similar characteristics.
As of December 31, 1996 and 1995, the Company did not have investments
requiring disclosure under SFAS No. 119.
(f) Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Materials and supplies........................................ $260 $313
Finished goods................................................ 469 358
---- ----
$729 $671
==== ====
</TABLE>
(g) Depreciation
The Company provides for depreciation by charges to operations in amounts
that allocate the cost of property and equipment over their estimated useful
lives using the straight-line method as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
<S> <C>
Buildings.................................................... 25-40 Years
Equipment.................................................... 3-5 Years
Furniture and fixtures....................................... 5-10 Years
</TABLE>
F-27
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(h) Revenue Recognition
The Company derives substantially all of its revenue from the license of its
software products. Revenue is recognized upon shipment of the product,
provided that no significant vendor and postcontract support obligations
remain outstanding and collection of the resulting receivable is deemed
probable. The Company generally does not have significant vendor and
postcontract support obligations associated with its product sales. The
Company recognizes revenue from postcontract support ratably over the period
of the postcontract arrangement. Any costs associated with insignificant
vendor obligations are accounted for by deferring a pro rata portion of the
revenue and recognizing it either ratably as the obligations are fulfilled or
upon completion of the performance. The Company provides reserves for any
contractual or allowed returns with any distributor or end user customer and
warranty expenses upon shipment of the product. Revenue, if any, from funded
development contracts is recognized using the percentage-of-completion method
of accounting. Revenue from maintenance and customer support contracts
represented less than 10% of net revenues for all periods presented. These
contracts generally have terms of one year or less.
(i) Research, Development and Software Development Costs
The Company capitalizes product development costs subsequent to the
establishment of technological and commercial feasibility until the product is
available for general release. Costs incurred prior to the establishment of
technological feasibility are charged to product development expenses.
Development costs associated with product enhancements that extend the
original product's life or significantly improve the original product's
marketability are also capitalized upon technological feasibility.
Amortization of product development costs begins in the month that commercial
marketability is established and extends on a straight-line basis over the
shorter of the estimated useful life of the product or 18 months, which
results in amortization expense no less than that which would result from
using the ratio of current gross revenues to total expected gross revenues.
Amortization expense is recorded as a component of cost of revenues.
The Company did not capitalize any costs for the years ended December 31,
1996 and 1995, as such costs were immaterial. For the year ended December 31,
1994, the Company capitalized product development costs of approximately
$14,000. The Company recorded amortization of approximately $170,000 during
the year ended December 31, 1994. No amortization was recorded for the years
ended December 31, 1996 and 1995.
(j) Pro Forma Net Income (Loss) per Common and Common Equivalent Share
Pro forma net income (loss) per common and common equivalent share is based
on net income (loss) for the years ended December 31, 1996 and 1995. For the
year ended December 31, 1994, pro forma net income per common and common
equivalent share is based on pro forma net income, which reflects the pro
forma adjustments for income taxes related to Image Systems (see Note 3).
Image Systems Technology, Inc. was treated as an S corporation for federal and
state tax purposes, and accordingly, did not record income tax adjustments in
its historical financial statements.
The weighted average number of common and common equivalent shares
outstanding has been determined in accordance with the treasury-stock method.
Common Stock equivalents have been excluded from the 1996 calculation as their
effect would have been anti-dilutive.
Fully diluted and primary income per common and common equivalent share do
not differ materially for any of the periods presented.
F-28
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(k) Foreign Currency Translation
The Company translates the assets and liabilities of its foreign
subsidiaries at exchange rates in effect at year-end. Revenues and expenses
are translated using exchange rates in effect during the year. Gains or losses
from foreign currency translation are credited or charged to cumulative
translation adjustment included in stockholders' equity in the accompanying
consolidated balance sheets. There were no significant gains or losses from
foreign currency transactions during any period presented.
(l) Postretirement and Postemployment Benefits
The Company does not have any obligations for postretirement or
postemployment benefits, except as discussed in Note 7.
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company's accounts receivable credit risk is
not concentrated within any geographic area. For the year ended December 31,
1996, one customer represented 14% of the Company's total net revenues. At
December 31, 1996, this customer's net accounts receivable represented 26% of
the Company's total net accounts receivable. The Company believes that there
is no significant credit risk associated with this receivable. There were no
such significant customers in the years ended December 31, 1995 and 1994.
(n) Reclassifications
The Company has reclassified certain prior year information to conform with
the current year's presentation.
(o) Other Assets
Included in other assets are certain amounts which represent prepaid royalty
and license fees. Such amounts are amortized over the expected lives of the
asset which range from 12 to 24 months.
(3) ACQUISITIONS
(a) SOFT-TECH Software Technologie GmbH (SOFT-TECH)
On January 22, 1996, the Company acquired SOFT-TECH, a developer of
architectural software for the European Marketplace. The Company exchanged
250,000 shares of common stock for all the capital shares of SOFT-TECH. The
Company placed 25,000 shares into escrow as security for indemnification
obligations of SOFT-TECH. The escrow was released in full in January 1997.
This merger was accounted for as a pooling of interests; accordingly, the
historical financial statements have been restated to reflect the transaction.
The Company expensed approximately $300,000 of merger related costs, which
were included in the 1995 consolidated statement of operations (see Note 4).
Pro forma condensed statements of operation data for the years ended December
31, 1995 and 1994 are as follows (in thousands, except per share data):
F-29
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SOFT-
SOFTDESK TECH COMBINED
-------- ------- --------
<S> <C> <C> <C>
1995-
Net revenue................................... $35,608 $ 6,129 $41,737
Net income (loss)............................. 3,743 (164) 3,579
======= ======= =======
Earnings (loss) per share..................... $ .63 $ (.66) $ .58
======= ======= =======
1994-
Net revenue................................... $24,021 $ 6,561 $30,582
Pro forma net income (loss)................... 2,687 (97) 2,590
Earnings (loss) per share..................... $ .50 $ (.39) $ .46
======= ======= =======
</TABLE>
(b) IdeaGraphix, Inc.
On June 19, 1995, the Company acquired certain assets and technology of
IdeaGraphix, Inc. (IdeaGraphix). IdeaGraphix develops, produces and sells AEC
software on the MicroStation platform. The total cost of this acquisition was
$590,000, which included a five-year guaranteed minimum royalty totaling
$500,000, of which $100,000 was paid at closing, plus certain assumed
liabilities and related acquisition costs of $90,000. In addition, the
agreement provided for additional royalties of up to $1,000,000. This royalty
rate was calculated at 15% on certain product sales, as defined. The Agreement
was terminated on March 31, 1996.
This acquisition was accounted for under the purchase method, and
accordingly, the results of operations of IdeaGraphix from June 19, 1995
forward were included in the Company's consolidated statements of operations.
The aggregate cost of the acquisition over historical book value was assigned
principally to purchased research and development, product development costs
and other intangible assets based upon their estimated fair values. The
portion of the purchase price allocated to research and development that had
not yet reached technological feasibility and had no alternative future use as
of June 19, 1995, was approximately $360,000 and was charged to expense. The
portion of the purchase price allocated to product development costs and other
intangible assets was $127,000 and $74,000, respectively, and was to be
amortized on a straight-line basis over the lesser of their estimated useful
lives or three years. In December 1995, the Company wrote off the remainder of
such capitalized costs and included these amounts as part of the non-recurring
charge in the consolidated statements of operations for 1995 (see Note 4).
(c) ARITEK Systems, Inc.
On May 26, 1995, the Company acquired certain assets and technology of
ARITEK Systems, Inc. (ARITEK). ARITEK was a third-party developer of ArrisCAD
software primarily for the construction market. The total cost of this
acquisition was $204,000, which included cash of approximately $100,000 and
assumed liabilities and related acquisition costs of approximately $104,000.
In addition, the agreement provided for royalties of up to $250,000,
calculated at a 15% royalty rate on certain product sales, as defined. The
Company also entered into an employment agreement with an employee of ARITEK
providing for royalties of up to $650,000. This royalty rate was calculated at
15% on certain product sales, as defined. The Company expensed a total amount
of $234,308 and $171,000 related to both of these royalty agreements for the
years ended December 31, 1996 and 1995, respectively.
F-30
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
This acquisition was accounted for under the purchase method, and
accordingly, the results of operations of ARITEK from May 26, 1995 forward are
included in the accompanying consolidated statements of operations. The
aggregate cost of the acquisition over historical book value was assigned
principally to purchased research and development, product development costs
and other intangible assets based on their estimated fair values. The portion
of the purchase price allocated to research and development that had not yet
reached technological feasibility and had no alternative future use as of May
26, 1995 was approximately $131,000 and was charged to expense. The portion of
the purchase price allocated to product development costs and other intangible
assets was approximately $19,000 and $10,000, respectively, and was to be
amortized on a straight-line basis over the lesser of their estimated useful
lives or three years. In December 1995, the Company wrote off the remainder of
such capitalized costs and included these amounts as part of the non-recurring
charge in the accompanying consolidated statements of operations for 1995 (see
Note 4). As of December 31, 1996 the Company was no longer subject to either
of the two aforementioned royalty agreements.
(d) Foresight Resources Corp.
On January 24, 1995, the Company acquired all of the outstanding capital
stock of Foresight Resources Corp. (Foresight). Foresight develops, produces
and sells AEC software for nonprofessional users in the home and small office.
In payment of the purchase price for this acquisition, the Company issued to
the stockholders of Foresight a total of 181,938 shares of its common stock,
of which 9,096 shares were placed in escrow to secure indemnification
obligations of Foresight stockholders. These shares were released from escrow
during 1995. The Company also assumed various liabilities of Foresight as of
the effective date of the merger, including its phantom-stock plans, which
were settled by issuing 6,623 shares of the common stock of the Company.
The results of operations of Foresight are included in the accompanying
consolidated statements of operations from January 1, 1995. This transaction
was accounted for as a pooling of interests. None of the periods preceding
January 1, 1995 have been restated, as net assets and liabilities, historic
results of operations and cumulative stockholders' equity of Foresight were
not deemed to be material to the consolidated financial statements of the
Company.
(e) Advantage Engineering, Inc.
On October 18, 1994, the Company acquired certain software technology and
certain assets of Advantage Engineering, Inc., an engineering firm and
developer of process and power plant design software. The total cost of this
acquisition was not material to the total consolidated financial statements of
the Company. In December 1995, the Company wrote off the remainder of such
capitalized costs and included these amounts as part of the non-recurring
charge in the consolidated statements of operations for 1995 (see Note 4).
(f) Walter M. Smith Enterprises, Inc. d/b/a intelliCADD
On August 1, 1994, the Company acquired all assets except for the ADE
Technology, as defined, of Walter M. Smith Enterprises, Inc. d/b/a intelliCADD
(intelliCADD). IntelliCADD is a developer of AutoCAD(R)-based AM/FM and
Utility Design Software. The total cost of the acquisition, $1,386,000,
consisted of $1,000,000 in cash and assumed liabilities and related
acquisition costs of approximately $386,000. The Company placed $100,000 of
the purchase price into escrow as security for indemnification obligations of
intelliCADD relating to representations, warranties and tax matters. The
escrow was released in full.
The acquisition was accounted for under the purchase method, and
accordingly, the results of operations of intelliCADD from August 1, 1994 were
included in the accompanying consolidated statements of operations. The
aggregate cost of the acquisition over historical book value was assigned
principally to purchased research
F-31
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
and development and product development costs based on their estimated fair
values. The Company allocated $530,000 of the purchase price to research and
development that had not yet reached technological feasibility and had no
alternative future use. These costs were expensed and included in the non-
recurring charge in the accompanying consolidated statement of operations in
1994. The portion of the purchase price allocated to product development costs
of approximately $622,000 was to be amortized on a straight-line basis over
its estimated useful life, not to exceed three years. In June 1995, the
Company wrote off the remainder of such capitalized costs and included these
amounts as part of the non-recurring charge in the accompanying consolidated
statement of operations for 1995 (see Note 4).
(g) Image Systems Technology, Inc.
On May 27, 1994, the Company acquired Image Systems Technology, Inc. (Image
Systems), a developer and marketer of software for managing and manipulating
scanned raster drawings. The Company exchanged 156,361 shares of common stock
for all outstanding shares of Image Systems. Outstanding Image Systems options
were converted into options to purchase 27,432 shares of the Company's common
stock. The Company placed 7,818 shares of common stock into escrow as security
for indemnification obligations of Image Systems relating to representations,
warranties and tax matters. The escrow agreement expired during 1994, and all
escrow shares were released. The merger has been accounted for as a pooling of
interests. The Company incurred expenses of approximately $362,000 related to
this acquisition, which were expensed and included in the non-recurring charge
in the accompanying consolidated statement of operations in 1994.
(h) Pro Forma Combined Results
The following table presents selected unaudited consolidated financial
information for the Company, IdeaGraphix, ARITEK, Foresight and intelliCADD,
assuming the companies had combined at the beginning of 1994 (in thousands).
<TABLE>
<CAPTION>
1995(1) 1994(1)
-------- --------
<S> <C> <C>
Pro forma net revenues................................ $ 42,906 $ 35,356
Pro forma net income.................................. 4,358 3,051
Pro forma net income per common and common equivalent
share................................................ $ .71 $ .53
Pro forma weighted average common and common
equivalent shares.................................... 6,161 5,808(2)
</TABLE>
(1) Does not reflect the charge for purchased research and development and
non-recurring acquisition charges adjusted for the applicable tax rates.
(2) Includes 188,561 shares issued in connection with the 1995 Foresight
acquisition, accounted for as an immaterial pooling.
F-32
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(4) NON-RECURRING CHARGES
The non-recurring charges included in the accompanying consolidated
statements of operations consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Charge for purchased research and development..... $ -- $ 491 $ 530
Charge for revaluation of intangibles............. -- 827 --
Non-recurring acquisition charges................. 1,400 300 362
Restructuring charges............................. -- 691 --
------- ------- -----
$ 1,400 $ 2,309 $ 892
======= ======= =====
</TABLE>
In the fourth quarter of 1996, the Company expensed $1,400,000 for costs
related to the proposed merger as discussed in Note 1. These costs were
primarily for professional fees related to the transaction.
The Company periodically reviews and assesses the realizability of its
intangible assets, including product development costs and other intangible
assets. In June 1995, amounts allocated to product development costs related
to the acquisition of intelliCADD (see Note 3), were adjusted to its
realizable value. The amount charged to expense related to this assessment was
approximately $466,000 and was included, as a revaluation of intangibles, in
the non-recurring charge in the accompanying consolidated statement of
operations for the year ended December 31, 1995. The Company determined the
value of the remaining intangible assets as realizable based on management's
estimates of future discounted cash flow projections. Non-recurring charges in
1995 also include amounts related to the charges for purchased research and
development of $360,000 and $131,000 in connection with the acquisitions of
IdeaGraphix and ARITEK, respectively.
In December 1995, the Company assessed the realizability of the remaining
purchased product development costs and other intangible assets from its
second quarter 1995 and fourth quarter 1994 acquisitions. This assessment
resulted in a charge, included, as a revaluation of intangibles, in the fourth
quarter non-recurring charge, of approximately $361,000. Also, in connection
with the acquisition of SOFT-TECH (see Note 3), the Company incurred
approximately $300,000 of merger-related costs.
In addition, the Company included in the December 1995 non-recurring
charges, costs related to the closing of offices in New York, Texas and
Belgium of approximately $691,000. The closing of the above offices was due
primarily to management's decision to consolidate the selling and marketing,
product development, and general and administrative efforts of the prior
acquisitions. The prior acquisitions had created several remote offices, many
of which duplicated resources. The Belgium office had become a duplication in
selling and marketing efforts with the newly acquired SOFT-TECH operations
located in Germany, which also had a sales office in the United Kingdom. This
portion of the non-recurring charge consists of the following (in thousands):.
<TABLE>
<S> <C>
Severance and related benefits.................................... $ 271
(The reduction in head count affected five individuals from
Selling and Marketing, 14 from Product Development and two from
General and Administrative.)
Lease costs...................................................... 230
Other............................................................ 190
-----
$ 671
</TABLE>
Included in the non-recurring charges in the accompanying consolidated
statement of operations for 1994 was the portion of purchase price allocated
to research and development that had not yet reached technological feasibility
and had no alternate future use, from the August 1, 1994 intelliCADD
acquisition, totaling $530,000. In addition, the 1994 non-recurring charges
included $362,000 of expenses related to the May 27, 1994 acquisition of Image
Systems.
F-33
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(5) INCOME TAXES
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these
differences reverse.
The pro forma tax adjustment in 1994 represents a pro forma tax provision
(benefit) for Image Systems (see Note 3). Prior to being acquired by the
Company, Image Systems elected to be treated as an S corporation for both
federal and state income tax purposes, whereby the stockholders were taxed on
their proportionate share of Image Systems' income. Accordingly, Image Systems
did not record a tax provision (benefit) in its historical financial
statements. The Company has recorded a pro forma tax adjustment in the
accompanying consolidated statements of operations, related to the
preacquisition income and losses of Image Systems. This adjustment was based
on the Company's overall effective rate, applied to the separate income of
Image Systems.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current--
Federal........................................... $1,133 $2,228 $1,638
State............................................. 200 412 421
Foreign........................................... (14) -- --
------ ------ ------
1,319 2,640 2,059
------ ------ ------
Deferred--
Federal........................................... (806) (137) (323)
State............................................. (143) (26) (92)
------ ------ ------
(949) (163) (415)
------ ------ ------
$ 370 $2,477 $1,644
====== ====== ======
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory tax rate................................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit................ 6.0 6.3 5.3
Foreign taxes...................................... -- -- --
Nondeductible loss of SOFT-TECH.................... 26.0 2.0 2.0
Nondeductible merger expenses...................... -- 1.8 1.5
Research and development credits................... -- (1.6) (2.4)
Tax-exempt interest................................ (30.0) (2.8) (4.7)
Nondeductible loss (nontaxable income) of Image
Systems........................................... -- -- 4.7
Other nondeductible expenses....................... 2.0 1.2 0.6
------ ------ ------
Effective tax rate............................. 38.0% 40.9% 41.0%
====== ====== ======
</TABLE>
The above reconciliation for 1996 has been prepared excluding the $1,400,000
of non-deductible expenses related to the merger.
F-34
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
The components of domestic and foreign income (loss) before provision for
income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------- ------
<S> <C> <C> <C>
Domestic............................................. $ (17) $ 6,220 $4,110
Foreign.............................................. (410) (164) (97)
----- ------- ------
$(427) $ 6,056 $4,013
===== ======= ======
</TABLE>
The sources of deferred income tax asset for the years ended December 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Allowance for doubtful accounts................................ $ 437 $299
Accrued returns and allowances................................. 624 282
Accrued restructuring charges.................................. -- 210
Accrued vacation............................................... 102 85
Prepaid commissions............................................ (111) (39)
Other.......................................................... 193 (86)
------ ----
Total current deferred income taxes........................ $1,245 $751
====== ====
Accelerated depreciation....................................... $ 102 $ 30
Purchased intangible assets.................................... 456 105
Other.......................................................... -- (32)
------ ----
Total long-term deferred income taxes...................... $ 558 $103
====== ====
</TABLE>
The Company has acquired significant net operating losses in connection with
the acquisitions of SOFT-TECH, Foresight Resources Corp. and ASG. As of
December 31, 1996, these losses amounted to approximately $5,335,000, of which
$4,100,000 expire through 2010, and the remainder do not expire. Utilization
of certain of these net operating loss carryforwards is severely limited.
Accordingly, the Company has recorded a valuation reserve of approximately
2,027,000 against this deferred tax asset.
(6) MORTGAGE PAYABLE
In March 1995, the Company's Subsidiary, SOFT-TECH, entered into two
agreements with a bank for the mortgage of its building in Germany. The
$1,300,000 proceeds from these mortgages was used to purchase a building. This
mortgage was retired at the end of June 1996.
(7) EMPLOYEE BENEFIT PLANS
(a) 401(k) Profit-Sharing Plan
The Company has a profit-sharing plan under Section 401(k) of the Internal
Revenue Code. The plan allows eligible employees to make contributions up to a
specified percentage of their compensation. Under the plan, the Company will
match 25% of participant's contributions, up to the lower of 16% of the
participant's compensation or $500. For the years prior to 1996, this match
was a maximum of $250. For the years ended December 31, 1996, 1995 and 1994,
the Company's matching contribution was approximately $49,000, $36,000 and
$31,000, respectively.
F-35
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(b) Pension Plan
As of December 31, 1996, the Company has a defined benefit pension plan to
cover one of the two former shareholders of SOFT-TECH. Prior to December 31,
1996, both of the former shareholders had defined benefit plans. During 1996,
the Company entered an agreement with one of the former shareholders whereby
the Company transferred the related life insurance policy to the stockholder
for which he released the Company of its liability. This agreement resulted in
an immaterial gain.
The benefit is based on a projected, unit credit method. The Company funds
this liability through the purchase of life insurance. The accrual is intended
to provide not only for benefits attributed to service to date, but also for
those expected benefits to be earned in the future.
The following assumption and components were used to develop the net pension
expenses for the three years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Assumptions--
Discount rate................................ 7.00% 7.00% 7.00%
======= ======== =======
Components--
Service cost of benefits earned during the
year........................................ $36,000 $ 58,000 $54,000
Interest cost on projected benefit obliga-
tion........................................ -- 43,000 35,000
------- -------- -------
Net pension expense........................ $36,000 $101,000 $89,000
======= ======== =======
</TABLE>
The status of the pension plan at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligations--
Accumulated benefit obligation................ $470,000 $608,000 $501,000
-------- -------- --------
Projected benefit obligations for services
rendered to date............................. 470,000 608,000 501,000
Plan assets at fair value....................... -- -- --
-------- -------- --------
Accrued pension liability (included in accrued
expenses).................................... $470,000 $608,000 $501,000
======== ======== ========
</TABLE>
(8) RELATED PARTY TRANSACTIONS
Through December 1994, the Company leased its headquarters and principal
operations facilities on a month-to-month basis from a partnership (the
Partnership), the partners of which were officers and stockholders of the
Company. Rent expense paid to the Partnership for the year ended December 31,
1994 was approximately $120,000.
In December 1994, the Company purchased its headquarters and principal
operations facilities from the Partnership for approximately $746,000. The
Company believes that the amounts paid represented the fair market value of
such transactions, and the terms were at least as favorable to the Company as
could have been obtained from an unaffiliated third party. The purchase price
of the facilities was based upon an independent, third-party appraisal.
During 1995 and 1996, the Company contracted with a relative of an
officer/stockholder of the Company for the construction of additional facility
space which totaled $192,000 and $521,000, respectively. The Company believes
the cost of these transactions represents the fair market value of the
services performed and the terms were at least as favorable to the Company as
could be obtained from an unaffiliated third party.
F-36
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(9) COMMITMENTS
Lease Agreement
The Company leases certain additional office space and equipment under
operating leases that expire through 2002. Rent expense for the years ended
December 31, 1996, 1995 and 1994 was approximately $476,000, $585,000 and
$597,000 respectively. As of December 31, 1996, the Company's future minimum
lease payments for the years ended December 31, 1997, 1998, 1999, 2000, 2001
and thereafter, were approximately $189,000, $59,000, $16,000, $14,000,
$14,000 and $13,000, respectively.
(10) STOCKHOLDERS' EQUITY
(a) Authorization of Common Stock
In March 1995, the Company's Board of Directors increased the authorized
shares of $.01 par value common stock from 10,000,000 shares to 15,000,000
shares. This amendment was approved by the stockholders and became effective
in June 1995.
(b) Dividends
In 1994, Image Systems paid an additional dividend of approximately $59,000
for the shareholders to meet their tax obligation on the Company's S
corporation taxable income for 1993. Image Systems did not declare dividends
for the year ended December 31, 1994. SOFT-TECH did not declare a dividend for
the years ended December 31, 1996 and 1995 but did declare a dividend of
approximately $149,000 in 1994, for income tax purposes.
(c) Stock Options
On February 13, 1992, the Board of Directors adopted the 1992 Stock Option
Plan (the 1992 Plan). Under the terms of the 1992 Plan, the Company may grant
either incentive or nonqualified stock options to purchase shares of common
stock to employees, officers and directors. The Company has reserved 200,700
shares of common stock for issuance under the 1992 Plan of which 51,981 were
yet to be issued as of December 31, 1996. The options' exercise prices are
determined by the Board of Directors; however, the exercise prices of
incentive stock options must equal the fair market value of the stock at the
date of grant. Each option will be exercisable and will expire according to
the terms of the individual option grants, with incentive stock options
expiring no later than 10 years from the date of grant.
In December 1993, the Company adopted the 1993 Equity Incentive Plan (the
1993 Plan). Under the terms of the 1993 Plan, the Company may grant either
incentive or nonqualified stock options to purchase common stock and
restricted common stock to employees and consultants.
The Company has reserved 1,100,000 shares for issuance under the 1993 Plan
of which 1,039,963 were yet to be issued as of December 31, 1996. The exercise
price of options to be granted under the 1993 Plan will be determined by the
Board of Directors; however, the exercise price of incentive stock options
must equal the fair market value of the stock at the date of grant. Each
option will be exercisable and will expire according to the terms of the
individual option grant, with each incentive stock option expiring no later
than 10 years from date of grant.
In December 1993, the Company adopted the 1993 Director Stock Option Plan
(the Director Plan). Under the terms of the Director Plan, the Company has
reserved 50,000 shares for issuance. There were 0 shares issued
F-37
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
under this Director Plan as of December 31, 1996. One third of the shares
granted under this Director Plan will vest annually on the anniversary of the
grant.
Stock option activity under these plans for the three years ended December
31, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE FAIR
AVERAGE VALUE OF OPTIONS
NUMBER EXERCISE GRANTED DURING
OF SHARES PRICE THE PERIOD
--------- -------- ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1993.......... 408,064 6.39
Granted............................... 89,518 11.83
Exercised............................. (157,778) 14.22
Forfeited/terminated.................. (14,453) 9.21
--------
Outstanding, December 31, 1994.......... 325,351 8.84
Granted............................... 397,550 17.75 $16.10
Exercised............................. (69,405) 7.50
Forfeited/terminated.................. (69,576) 14.76
--------
Outstanding, December 31, 1995.......... 583,920 14.75
Granted............................... 610,289 12.24 $11.19
Exercised............................. (39,639) 14.52
Forfeited/terminated.................. (466,847) 16.84
--------
Outstanding, December 31, 1996.......... 687,723 11.41
======== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT 12/31/96
------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE
------------------------ -------------- ------------------ ----------------
<S> <C> <C> <C>
$ 0.16 - 1.80....... 22,236 6.34 years $ 0.97
5.25 - 5.57....... 7,227 8.59 years 5.39
8.50 - 9.50....... 275,625 8.38 years 9.25
11.75 - 13.25....... 323,785 8.39 years 13.17
15.25 - 17.38....... 58,850 6.17 years 16.50
<CAPTION>
OPTIONS EXERCISABLE AT 12/31/96
-----------------------------------
WEIGHTED
NUMBER AVERAGE
RANGE OF EXERCISE PRICES EXERCISABLE EXERCISE PRICE
------------------------ -------------- ------------------
<S> <C> <C>
$ 0.16 - 1.80....... 16,744 $ 0.86
5.57 - 9.00....... 109,382 8.90
11.75 - 13.25....... 163,866 13.15
15.25 - 17.38....... 40,100 16.20
Exercisable at December
31, 1994............... 98,119 $ 7.07
============== =================
Exercisable at December
31, 1995............... 136,432 $ 9.94
============== =================
Exercisable at December
31, 1996............... 330,092 $ 11.49
============== =================
</TABLE>
F-38
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
Fair Value Disclosures
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the
measurement of the fair value of stock options or warrants to be included in
the statement of operations disclosed in the notes to financial statements.
The Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and elect the disclosure-only
alternative under SFAS No. 123.
Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed in FAS 123, the Company's
net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Net Income (Loss)
As Reported............................................ $ (797) $3,579
Pro Forma.............................................. $(2,743) $2,281
Net Income (Loss) per Share
As Reported............................................ $ (0.13) $ 0.58
Pro Forma.............................................. $ (0.53) $ 0.40
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period: dividend yield of 0.0% for both periods;
risk-free interest rates of 6.14% to 7.76% for options granted during 1995 and
5.78% to 7.19% for options granted during 1996; and a weighted average
expected option term of 8.3 years for both periods.
(d) Employee Stock Purchase Plan
In January 1996, the Company adopted the 1996 Softdesk, Inc. Employee Stock
Purchase Plan (the Employee Plan). The Employee Plan provides for 250,000
shares of the Company's common stock to be issued in a series of offerings.
Except for the initial offering, periods are 12 months in length commencing
each January 1 and July 1 and expire when all shares are issued. The initial
offering commenced March 1, 1996 and was 10 months in length. The price at
which shares are sold in each offering will be 85% of the closing price of the
common stock on the first or last day of each offering period, whichever is
lower. Participants may have up to 10% of their qualifying compensation
deducted and set aside for purchasing shares in each offering under the
Employee Plan. The Plan can be terminated by the Board of Directors at any
time.
Per the Agreement described in Note 1, the Board of Directors modified the
Plan such that no future increases in payroll deductions for participants of
the current offering periods are allowable. In addition, the second offering
period which commenced July 1, 1996 and scheduled to expire on June 30, 1997
will end on the earlier of just prior to the merger contemplated by the
agreement described in Note 1 or June 30, 1997. All future offering periods
were canceled.
(e) Preferred Stock
The Board of Directors has been authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue, from time
to time, up to 1,000,000 shares of preferred stock in one or more series. Each
such series of preferred stock shall have such number of shares, designations,
preferences, voting powers,
F-39
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
qualifications and special or relative rights or privileges as shall be
determined by the Board of Directors, which may include, among others,
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights, and preemptive rights.
(11) ACCRUED EXPENSES
Accrued expenses on the accompanying consolidated balance sheets consist of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Payroll and related items.................................. $ 936 $ 924
Pension reserve............................................ 422 583
Accrued acquisition and other costs........................ 1,370 665
Royalties.................................................. 108 792
Dealer commissions......................................... 240 170
Warranty................................................... 175 191
Other accrued expenses..................................... 499 954
------ ------
$3,750 $4,279
====== ======
</TABLE>
(12) GEOGRAPHIC SEGMENT INFORMATION
The Company conducts its operations in two significant geographic segments,
the United States and Europe. Revenues from export sales were $4,905,000,
$7,497,000 and $6,130,000 for 1996, 1995 and 1994, respectively, and were
related to U.S. operations.
<TABLE>
<CAPTION>
US EUROPE ELIMINATIONS TOTAL
------- ------ ------------ -------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers..... $28,807 $5,694 $-- $34,501
======= ====== ==== =======
Income (loss) from operations....... $ (515) $ (345) $-- $ (860)
======= ====== ==== =======
Identifiable assets................. $27,909 $3,437 $-- $31,346
======= ====== ==== =======
1995
Sales to unaffiliated customers..... $35,608 $6,129 $-- $41,737
======= ====== ==== =======
Income (loss) from operations....... $ 5,665 $ (97) $-- $ 5,568
======= ====== ==== =======
Identifiable assets................. $31,860 $3,257 $-- $35,117
======= ====== ==== =======
1994
Sales to unaffiliated customers..... $24,021 $6,561 $-- $30,582
======= ====== ==== =======
Income (loss) from operations....... $ 3,560 $ (111) $-- $ 3,449
======= ====== ==== =======
Identifiable assets................. $27,095 $2,344 $-- $29,439
======= ====== ==== =======
</TABLE>
F-40
<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1996
United States and international sales as a percentage of total revenues are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
United States............................................. 69% 68% 58%
Europe.................................................... 21 22 32
Far East.................................................. 4 4 3
Other..................................................... 4 2 3
Canada.................................................... 2 4 4
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
F-41
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
AUTODESK, INC.
AUTODESK ACQUISITION CORPORATION
AND
SOFTDESK, INC.
DATED AS OF DECEMBER 10, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I--THE MERGER.................................................. A-4
1.1 The Merger.................................................... A-4
1.2 Effective Time; Closing....................................... A-4
1.3 Effect of the Merger.......................................... A-5
1.4 Certificate of Incorporation; Bylaws.......................... A-5
1.5 Directors and Officers........................................ A-5
1.6 Effect on Capital Stock....................................... A-5
1.7 Surrender of Certificates..................................... A-6
1.8 No Further Ownership Rights in East Common Stock.............. A-7
1.9 Lost, Stolen or Destroyed Certificates........................ A-7
1.10 Tax and Accounting Consequences............................... A-8
1.11 Taking of Necessary Action; Further Action.................... A-8
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF EAST..................... A-8
2.1 Organization of East.......................................... A-8
2.2 East Capital Structure........................................ A-8
2.3 Obligations With Respect to Capital Stock..................... A-9
2.4 Authority..................................................... A-9
Section 203 of the Delaware General Corporation Law Not
2.5 Applicable.................................................... A-10
2.6 SEC Filings; East Financial Statements........................ A-10
2.7 Absence of Certain Changes or Events.......................... A-11
2.8 Taxes......................................................... A-12
2.9 Restrictions on Business Activities........................... A-13
2.10 Title to Properties; Absence of Liens and Encumbrances........ A-13
2.11 Intellectual Property......................................... A-13
2.12 Compliance; Permits; Restrictions............................. A-14
2.13 Litigation.................................................... A-15
2.14 Brokers' and Finders' Fees.................................... A-15
2.15 Employee Benefit Plans........................................ A-15
2.16 Employees..................................................... A-17
2.17 Absence of Liens and Encumbrances; Condition of Equipment..... A-18
2.18 Environmental Matters......................................... A-18
2.19 Agreements, Contracts and Commitments......................... A-18
2.20 Change of Control Payments.................................... A-19
2.21 Statements; Proxy Statement/Prospectus........................ A-19
2.22 Board Approval................................................ A-20
2.23 Fairness Opinion.............................................. A-20
2.24 Minute Books.................................................. A-20
2.25 Representations Complete...................................... A-20
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF WEST AND MERGER SUB..... A-20
3.1 Organization of West.......................................... A-20
3.2 West Capital Structure........................................ A-21
3.3 Authority..................................................... A-21
3.4 SEC Filings; West Financial Statements........................ A-22
3.5 Intellectual Property......................................... A-22
3.6 Litigation.................................................... A-23
3.7 Brokers' and Finders' Fees.................................... A-23
3.8 Employee Benefit Plans........................................ A-23
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.9 Statements; Proxy Statement/Prospectus........................ A-23
3.10 Fairness Opinion.............................................. A-24
3.11 Interim Operations of Merger Sub.............................. A-24
3.12 No Material Adverse Effect.................................... A-24
ARTICLE IV--CONDUCT PRIOR TO THE EFFECTIVE TIME........................ A-24
4.1 Conduct of Business by East and West.......................... A-24
4.2 Certain Actions by East....................................... A-24
ARTICLE V--ADDITIONAL AGREEMENTS....................................... A-25
Proxy Statement/Prospectus; Registration Statement; Other
5.1 Filings....................................................... A-25
5.2 Meeting of East Stockholders.................................. A-26
5.3 Access to Information; Confidentiality........................ A-26
5.4 No Solicitation............................................... A-26
5.5 Public Disclosure............................................. A-28
5.6 Legal Requirements............................................ A-28
5.7 Third Party Consents.......................................... A-28
5.8 FIRPTA........................................................ A-28
5.9 Notification of Certain Matters............................... A-28
5.10 Best Efforts and Further Assurances........................... A-28
5.11 Stock Options; Employee Stock Purchase Plan................... A-28
5.12 Form S-8...................................................... A-29
5.13 Indemnification and Insurance................................. A-29
5.14 Tax-Free Reorganization....................................... A-29
5.15 NMS Listing................................................... A-29
5.16 East Affiliate Agreement...................................... A-29
ARTICLE VI--CONDITIONS TO THE MERGER................................... A-30
6.1 Conditions to Obligations of Each Party to Effect the Merger.. A-30
6.2 Additional Conditions to Obligations of East.................. A-30
Additional Conditions to the Obligations of West and Merger
6.3 Sub........................................................... A-31
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER......................... A-31
7.1 Termination................................................... A-31
7.2 Notice of Termination; Effect of Termination.................. A-33
7.3 Fees and Expenses............................................. A-33
7.4 Amendment..................................................... A-34
7.5 Extension; Waiver............................................. A-34
ARTICLE VIII--GENERAL PROVISIONS....................................... A-34
8.1 Non-Survival of Representations and Warranties................ A-34
8.2 Notices....................................................... A-34
8.3 Interpretation; Knowledge..................................... A-35
8.4 Counterparts.................................................. A-35
8.5 Entire Agreement.............................................. A-35
8.6 Severability.................................................. A-35
8.7 Other Remedies; Specific Performance.......................... A-35
8.8 Governing Law................................................. A-35
8.9 Rules of Construction......................................... A-36
8.10 Assignment.................................................... A-36
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 10, 1996 among Autodesk, Inc., a Delaware
corporation ("West"), Autodesk Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of West ("Merger Sub"), and Softdesk, Inc., a
Delaware corporation ("East").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("Delaware Law"), West
and East will enter into a business combination transaction pursuant to which
Merger Sub will merge with and into East (the "Merger").
B. The Board of Directors of West (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of West
and fair to, and in the best interests of, West and its stockholders, and (ii)
has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement.
C. The Board of Directors of East (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of East
and fair to, and in the best interests of, East and its stockholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has recommended the approval of this Agreement by the
stockholders of East.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to West's willingness to enter into this Agreement, East shall
execute and deliver a Stock Option Agreement in favor of West in substantially
the form attached hereto as Exhibit A (the "East Stock Option Agreement").
E. Concurrently with the execution of this Agreement, and as a condition and
inducement to West's willingness to enter into this Agreement, the Chief
Executive Officer of East and certain other affiliates of East shall enter
into a Voting Agreement in substantially the form attached hereto as Exhibit B
(the "East Voting Agreements").
F. West, East and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
Now, Therefore, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
The Merger
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and
into East, the separate corporate existence of Merger Sub shall cease and East
shall continue as the surviving corporation. East as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware in accordance with the relevant provisions of
Delaware Law (the time of such
A-4
<PAGE>
filing (or such later time as may be agreed in writing by the parties and
specified in the Certificate of Merger) being the "Effective Time") as soon as
practicable on the Closing Date (as herein defined). Unless the context
otherwise requires, the term "Agreement" as used herein refers collectively to
this Agreement and the Certificate of Merger. The closing of the Merger (the
"Closing") shall take place at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, at a time and date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"Closing Date"). At the Closing, (a) East shall deliver to West the various
certificates and instruments required under Article 6, (b) West and Merger Sub
shall deliver to East the various certificates and instruments required under
Article 6, and (c) East and Merger Sub shall file the Certificate of Merger
with the Secretary of State of the State of Delaware.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers
and franchises of East and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of East and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation; provided, however, that
at the Effective Time the Certificate of Incorporation of the Surviving
Corporation shall be amended so that the name of the Surviving Corporation
shall be "East Corporation"
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving
Corporation, until their respective successors are duly elected or appointed
and qualified. The officers of Merger Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, until their
successors are duly elected or appointed or qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, East or the holders of any
of the following securities:
(a) Conversion of East Common Stock.
(i) Each share of Common Stock, par value $.01 per share, of East (the
"East Common Stock") issued and outstanding immediately prior to the
Effective Time (other than any shares of East Common Stock to be canceled
pursuant to Section 1.6(b) will be canceled and extinguished and
automatically converted (subject to Sections 1.6(e) and (f)) into the right
to receive 0.44 (the "Exchange Ratio") shares of Common Stock, par value
$.01 per share, of West (the "West Common Stock") upon surrender of the
certificate representing such share of East Common Stock in the manner
provided in Section 1.8 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.10).
(ii) Notwithstanding the foregoing, if the average closing price per
share of the West Common Stock on the Nasdaq National Market over the ten
consecutive trading days ending on the trading day immediately preceding
the Closing Date (the "West Stock Value") is greater than $28.41 per share
(as adjusted to reflect fully the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into West Common Stock), recapitalization or other like change
without receipt of consideration with respect to West Common Stock
occurring on or after the date hereof and prior to the Effective Time
(collectively, "a Recapitalization")), the Exchange Ratio shall be equal to
.44 multiplied by a fraction the numerator of which shall be $28.41 and the
denominator of which shall be the West Stock
A-5
<PAGE>
Value; and if the West Stock Value is less than $25.00 per share (as
adjusted to reflect fully the effect of any Recapitalization), the Exchange
Ratio shall be equal to .44 multiplied by a fraction, the numerator of
which shall be $25.00 and the denominator of which shall be the West Stock
Value.
(iii) Further notwithstanding the foregoing, if the West Stock Value
(calculated with reference to the scheduled Closing Date) is less than
$18.00 per share (as adjusted to reflect fully the effect of any
Recapitalization), West shall have the right to terminate this Agreement,
provided that such termination shall not be effective if East agrees,
within two business days after notice of West's intention to terminate the
Agreement pursuant to this Section 1.6(a)(iii), to consummate the
transaction at a fixed Exchange Ratio of 0.6111.
(b) Cancellation of West-Owned Stock. Each share of East Common Stock held
in the treasury of East or owned by Merger Sub, West or any direct or indirect
wholly owned subsidiary of East or of West immediately prior to the Effective
Time shall be canceled and extinguished without any conversion thereof.
(c) Stock Options. At the Effective Time all options to purchase East Common
Stock then outstanding under East's 1992 Stock Option Plan, 1993 Equity
Incentive Plan, and 1993 Director Stock Option Plan (collectively, the "East
Stock Option Plans") shall be assumed by West in accordance with Section 5.11
hereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, par value $.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, par value $.01 per share,
of the Surviving Corporation. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible
into West Common Stock or East Common Stock), recapitalization or other like
change without receipt of consideration with respect to West Common Stock or
East Common Stock occurring on or after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of West Common Stock will be
issued by virtue of the Merger, but in lieu thereof each holder of shares of
East Common Stock who would otherwise be entitled to a fraction of a share of
West Common Stock (after aggregating all fractional shares of West Common
Stock to be received by such holder) shall receive from West an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the average closing price of a share of West Common Stock
for the ten most recent days that West Common Stock has traded ending on the
trading day immediately prior to the Effective Time, as reported on the Nasdaq
National Market.
1.7 Surrender of Certificates.
(a) Exchange Agent. West shall select a bank or trust company with assets of
not less than $500 million to act as the exchange agent (the "Exchange Agent")
in the Merger.
(b) West to Provide Common Stock. Promptly after the Effective Time, West
shall make available to the Exchange Agent for exchange in accordance with
this Article I, the shares of West Common Stock issuable pursuant to Section
1.6 in exchange for outstanding shares of East Common Stock, and cash in an
amount sufficient for payment in lieu of fractional shares pursuant to Section
1.6(f) and any dividends or distributions that holders of shares of East
Common Stock may be entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time, West shall cause
the Exchange Agent to mail to each holder of record (as of the Effective Time)
of a certificate or certificates (the "Certificates") which immediately prior
to the Effective Time represented outstanding shares of East Common Stock
whose shares were converted into the right to receive shares of West Common
Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant
to Section 1.6(f) and any dividends or other distributions pursuant to Section
A-6
<PAGE>
1.7(d), (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as West may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of West Common Stock, cash in
lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or
other distributions pursuant to Section 1.7(d). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by West, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions
thereto, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
West Common Stock, payment in lieu of fractional shares which such holder has
the right to receive pursuant to Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.7(d), and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Certificate will be deemed from and after the Effective Time, for
all corporate purposes, subject to Section 1.7(d) as to the payment of
dividends, to evidence the ownership of the number of full shares of West
Common Stock into which such shares of East Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6(f) and any dividends
or distributions payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect
to West Common Stock with a record date after the Effective Time will be paid
to the holder of any unsurrendered Certificate with respect to the shares of
West Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder thereof certificates representing whole shares of West Common Stock
issued in exchange therefor, without interest, along with the amount of
dividends or other distributions with a record date after the Effective Time
payable with respect to such whole shares of West Common Stock.
(e) Transfers of Ownership. If any certificate for shares of West Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to West or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
West Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of West or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, West, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of West Common Stock or East
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in East Common Stock. All shares of West
Common Stock issued upon the surrender for exchange of shares of East Common
Stock in accordance with the terms hereof (including any cash paid in respect
thereof pursuant to Sections 1.6(f) and 1.7(d)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of East
Common Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of East Common Stock which were
outstanding immediately prior to the Effective Time. If after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof, such shares of West Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d); provided, however, that West may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may
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reasonably direct as indemnity against any claim that may be made against West
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Income Tax Regulations. It is also intended by the parties
hereto that the Merger shall be treated as a "pooling" for accounting
purposes, although neither party shall have the right to terminate this
Agreement or decline to close if such accounting treatment is not available.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
powers and franchises of East and Merger Sub, the officers and directors of
East and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is consistent with this Agreement.
ARTICLE II
Representations and Warranties of East
East represents and warrants to West and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure schedules
supplied by East to West (the "East Schedules"), as follows:
2.1 Organization of East. East and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own, lease and
operate its property and to carry on its business as now being conducted and
as proposed by East to be conducted, and is duly qualified to do business and
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect (as defined
below) on East. East has delivered to West a true and complete list of all of
East's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary and East's equity interest therein. East has delivered or made
available a true and correct copy of the Certificate of Incorporation and
Bylaws of East and similar governing instruments of its material subsidiaries,
each as amended to date, to counsel for West. When used in connection with
East, the term "Material Adverse Effect" means, for purposes of this
Agreement, any change, event or effect that is, or that would reasonably be
expected to be, materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of East and
its subsidiaries taken as a whole.
2.2 East Capital Structure. The authorized capital stock of East consists of
15,000,000 shares of Common Stock, par value $0.01 per share, of which there
were 6,005,502 shares issued and outstanding as of December 6, 1996 and
1,000,000 shares of Preferred Stock, par value $0.01 per share, of which
20,000 shares have been designated as Series A Junior Participating Preferred
Stock, and no shares are issued or outstanding. All outstanding shares of East
Common Stock are duly authorized, validly issued, fully paid and non-
assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of East or any agreement or document to
which East is a party or by which it is bound. As of December 6, 1996, East
had reserved an aggregate of 1,150,033 shares of Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to the East Stock Option Plans, under which options are outstanding
for an aggregate of 695,783 shares. All shares of East Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. The East Schedules list each
outstanding option to acquire shares of the Common Stock of East as of the
date hereof, the name of the holder of such option, the number of shares
subject to such option, the exercise price of such option, the number of
shares as to which such option will have vested at such date and whether the
exercisability of such option will be accelerated in any way by the
transactions contemplated by this Agreement or for any other reason, and
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indicate the extent of acceleration, if any. As of September 30, 1996, there
were 79 participants in the East Employee Stock Purchase Plan.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2 or Schedule 2.3, there are no equity securities of any class of
East, or any securities exchangeable or convertible into or exercisable for
such equity securities, issued, reserved for issuance or outstanding. Except
for securities East owns, directly or indirectly through one or more
subsidiaries, there are no equity securities of any class of any subsidiary of
East, or any security exchangeable or convertible into or exercisable for such
equity securities, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2 or Schedule 2.3, there are no options, warrants, equity
securities, calls, rights (including preemptive rights), commitments or
agreements of any character to which East or any of its subsidiaries is a
party or by which it is bound obligating East or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption
or acquisition, of any shares of capital stock of East or any of its
subsidiaries or obligating East or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Except as set forth on
Schedule 2.3, there are no registration rights and, to the knowledge of East,
there are no voting trusts, proxies or other agreements or understandings with
respect to any equity security of any class of East or with respect to any
equity security of any class of any of its subsidiaries.
2.4 Authority.
(a) East 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 and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of East, subject only to the adoption of this
Agreement by East's stockholders and the filing and recordation of the
Certificate of Merger pursuant to Delaware Law. A vote of the holders of at
least a majority of the outstanding shares of the East Common Stock is
required for East's stockholders to adopt this Agreement. This Agreement has
been duly executed and delivered by East and, assuming the due authorization,
execution and delivery by West and, if applicable, Merger Sub, constitutes the
valid and binding obligations of East, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by East does not, and the performance of this Agreement by East will
not, (i) conflict with or violate the Certificate of Incorporation or Bylaws
of East or the equivalent organizational documents of any of its subsidiaries,
(ii) subject to obtaining the adoption by East's stockholders of this
Agreement as contemplated in Section 5.2 and compliance with the requirements
set forth in Section 2.4(b) below, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to East or any of its
subsidiaries or by which its or any of their respective properties is bound,
or (iii) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or impair
East's rights or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of East or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which East or any of its
subsidiaries is a party or by which East or any of its subsidiaries or its or
any of their respective properties are bound or affected, except, with respect
to clauses (ii) and (iii), for any such conflicts, violations, defaults or
other occurrences that would not have a Material Adverse Effect on East. The
East Schedules list all material consents, waivers and approvals under any of
East's or any of its subsidiaries' agreements, contracts, licenses or leases
required to be obtained in connection with the consummation of the
transactions contemplated hereby, except for those the absence of which would
not have a Material Adverse Effect.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to East in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of a Form
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S-4 Registration Statement (the "Registration Statement") with the Securities
and Exchange Commission ("SEC") in accordance with the Securities Act of 1933,
as amended (the "Securities Act"), (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (iii) the filing
of the Proxy Statement (as defined in Section 2.21) with the SEC in accordance
with the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(iv) the filing of a Current Report on Form 8-K with the SEC, (v) the filing
with the United States Department of Justice and the Federal Trade Commission
of such forms as may be required by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), (vi) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of
any foreign country and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on East or West or have a material adverse effect on
the ability of the parties to consummate the Merger.
2.5 Section 203 of the Delaware General Corporation Law Not Applicable. The
board of directors of East has taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to
a "business combination" (as defined in Section 203) will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement.
2.6 SEC Filings; East Financial Statements.
(a) East has filed all forms, reports and documents required to be filed
with the SEC since February 11, 1994, and has made available to West such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that East may file subsequent to
the date hereof until the Closing) are referred to herein as the "East SEC
Reports." As of their respective dates, the East SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such East SEC Reports, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of East's
subsidiaries is required to file any forms, reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in East SEC Reports (the "East
Financials"), including any East SEC Reports filed after the date hereof until
the Closing, (x) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes thereto or, in the case of unaudited interim
financial statements, as may be permitted by the SEC on Form 10-Q under the
Exchange Act) and (z) fairly presented the consolidated financial position of
East and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, consistent with the books and records of East, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of East contained in East's SEC Reports
as of September 30, 1996 is hereinafter referred to as the "East Balance
Sheet." Except as disclosed in the East Financials or obligations under this
Agreement or the East Stock Option Agreement, neither East nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related
notes to the consolidated financial statements prepared in accordance with
GAAP which are, individually or in the aggregate, material to the business,
results of operations or financial condition of East and its subsidiaries
taken as a whole, except liabilities (i) provided for in the East Balance
Sheet, or (ii) incurred since the date of the East Balance Sheet in the
ordinary course of business consistent with past practices.
(c) East has heretofore furnished to West a complete and correct copy of any
amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or
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other instruments which previously had been filed by East with the SEC
pursuant to the Securities Act or the Exchange Act.
2.7 Absence of Certain Changes or Events. Except as set forth in Schedule
2.7, since September 30, 1996, there has not been, occurred or arisen any:
(a) transaction by East except in the ordinary course of business as
conducted on the date of the East Balance Sheet and consistent with past
practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws of
East;
(c) individual capital expenditure or commitment, or series of related
capital expenditure or commitments, by East outside the ordinary course of
business or exceeding $100,000;
(d) destruction of, damage to or loss of any material assets of East
(whether or not covered by insurance);
(e) significant adverse change in a material customer relationship;
(f) labor trouble or claim of wrongful discharge (except for such claims as
would not reasonably be expected to result in potential damages greater than
$50,000) or other unlawful labor practice or action that would have a Material
Adverse Effect;
(g) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by East;
(h) revaluation by East of any of its assets;
(i) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of East, or any direct or
indirect redemption, purchase or other acquisition by East of any of its
capital stock;
(j) increase in the salary or other compensation payable or to become
payable to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment
of a bonus or other additional salary or compensation to any such person
except as disclosed in the East Schedules or otherwise contemplated by this
Agreement and except for increases, payments or commitments in the ordinary
course of business and consistent with past practices (provided that a current
compensation schedule for all such persons is set forth in Schedule 2.7(j));
(k) sale, lease, license or other disposition of any of the assets or
properties of East, except in each case other than licenses under existing
agreements disclosed in the East Disclosure Schedules, non-exclusive object
code domestic reseller licenses and object code licenses granted to end-users,
each in the ordinary course of business;
(l) amendment or termination of any material contract, agreement or license
to which East is a party or by which it is bound;
(m) loan by East to any person or entity, incurring by East of any
indebtedness, guaranteeing by East of any indebtedness, issuance or sale of
any debt securities of East or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(n) waiver or release of any material right or claim of East, including any
write-off or other compromise of any account receivable of East other than in
the ordinary course of business and consistent with past practices;
(o) commencement or notice or threat of commencement of any lawsuit or
proceeding against or governmental investigation of East or its affairs;
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(p) notice of any claim of ownership by a third party of East's Intellectual
Property Rights (as defined in Section 2.11 below) or of infringement by East
of any third party's intellectual property rights;
(q) issuance or sale by East of any of its shares of capital stock, or
securities exchangeable, convertible or exercisable therefor, or of any other
of its securities except for option grants disclosed in Schedule 2.2 and
issuances of capital stock upon exercises of options granted prior to the date
hereof;
(r) change in pricing or royalties set or charged by East to its customers
or licensees or in pricing or royalties set or charged by persons who have
licensed Intellectual Property to East other than in the ordinary course of
business and consistent with past practices; or
(s) commitment, understanding or agreement by East or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (q) (other than this Agreement).
2.8 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities in the nature of a tax including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added,
ad valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements
or arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) East as of the Effective Time will have prepared and filed all
required federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to any and all Taxes concerning
or attributable to East or its operations and such Returns are (except to
the extent that an adequate reserve has been established on the East
Balance Sheet) true and correct in all material respects and have been
completed in accordance with applicable law.
(ii) East as of the Effective Time: (A) will have paid or accrued all
Taxes it is required to pay, (B) will not have any liabilities for Taxes
that exceed the amount of liabilities accrued or reserved against on the
East Balance Sheet or attributable to the conduct of East's business in the
ordinary course of business for the period after September 30, 1996 and (C)
will have withheld and paid (or will pay at the time required) with respect
to its employees all federal and state income taxes, FICA, FUTA and other
Taxes required to be withheld.
(iii) East is not delinquent in the payment of any Tax nor is there any
Tax deficiency outstanding, proposed or assessed against East, nor has East
executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of East is to the
knowledge of East currently in progress, nor has East been notified of any
request for such an audit or other examination.
(v) East did not have, as of September 30, 1996, any liabilities, whether
asserted or unasserted, contingent or otherwise, for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the East Balance Sheet, and East has not incurred
any such liabilities since such date except in the ordinary course of
business and consistent with past practices. East has no knowledge of any
basis for the assertion of any such unreserved liability attributable to
East, its assets or operations.
(vi) East has made available to West copies of all federal and state
income and all state sales and use Tax Returns for all periods since the
date of East's incorporation.
(vii) There are (and as of immediately following the Effective Date there
will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of East relating to or
attributable to Taxes, except for Liens for Taxes not yet due and payable.
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(viii) East has received no written or oral notice of any claim relating
or attributable to Taxes which, if adversely determined, would result in
any Lien on the assets of East.
(ix) None of East's assets are treated as "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of East that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G of the Code or the
limitations in Sections 162 of the Code.
(xi) East has not filed any consent agreement 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 defined in Section 341(f)(4) of
the Code) owned by East.
(xii) East is not a party to a tax sharing or allocation agreement nor
does East owe any amount under any such agreement.
(xiii) East is not, and has not been at any time during the period
specified in Section 897(c)(1)(A)(ii) of the Code, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(c) Tax Reserves. The amount of East's liability for unpaid Taxes for all
periods ending on or before the date of this Agreement does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) solely with respect to East as of the
date of this Agreement, and the amount of East's liability for unpaid Taxes
for all periods ending on or before the Closing Date will not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the
balance sheet of East as of the Closing Date.
2.9 Restrictions on Business Activities. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which East
is a party or, to the knowledge of East, otherwise binding upon East, which
has or reasonably could be expected to have the effect of prohibiting or
impairing any business practice of East, any acquisition of property (tangible
or intangible) by East or the conduct of business by East. Without limiting
the foregoing, East has not entered into any agreement under which East is
restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period
of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Schedule 2.10 lists the real property owned by East. Schedule 2.10(a)
lists all real property leases to which East is a party and each amendment
thereto. All such current leases are in full force and effect, are valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default) that would
give rise to a claim in an amount greater than $100,000.
(b) East has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used or held for use in its business, free
and clear of any Liens (as defined in Section 2.8(b)(vii)), except as
reflected in East Financials or in Schedule 2.10(b) and except for liens for
taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) East owns, or is licensed or otherwise possesses legally enforceable
rights to use, sufficient patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, schematics, technology, know-how,
computer software programs or applications (in both source code and object
code form), and tangible or
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intangible proprietary information or material that are required for the
conduct of business of East as currently conducted or as proposed by East to
be conducted (the "East Intellectual Property Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents, registered
copyrights, registered trademarks and any applications therefor, included in
East Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such East Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Schedule 2.11(b)
sets forth a complete list of all material licenses, sublicenses and other
agreements to which East is a party and pursuant to which East or any other
person is authorized to use any East Intellectual Property Right (excluding
object code licenses granted to end-users in the ordinary course of business
that permit use of software products without a right to modify, distribute or
sublicense the same ("End-User Licenses")) or trade secret of East. The
execution and delivery of this Agreement by East, and the consummation of the
transactions contemplated hereby, will neither cause East to be in violation
or default under any such license, sublicense or agreement, nor entitle any
other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement. Except as set forth in Schedules
2.11(a) or 2.11(b), East (i) is the sole and exclusive owner of, with all
right, title and interest in and to (free and clear of any liens or
encumbrances), East Intellectual Property Rights, or (ii) is a licensee of the
East Intellectual Property Rights under valid and binding license agreements
listed in Schedule 2.11(b).
(c) No claims with respect to East Intellectual Property Rights have been
asserted or are, to East's knowledge after reasonable inquiry under the
circumstances, threatened by any person, nor to East's knowledge after
reasonable inquiry under the circumstances, are there any valid grounds for
any claims, (i) to the effect that the manufacture, sale, licensing or use of
any of the products of East infringes on any copyright, patent issued at least
60 days prior to the date hereof, trademark, service mark, trade secret or
other proprietary right, (ii) against the use by East of any trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in East's
business as currently conducted or as currently proposed to be conducted by
East, or (iii) challenging the ownership by East, validity or effectiveness of
any of East Intellectual Property Rights. To East's knowledge after reasonable
inquiry, all registered copyrights held by East are valid and subsisting. To
East's knowledge after reasonable inquiry, East has not infringed, and the
business of East as currently conducted or as currently proposed by East to be
conducted does not infringe, any copyright, patent issued at least 60 days
prior to the date hereof, trade secret or other proprietary right of any third
party. To East's knowledge after reasonable inquiry, there is no material
unauthorized use, infringement or misappropriation of any of East Intellectual
Property Rights by any third party, including any employee or former employee
of East. To the knowledge of East after reasonable inquiry, no East
Intellectual Property Right or product of East or any of its subsidiaries is
subject to any outstanding decree, order, judgment, or stipulation restricting
in any manner the licensing thereof by East. Each employee, consultant or
contractor of East has executed a proprietary information and confidentiality
agreement substantially in East's standard forms. All software included in
East Intellectual Property Rights (i) has been either created by employees of
East on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have
had in such software to East or (ii) is licensed by East pursuant to
agreements listed in Schedule 2.11(b).
2.12 Compliance; Permits; Restrictions.
(a) Neither East nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to East or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which East or any of its subsidiaries is a
party or by which East or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any conflicts, defaults
or violations which would not have a Material Adverse Effect on East. No
investigation or review by any Governmental Entity is pending or threatened in
writing against East or its subsidiaries, nor to the knowledge of East has any
Governmental Entity indicated an intention to conduct the same.
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(b) East and its subsidiaries hold all consents, permits, licenses,
variances, exemptions, orders and approvals from governmental authorities
which are material to the operation of the business of East and its
subsidiaries taken as a whole (collectively, the "East Permits"). East and its
subsidiaries are in compliance with the terms of East Permits, except where
the failure to so comply would not have a Material Adverse Effect on East.
2.13 Litigation. Except as set forth in Schedule 2.13, there is no action,
suit or proceeding of any nature pending or to East's knowledge threatened
(nor is East aware of any reasonable basis therefor) against East, its
properties or any of its officers or directors, in their respective capacities
as such (i) involving East Intellectual Property Rights or in which injunctive
or other equitable relief or damages in excess of $100,000 are requested
against East or which could otherwise result in a Material Adverse Effect on
East or (ii) which in any manner challenges or seeks to prevent, enjoin, alter
or delay any of the transactions contemplated by this Agreement. Except as set
forth in Schedule 2.13, to East's knowledge, there is no investigation pending
or threatened against East, its properties or any of its officers or directors
by or before any Governmental Entity. Schedule 2.13 sets forth, with respect
to any pending or threatened action, suit, proceeding or investigation, the
forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. To the knowledge of East, no
Governmental Entity has at any time challenged or questioned in writing the
legal right of East to manufacture, offer or sell any of its products in the
present manner or style thereof.
2.14 Brokers' and Finders' Fees. Except for fees payable to Wessels, Arnold
& Henderson disclosed to West, East has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.15 Employee Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.15(a)(i) below (which definition shall apply only to this
Section 2.15), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with East within the meaning of Section 414(b), (c), (m) or (o) of
the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(iii) "East Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded
and whether or not legally binding, including without limitation, each
"employee benefit plan", within the meaning of Section 3(3) of ERISA which
is or has been maintained, contributed to, or required to be contributed
to, by East or any Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which East or any Affiliate has or may have any
material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of East or any Affiliate;
(v) "Employee Agreement" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between East or any Affiliate and
any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each East Employee Plan which is an
"employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
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(b) Schedule. Schedule 2.15(b) contains an accurate and complete list of
each East Employee Plan and each Employee Agreement. Except as may be set
forth on Schedule 215(b), East does not have any plan or commitment, whether
legally binding or not, to establish any new East Employee Plan or Employee
Agreement, to modify any East Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such East Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to West in writing, or as required by this Agreement), or
to enter into any East Employee Plan or Employee Agreement.
(c) Documents. East has provided or made available to West (i) correct and
complete copies of all East Employee Plans and each Employee Agreement
including all amendments thereto; (ii) the three most recent annual reports
(Series 5500 and all schedules thereto), if any, required under ERISA or the
Code in connection with each East Employee Plan or related trust; (iii) with
respect to any East Employee Plan that is funded, the most recent annual and
periodic accounting of East Employee Plan assets; (iv) the most recent summary
plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each East Employee
Plan; (v) all IRS determination letters and rulings relating to East Employee
Plans and copies of all applications and correspondence to or from the IRS or
the Department of Labor ("DOL") with respect to any East Employee Plan; (vi)
all communications material to any Employee or Employees relating to any East
Employee Plan and any proposed East Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to East; and (vii) all registration
statements and prospectuses prepared in connection with each East Employee
Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 2.15(d), (i)
East has performed in all material respects all obligations required to be
performed by it under each East Employee Plan, and each East Employee Plan has
been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any East Employee Plan for
which no exemption exists under Section 4975(c) or (d) of the Code or Section
408 of ERISA which would have a Material Adverse Effect on East; (iii) there
are no actions, suits or claims pending, or, to the knowledge of East,
threatened or anticipated (other than routine claims for benefits or actions
seeking qualified domestic relations orders) against any East Employee Plan or
against the assets of any East Employee Plan; and (iv) each East Employee Plan
can be amended, terminated or otherwise discontinued after the Effective Time
in accordance with its terms, without liability to East, Parent or any of its
Affiliates (other than ordinary administration expenses typically incurred in
a termination event); (v) there are no inquiries or proceedings pending or, to
the knowledge of East or any affiliates, threatened by the IRS or DOL with
respect to any East Employee Plan; and (vi) neither East nor any Affiliate is
subject to any material penalty or tax with respect to any East Employee Plan
under Section 406(i) of ERISA or Section 4975 through 4980 of the Code; and
(vii) all contributions, premiums or other payments due from East or its
Affiliates with respect to any East Employee Plan have been fully paid or
adequately provided for on East's audited financial statements.
(e) Pension Plans. East does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA or Section 412 of the Code; and, each Pension Plan and each related
trust agreement, annuity, contract or other funding instrument (i) is
qualified under the provisions of Sections 401(a) and 501(a) of the Code,
(ii) qualified during the period from its adoption to date, (iii) has received
a favorable determination from the IRS covering the provisions of the Tax
Reform Act of 1986 stating that such Pension Plan is so qualified, and (iv)
nothing has occurred since the date of such determination letter that could
reasonably be expected to affect the qualified status of such pension plan.
(f) Multiemployer Plans. At no time has East contributed to or been required
to contribute to any Multiemployer Plan.
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(g) No Post-Employment Obligations. Except as set forth in Schedule 2.15(g),
no East Employee Plan provides, or has any liability to provide, life
insurance, medical or other employee benefits to any Employee upon his or her
retirement or termination of employment for any reason, except for benefits
accrued through the date of termination and as may be required by statute, and
East has never represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) that
such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 2.15(h)(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any East Employee Plan, Employee
Agreement, trust or loan that will result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any Employee.
(ii) Except as set forth on Schedule 2.15(h)(ii), no payment or benefit
which will be made by East or Parent or any of their respective affiliates
with respect to any Employee as a result of the transactions contemplated
by this Agreement will be characterized as an "excess parachute payment",
within the meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. East (i) is in compliance in all material respects
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions
of employment and wages and hours, in each case, with respect to Employees;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries and other payments to Employees; (iii) is not liable
for any arrears of wages or any taxes or any penalty for failure to comply
with any of the foregoing; and (iv) is not liable for any payment to any trust
or other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against East is pending or, to
the best knowledge of East, threatened. Except as set forth in Schedule
2.15(j), East is not involved in or, to the knowledge of East, threatened
with, any labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, have a Material
Adverse Effect on East. Neither East nor any of its subsidiaries has engaged
in any unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly or
indirectly have a Material Adverse Effect on East. Except as set forth in
Schedule 2.15(j), East is not presently, nor has it been in the past, a party
to, or bound by, (1) any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by East or (2) any statutory works council or other agreement,
statute, rule or regulation which mandates employee approval, participation,
consultation or consent with regard to the transactions contemplated hereby.
2.16 Employees. To East's knowledge after reasonable inquiry, no employee of
East (i) is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant
to a former employer relating to the right of any such employee to be employed
by East because of the nature of the business conducted or presently proposed
to be conducted by East or to the use of trade secrets or proprietary
information of others and (ii) has given notice to East, nor is East otherwise
aware, that any employee intends to terminate his or her employment with East
except for terminations of a nature and number that are consistent with East's
prior experience.
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2.17 Absence of Liens and Encumbrances; Condition of Equipment. East and
each of its subsidiaries has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
material tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens or encumbrances except as reflected in
the East Financials and except for liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which would not have a
Material Adverse Effect on East.
2.18 Environmental Matters.
(a) Hazardous Material. No underground storage tanks and no amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste
pursuant to the United States Resource Conservation and Recovery Act of 1976,
as amended, and the regulations promulgated pursuant to said laws, (a
"Hazardous Material"), but excluding office and janitorial supplies, are
present, as a result of the deliberate actions of East or any of its
subsidiaries, or, to the knowledge of East, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that East or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Neither East nor any of its subsidiaries
has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on or before the Closing Date, nor has East or any of its subsidiaries
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. East and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "East Environmental
Permits") necessary for the conduct of East's and its subsidiaries' Hazardous
Material Activities and other businesses of East and its subsidiaries as such
activities and businesses are currently being conducted, except where the
failure to so hold would not have a Material Adverse Effect on East.
(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
East's knowledge, threatened concerning any East Environmental Permit,
Hazardous Material in, on or under any property owned or leased by East or any
Hazardous Materials Activity of East or any of its subsidiaries. East is not
aware of any fact or circumstance which could involve East or any of its
subsidiaries in any environmental litigation or impose upon East or any of its
subsidiaries any material environmental liability.
2.19 Agreements, Contracts and Commitments. Except as set forth in the East
Schedules, neither East nor any of its subsidiaries is a party to or is bound
by:
(a) any collective bargaining agreements;
(b) any agreements or arrangements that contain any severance pay or post-
employment liabilities or obligations;
(c) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
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(d) any employment or consulting agreement, contract or commitment with any
employee, not terminable by East or any of its subsidiaries on thirty days
notice without liability;
(e) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will
be accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement;
(f) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between East
or any of its subsidiaries and any of its officers or directors;
(g) any agreement, contract or commitment containing any covenant limiting
the freedom of East or any of its subsidiaries to engage in any line of
business or compete with any person;
(h) any agreement, contract or commitment relating to capital expenditures
and involving future obligations in excess of $100,000 and not cancelable
without penalty;
(i) any agreement, contract or commitment currently in force relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise (other than East's wholly-owned subsidiaries);
(j) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(k) any joint marketing or development agreement or distribution agreement
(excluding agreements with resellers, value added resellers or independent
software vendors entered into in the ordinary course of business that do not
permit such resellers or vendors to modify East's or any of its subsidiaries'
software products); or
(l) any other agreement, contract or commitment (excluding real and personal
property leases) which require payment by East or any of its subsidiaries
under any such agreement, contract or commitment of $100,000 or more in the
aggregate and is not cancelable without penalty within thirty (30) days.
Neither East nor any of its subsidiaries, nor to East's knowledge any other
party to an East Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which East is a party or by which it is bound of
the type described in clauses (a) through (k) above (any such agreement,
contract or commitment, an "East Contract") in such a manner as would permit
any other party to cancel or terminate any such East Contract, or would permit
any other party to seek damages, which would have a Material Adverse Effect on
East.
2.20 Change of Control Payments. The East Schedules set forth each plan or
agreement pursuant to which all material amounts may become payable (whether
currently or in the future) to current or former officers and directors of
East as a result of or in connection with the Merger.
2.21 Statements; Proxy Statement/Prospectus. The information supplied by
East for inclusion in the Registration Statement (as defined in Section
2.4(b)) shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The information supplied by East for inclusion in the
proxy statement/prospectus to be sent to the stockholders of East in
connection with the meeting of East's stockholders to consider the adoption of
this Agreement and approval of the Merger (the "East Stockholders' Meeting")
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the "Proxy Statement") shall not, on the date the Proxy Statement is
first mailed to East's stockholders and at the time of the East Stockholders'
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Meeting, 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 false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier written communication with respect to the
solicitation of proxies for the East Stockholders' Meeting which has become
false or misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time, any event
relating to East or any of its affiliates, officers or directors should be
discovered by East which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, East shall
promptly inform West. Notwithstanding the foregoing, East makes no
representation or warranty with respect to any information supplied by West or
Merger Sub which is contained in any of the foregoing documents.
2.22 Board Approval. The Board of Directors of East has, as of the date of
this Agreement, determined unanimously (i) that the Merger is fair to, and in
the best interests of East and its stockholders, and (ii) to recommend that
the stockholders of East approve this Agreement.
2.23 Fairness Opinion. East has received an opinion from Wessels, Arnold &
Henderson, L.L.C., dated as of the date hereof, to the effect that as of the
date hereof, the consideration to be received by East's stockholders in the
Merger is fair from a financial point of view and will deliver to West a copy
of such written opinion.
2.24 Minute Books. The minute books of East made available to counsel for
West are the only minute books of East and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of
incorporation of East.
2.25 Representations Complete. None of the representations or warranties
made by East (as modified by East Schedules), nor any statement made in any
schedule or certificate furnished by East pursuant to this Agreement, or made
in documents mailed or delivered to the stockholders of East in connection
with soliciting their adoption of this Agreement and approval of the Merger
(to the extent that such documents were prepared by or include information
provided by East), contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
Representations and Warranties of West and Merger Sub
West and Merger Sub represent and warrant to East, subject to the exceptions
specifically disclosed in the disclosure schedule supplied by West to East
(the "West Schedules"), as follows:
3.1 Organization of West. West and each of its material subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined below) on West. West has delivered or made available a true and
correct copy of the Certificate of Incorporation and Bylaws of West, each as
amended to date, to counsel for East. When used in connection with West, the
term "Material Adverse Effect" means, for purposes of this Agreement, any
change, event or effect that is, or that would reasonably be expected to be,
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of West and its subsidiaries
taken as a whole.
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3.2 West Capital Structure. The authorized capital stock of West consists of
100,000,000 shares of Common Stock, par value $0.01 per share, of which there
were 44,823,749 shares issued and outstanding as of October 31, 1996 and
2,000,000 shares of Preferred Stock, par value $0.01 per share, of which
100,000 shares have been designated Series A Participating Preferred Stock,
and no shares of Preferred Stock are issued or outstanding. The authorized
capital stock of Merger Sub consists of 1,000 shares of Common Stock, par
value $0.01 per share, all of which, as of the date hereof, are issued and
outstanding and are held by West. All outstanding shares of the Common Stock
of West are duly authorized, validly issued, fully paid and non-assessable and
are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of West or any agreement or document to which West is
a party or by which it is bound. As of October 31, 1996, West had reserved an
aggregate of 2,888,549 shares of Common Stock, net of exercises, for issuance
to employees, consultants and non-employee directors pursuant to West's 1996
Stock Plan, Nonqualified Stock Option Plan, 1996 Teleos Research Option Plan,
1987 Stock Option Plan and 1990 Directors' Option Plan (collectively, the
"West Stock Option Plans"), under which options are outstanding for 12,465,929
shares. All shares of the Common Stock of West subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. All of the shares of West Common
Stock to be issued in the Merger will be, when issued in accordance with this
Agreement, duly authorized, validly issued, fully paid and nonassessable.
3.3 Authority.
(a) Each of West and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. West has all requisite corporate power and authority to
enter into the West Stock Option Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of this Agreement and the
West Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of West and, in the case of this Agreement,
Merger Sub, subject only to the filing and recordation of the Certificate of
Merger pursuant to Delaware Law. This Agreement has been duly executed and
delivered by each of West and Merger Sub and, assuming the due authorization,
execution and delivery of this Agreement by East, this Agreement constitutes
the valid and binding obligations of each of West and Merger Sub, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by each of West and Merger Sub do
not, and the performance of this Agreement by each of West and Merger Sub will
not, (i) conflict with or violate the Certificate of Incorporation or Bylaws
of West or the Certificate of Incorporation or Bylaws of Merger Sub, (ii)
subject to compliance with the requirements set forth in Section 3.3(b) below,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to West or any of its material subsidiaries (including Merger Sub)
or by which its or any of their respective properties is bound or affected, or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or impair
West's rights or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of West or any of its material subsidiaries
(including Merger Sub) pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which West or any of its material subsidiaries (including Merger
Sub) is a party or by which West or any of its material subsidiaries
(including Merger Sub) or its or any of their respective properties are bound
or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on West. The West Schedules list all material
consents, waivers and approvals under any of West's or any of its
subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions contemplated
hereby, except for those the absence of which would not have a Material
Adverse Effect.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to West or Merger Sub in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) the filing
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of the Registration Statement with the SEC in accordance with the Securities
Act, (ii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware, (iii) the filing of the Proxy Statement with the SEC
in accordance with the Exchange Act, (iv) the filing of a Current Report on
Form 8-K with the SEC, (v) the filing with the United States Department of
Justice and the Federal Trade Commission of such forms as may be required by
the HSR Act, (vi) the listing of the West Common Stock on the Nasdaq Stock
Market, (vii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country and (viii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on West or have a
material adverse effect on the ability of West to consummate the Merger.
3.4 SEC Filings; West Financial Statements.
(a) West has filed all forms, reports and documents required to be filed
with the SEC since February 1, 1995, and has made available to East such
forms, reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that West may file subsequent to
the date hereof until the Closing) are referred to herein as the "West SEC
Reports." As of their respective dates, the West SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such West SEC Reports, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of West's
subsidiaries is required to file any forms, reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in West SEC Reports (the "West
Financials"), including any West SEC Reports filed after the date hereof until
the Closing, (x) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes thereto or, in the case of unaudited interim
financial statements, as may be permitted by the SEC on Form 10-Q under the
Exchange Act) and (z) fairly presented the consolidated financial position of
West and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not, or are
not expected to be, material in amount. The balance sheet of West contained in
West SEC Reports as of July 31, 1996 is hereinafter referred to as the "West
Balance Sheet." Except as disclosed in the West Financials or obligations
under this Agreement, neither West nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature required
to be disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually
or in the aggregate, material to the business, results of operations or
financial condition of West and its subsidiaries taken as a whole, except
liabilities (i) provided for in the West Balance Sheet, or (ii) incurred since
the date of the West Balance Sheet in the ordinary course of business
consistent with past practices.
(c) West has heretofore furnished to East a complete and correct copy of any
amendments or modifications, which have not yet been filed with the SEC but
which are required to be filed, to agreements, documents or other instruments
which previously had been filed by West with the SEC pursuant to the
Securities Act or the Exchange Act.
3.5 Intellectual Property.
(a) West and its subsidiaries own, or have the right to use, sell or license
sufficient intellectual property necessary or required for the conduct of
their respective businesses as presently conducted (such intellectual property
and the rights thereto are collectively referred to herein as the "West IP
Rights"), except for any failure to own or have the right to use, sell or
license that would not have a Material Adverse Effect on West.
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any West IP Rights (the "West
IP Rights Agreements"), will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any West IP Rights or impair
the right of West and its subsidiaries to use, sell or license any West IP
Rights or portion thereof, except for the occurrence of any such breach,
forfeiture, termination or impairment that would not individually or in the
aggregate, result in a Material Adverse Effect on West.
(c) (i) Neither the manufacture, marketing, license, sale or intended use of
any product or technology currently licensed or sold or under development by
West or any of its subsidiaries violates any license or agreement between West
or any of its subsidiaries and any third party or infringes any intellectual
property right of any other party; and (ii) there is no pending or, to the
knowledge of West, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any West IP Rights, nor
has West received any written notice asserting that any West IP Rights or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party, except, with respect to clauses (i) and
(ii), for any violations, infringements, claims or litigation that would not
have a Material Adverse Effect on West.
(d) West has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights
in, all West IP Rights.
3.6 Litigation. There is no action, suit, proceeding, claim, arbitration or
investigation pending, or as to which West or any of its subsidiaries has
received any notice of assertion nor, to West's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation
against West or any of its subsidiaries which would have a Material Adverse
Effect on West, or which in any manner challenges or seeks to prevent, enjoin,
alter or delay any of the transactions contemplated by this Agreement.
3.7 Brokers' and Finders' Fees. Except for fees payable to Goldman, Sachs &
Co. pursuant to an engagement letter dated November 21, 1996 a copy of which
has been provided to East, West has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.8 Employee Benefit Plans. Each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA) maintained or contributed to by
West or any trade or business which is under common control with West within
the meaning of Section 414 of the Code (the "West Employee Plans"), which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination from the IRS covering the provisions of the Tax Reform
Act of 1986, stating that such West Employee Plan is so qualified, and nothing
has occurred since the date of such letter that could reasonably be expected
to affect the qualified status of such plan. Each West Employee Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law. Neither West nor any ERISA Affiliate of West
has incurred or is reasonably expected to incur any material liability under
Title IV of ERISA in connection with any West Employee Plan.
3.9 Statements; Proxy Statement/Prospectus. The information supplied by West
for inclusion in the Registration Statement (as defined in Section 2.4(b))
shall not at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by West for inclusion in the Proxy
Statement to be sent to the stockholders of East in connection with the East
Stockholders' Meeting shall not, on the date the Proxy Statement is first
mailed to East's stockholders, and at the time of the East Stockholders'
Meeting, 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 false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier written communication with respect to the
solicitation of proxies for the East Stockholders' Meeting which has become
false or misleading.
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The Registration Statement will comply as to form in all material respects
with applicable provisions of the Securities Act and the rules and regulations
thereunder. If at any time prior to the Effective Time, any event relating to
West or any of its affiliates, officers or directors should be discovered by
West which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, West shall promptly inform East.
Notwithstanding the foregoing, West makes no representation or warranty with
respect to any information supplied by East which is contained in any of the
foregoing documents.
3.10 Fairness Opinion. West has received a written opinion from Goldman,
Sachs & Co. dated as of the date hereof, to the effect that as of the date
hereof, the Merger is fair to West's stockholders from a financial point of
view and has delivered to East a copy of such opinion.
3.11 Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement.
3.12 No Material Adverse Effect. Since July 31, 1996, there has not occurred
any Material Adverse Effect on West.
ARTICLE IV
Conduct Prior to the Effective Time
4.1 Conduct of Business by East and West. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, East (which for the
purposes of this Article 4 shall include East and each of its subsidiaries)
and West (which for the purposes of this Article 4 shall include West and each
of its material subsidiaries) agree, except (i) in the case of East as
provided in Article 4 of the East Schedules and in the case of West as
provided in Article 4 of the West Schedules, (ii) as otherwise contemplated by
this Agreement, or (iii) to the extent that the other party shall otherwise
consent in writing, to carry on its business diligently and in accordance with
good commercial practice and to carry on its business in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted,
to pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
4.2 Certain Actions by East. In addition notwithstanding Section 4.1 above,
without the prior written consent of West, East shall not do any of the
following, nor shall East permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create standards or
agreements with "Standards" bodies;
(c) Grant any severance or termination pay to any officer or employee except
payments in amounts consistent with policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date hereof and
as previously disclosed in writing to the other, or adopt any new severance
plan;
(d) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the East Intellectual Property
Rights, or enter into grants to future patent rights, in each case other
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than licenses under existing agreements disclosed in the East Disclosure
Schedules, non-exclusive object code domestic reseller licenses and object
code licenses granted to end-users, each in the ordinary course of business;
(e) Declare or pay any dividends on or make any other distributions (whether
in cash, stock or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for any capital
stock;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares of
capital stock except pursuant to rights of repurchase of any such shares under
any employee, consultant or director stock plan;
(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into shares
of capital stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of capital
stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other than
(i) the issuance of shares of East Common Stock pursuant to the exercise of
stock options therefor outstanding as of the date of this Agreement, and (ii)
shares of East Common Stock issuable to participants in the East Employee
Stock Purchase Plan consistent with the terms thereof;
(h) Cause, permit or propose any amendments to any charter document or Bylaw
(or similar governing instruments of any subsidiaries);
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets or enter into any joint ventures,
strategic partnerships or alliances;
(j) Sell, lease, license (except as permitted by Section 4.2(d)), encumber
or otherwise dispose of any properties or assets which are material,
individually or in the aggregate, to the business of East;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire debt securities of East or
guarantee any debt securities of others;
(l) Adopt or amend any employee benefit or stock purchase or option plan, or
enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its officers or employees;
(m) Pay, discharge or satisfy any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business;
(n) Make any grant of exclusive rights to any third party; or
(o) Agree in writing or otherwise to take any of the actions described in
Article 4(a) through (n) above.
ARTICLE V
Additional Agreements
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings. As
promptly as practicable after the execution of this Agreement, East will
prepare, and file with the SEC, the Proxy Statement and West will prepare and
file with the SEC the Registration Statement in which the Proxy Statement will
be included as a prospectus. Each of East and West will respond to any
comments of the SEC and will use its best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing.
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East will cause the Proxy Statement to be mailed to its stockholders at the
earliest practicable time. As promptly as practicable after the date of this
Agreement, East and West will prepare and file any other filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or
Blue Sky laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each party will notify the other party
promptly upon the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement
or any Other Filing or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. Whenever any
event occurs which is required to be set forth in an amendment or supplement
to the Proxy Statement, the Registration Statement or any Other Filing, East
or West, as the case may be, will promptly inform the other party of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of East, such amendment
or supplement. The Proxy Statement will also include the recommendations of
the Board of Directors of East in favor of approval of this Agreement (except
that the Board of Directors of East may withdraw, modify or refrain from
making such recommendation to the extent that the Board determines that the
Board's fiduciary duties under applicable law require it to do so).
5.2 Meeting of East Stockholders. Promptly after the date hereof, East will
take all action necessary in accordance with Delaware Law and its Certificate
of Incorporation and Bylaws to convene the East Stockholders' Meeting to be
held as promptly as practicable, and in any event within 45 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon this Agreement. Unless otherwise required by the fiduciary duties
of the East Board of Directors, East will use its best efforts to solicit from
its stockholders proxies in favor of the approval of this Agreement and the
Merger, and will take all other action necessary or advisable to secure the
vote or consent of its stockholders required by Delaware Law to obtain such
approvals.
5.3 Access to Information; Confidentiality.
(a) Each party will afford the other party and its accountants, counsel and
other representatives reasonable access during normal business hours to the
properties, books, records and personnel of the other party during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of such party, as the other party may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.3 will affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.
(b) The parties acknowledge that East and West have previously executed a
Confidentiality Agreement, dated November 14, 1996 (the "Confidentiality
Agreement"), which Confidentiality Agreement will continue in full force and
effect in accordance with its terms, except as is necessary to comply with the
terms of this Agreement.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, East
and its subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly encourage
submission of, any proposals or offers by any person, entity or group (other
than West and its affiliates, agents and representatives), or (ii) participate
in any discussions or negotiations with, or disclose any non-public
information concerning East or any of its subsidiaries to, or afford any
access to the properties, books or records of East or any of its subsidiaries
to, or otherwise assist or facilitate, or enter into any agreement or
understanding with, any person, entity or group (other than West and its
affiliates, agents and representatives), in connection with any Acquisition
Proposal with respect to East. For the purposes of this Agreement, an
"Acquisition Proposal" with respect to an entity means any proposal or offer
(other than one
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with or relating to West or an affiliate thereof) relating to (i) any merger,
consolidation, sale of substantial assets of East or similar transactions
involving the entity or any subsidiaries of the entity (other than sales of
assets or inventory in the ordinary course of business or permitted under the
terms of this Agreement), (ii) sale of 10% or more of the outstanding shares
of capital stock of the entity (including without limitation by way of a
tender offer or an exchange offer), (iii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange Act
and the rules and regulations thereunder) which beneficially owns, or has the
right to acquire beneficial ownership of, 10% or more of the then outstanding
shares of capital stock of the entity (except for acquisitions for passive
investment purposes only in circumstances where the person or group qualifies
for and files a Schedule 13G with respect thereto); 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. East will immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. East will (i)
notify West as promptly as practicable if any inquiry or proposal is made or
any information or access is requested in writing in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) as promptly as
practicable notify West of the significant terms and conditions of any such
Acquisition Proposal. In addition, subject to the other provisions of this
Section 5.4, from and after the date of this Agreement until the earlier of
the Effective Time and termination of this Agreement pursuant to its terms,
East and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than West); provided,
however, that nothing herein shall prohibit East's Board of Directors from
taking and disclosing to East's stockholders a position with respect to a
tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange
Act.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
approval of this Agreement by the stockholders of East at the East
Stockholders' Meeting, East may, to the extent the Board of Directors of East
determines, in good faith, after consultation with outside legal counsel, that
the Board's fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c) below, furnish information to any person, entity
or group after such person, entity or group has delivered to East in writing,
an unsolicited bona fide Acquisition Proposal which the Board of Directors of
East in its good faith reasonable judgment determines, after consultation with
its independent financial advisors, would result in a transaction more
favorable to the stockholders of East from a financial point of view than the
Merger and for which financing, to the extent required, is then committed or
which, in the good faith reasonable judgment of the Board of Directors of East
(based upon the advice of independent financial advisors), is reasonably
capable of being financed by such person, entity or group and which is likely
to be consummated (an "East Superior Proposal"). In addition, notwithstanding
the provisions of paragraph (a) above, in connection with a possible
Acquisition Proposal, East may refer any third party to this Section 5.4 or
make a copy of this Section 5.4 available to a third party. In the event East
receives an East Superior Proposal, nothing contained in this Agreement (but
subject to the terms hereof) will prevent the Board of Directors of East from
approving such East Superior Proposal or recommending such East Superior
Proposal to East's stockholders, if the Board determines that such action is
required by its fiduciary duties under applicable law; in such case, the Board
of Directors of East may withdraw, modify or refrain from making its
recommendation concerning the approval of this Agreement; provided, however,
that East shall not accept or recommend to its stockholders, or enter into any
agreement concerning, an East Superior Proposal for a period of not less than
48 hours after West's receipt of a copy of such East Superior Proposal (or a
description of the significant terms and conditions thereof, if not in
writing).
(c) Notwithstanding anything to the contrary in this Section 5.4, East will
not provide any non-public information to a third party unless: (i) East
provides such non-public information pursuant to a nondisclosure agreement
with terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreement; and (ii) such non-
public information has previously been delivered or made available to West.
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5.5 Public Disclosure. West and East will consult with each other before
issuing any press release or otherwise making any public statement with
respect to the Merger, this Agreement or an Acquisition Proposal and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or the Nasdaq National Market.
5.6 Legal Requirements. Each of West, Merger Sub and East will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. West will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of West Common Stock pursuant hereto. East will use its commercially
reasonable efforts to assist West as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of West Common Stock pursuant hereto.
5.7 Third Party Consents. As soon as practicable following the date hereof,
East will use its commercially reasonable efforts to obtain all material
consents, waivers and approvals under any of its or its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 FIRPTA. At or prior to the Closing, East, if requested by West, shall
deliver to the IRS a notice that the East Common Stock is not a "US Real
Property Interest" as defined and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Notification of Certain Matters. West and Merger Sub will give prompt
notice to East, and East will give prompt notice to West, of the occurrence,
or failure to occur, of any event, which occurrence or failure to occur would
be reasonably likely to cause (a) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time, or (b) any material
failure of West and Merger Sub or East, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Notwithstanding the above, the delivery of any notice pursuant to
this section will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.10 Best Efforts and Further Assurances. Subject to the respective rights
and obligations of West and East under this Agreement, each of the parties to
this Agreement will use its best efforts to effectuate the Merger and the
other transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto,
at the reasonable request of another party hereto, will execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.
5.11 Stock Options; Employee Stock Purchase Plan.
(a) At the Effective Time, each outstanding option to purchase shares of
East Common Stock (each an "East Stock Option") under the East Stock Option
Plans, whether or not exercisable, will be assumed by West. Each East Stock
Option so assumed by West under this Agreement will continue to have, and be
subject to, the same terms and conditions set forth in the applicable East
Stock Option Plan immediately prior to the Effective Time (including, without
limitation, any repurchase rights), except that (i) each East Stock Option
will be exercisable (or will become exercisable in accordance with its terms)
for that number of whole shares of West Common Stock equal to the product of
the number of shares of East Common Stock that were issuable upon
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exercise of such East Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of West Common Stock, and (ii) the per share exercise price for the
shares of West Common Stock issuable upon exercise of such assumed East Stock
Option will be equal to the quotient determined by dividing the exercise price
per share of East Common Stock at which such East Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to
the nearest whole cent. After the Effective Time, West will issue to each
holder of an outstanding East Stock Option a notice describing the foregoing
assumption of such East Stock Option by West.
(b) It is the intention of the parties that East Stock Options assumed by
West qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent East Stock Options qualified
as incentive stock options immediately prior to the Effective Time; and that
notwithstanding anything contained in Section 1.6(c) or Section 5.11 hereof,
or any other provision of this Agreement, the exercise price, the number of
shares purchasable and the terms and conditions applicable to any East Stock
Options shall be determined so as to comply with Sections 422 and 424 of the
Code and the regulations promulgated thereunder.
(c) West will reserve sufficient shares of West Common Stock for issuance
under Section 5.11(a) and under Section 1.6(c) hereof.
(d) East shall (i) amend its 1996 Employee Stock Purchase Plan to provide
that the Payment Period that would otherwise commence on January 1, 1997 shall
not take place and (ii) provide that the provisions of clause (i) of the
second sentence of the third paragraph of Section 4 of such Plan shall apply
to the Payment Period under such Plan that commenced on July 1, 1996.
5.12 Form S-8. West agrees to file a registration statement on Form S-8 for
the shares of West Common Stock issuable with respect to assumed East Stock
Options no later than ten (10) business days after the Closing Date and shall
keep such registration statement effective for so long as any such Options
remain outstanding.
5.13 Indemnification and Insurance. From and after the Effective Time, the
Surviving Corporation will fulfill and honor in all respects the obligations
of East pursuant to the provisions of the Certificate of Incorporation and the
Bylaws of East as in effect immediately prior to the Effective Time. For a
period of two (2) years after the Effective Time, West shall ensure that the
Surviving Corporation fulfills the foregoing obligations. The Certificate of
Incorporation and Bylaws of the Surviving Corporation will contain the
provisions with respect to indemnification and elimination of liability for
monetary damages set forth in the Certificate of Incorporation and Bylaws of
East, which provisions will not be amended, repealed or otherwise modified for
a period of three years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, at the Effective
Time, were directors, officers, employees or agents of East, unless such
modification is required by law.
5.14 Tax-Free Reorganization. West and East will each use its commercially
reasonable efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368 of the Code. West and East will each make
available to the other party and their respective legal counsel copies of all
returns requested by the other party.
5.15 NMS Listing. West agrees to authorize for listing on the Nasdaq
National Market the shares of West Common Stock issuable, and those required
to be reserved for issuance (including without limitation upon the exercise of
assumed East Stock Options), in connection with the Merger, upon official
notice of issuance.
5.16 East Affiliate Agreement. Set forth on the East Schedules is a list of
those persons who may be deemed to be, in East's reasonable judgment,
affiliates of East within the meaning of Rule 145 promulgated under the
Securities Act (an "East Affiliate"). East will provide West with such
information and documents as West reasonably requests for purposes of
reviewing such list. East will use its best efforts to deliver or cause to be
delivered to West prior to the Closing Date from each East Affiliate an
executed affiliate agreement in substantially the form attached hereto as
Exhibit C (the "East Affiliate Agreement"), each of which will be in
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full force and effect as of the Effective Time. West will be entitled to place
appropriate legends on the certificates evidencing any West Common Stock to be
received by an East Affiliate pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
West Common Stock, consistent with the terms of the East Affiliate Agreement.
ARTICLE VI
Conditions to the Merger
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the requisite vote under applicable law by the stockholders of
East.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose, and no similar proceeding in respect of the
Proxy Statement, shall have been initiated or threatened in writing by the
SEC.
(c) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(d) Tax Opinions. West and East shall each have received substantially
identical written opinions from their counsel, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Hale and Dorr, respectively, in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code;
provided that if the respective counsel to West or East does not render such
opinion, this condition shall nonetheless be deemed satisfied with respect to
such party if counsel to the other party renders such opinion to such party.
The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(e) HSR and Similar Compliance. The waiting period applicable to the
consummation of Merger under the HSR Act shall have expired or been terminated
by the reviewing agency and any similar government requirements have been
satisfied or complied with.
6.2 Additional Conditions to Obligations of East. The obligations of East to
consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by East:
(a) Representations and Warranties. The representations and warranties of
West and Merger Sub contained in this Agreement shall be true and correct on
and as of the Effective Time (without regard to any updates to the West
Disclosure Schedules, unless otherwise agreed by East), except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except, in all such cases,
where the failure to be so true and correct would not have a Material Adverse
Effect on West (provided that any determination with regard to a Material
Adverse Effect on West shall be made without regard to any materiality
qualification or particular dollar threshold in any particular
representation); and East shall have received a certificate to such effect
signed on behalf of West by the President and Chief Operating Officer of West;
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(b) Agreements and Covenants. West and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and East shall have received a certificate to such effect
signed on behalf of West by the President and Chief Operating Officer of West;
(c) Legal Opinion. East shall have received a legal opinion from Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel to West, in a
form reasonably acceptable to East; and
(d) Nasdaq Listing. The shares of West Common Stock issuable to stockholders
of East pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the Nasdaq National Market upon official notice of issuance.
6.3 Additional Conditions to the Obligations of West and Merger Sub. The
obligations of West and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, exclusively
by West:
(a) Representations and Warranties. The representations and warranties of
East contained in this Agreement shall be true and correct on and as of the
Effective Time (without regard to any updates to the East Disclosure
Schedules, unless otherwise agreed by West), except for changes contemplated
by this Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such particular date), with the same force and effect as if made
on and as of the Effective Time, except, in all such cases, where the failure
to be so true and correct would not have a Material Adverse Effect on East
(provided that any determination with regard to a Material Adverse Effect on
East shall be made without regard to any materiality qualification or
particular dollar threshold in any particular representation); and West and
Merger Sub shall have received a certificate to such effect signed on behalf
of East by the President and the Chief Financial Officer of East;
(b) Agreements and Covenants. East shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time, and
the West shall have received a certificate to such effect signed on behalf of
East by the President and the Chief Financial Officer of East;
(c) Legal Opinion. West shall have received a legal opinion from Hale and
Dorr, counsel to East, in a form reasonably acceptable to West; and
(d) Non-Competition Agreements. Each of the individuals listed on Schedule
6.3(d) shall have entered into a Non-Competition Agreement with West or Merger
Sub in the form attached hereto as Exhibit D, and such agreements shall be in
full force and effect. Further, East shall use its best efforts to secure the
entrance into a Non-Competition Agreement with West or Merger Sub of certain
other employees of East which shall be identified by West.
(e) Voting Agreement. Each of the individuals listed on Schedule 6.3(d)
shall have entered into a Voting Agreement with West in the form attached
hereto as Exhibit B, and such agreements shall be in full force and effect.
ARTICLE VII
Termination, Amendment and Waiver
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of East:
(a) by mutual written consent duly authorized by the Boards of Directors of
West and East;
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(b) by either East or West if the Merger shall not have been consummated by
May 31, 1997; provided, however, that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date if such action or failure to act
constitutes a breach of this Agreement;
(c) by either East or West if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"), in
any case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either East or West if the required approval of the stockholders of
East contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote upon a vote taken at a meeting of
stockholders duly convened therefor or at any adjournment thereof (provided
that the right to terminate this Agreement under this Section 7.1(d) shall not
be available to East where the failure to obtain stockholder approval of East
shall have been caused by the action or failure to act of East in breach of
this Agreement);
(e) by either East or West, if East shall have accepted an East Superior
Proposal or if the East Board of Directors recommends an East Superior
Proposal to the stockholders of East as permitted by Section 5.4(b);
(f) by West, if the Board of Directors of East shall have (i) failed to
convene the East Stockholders' Meeting, as required by Section 5.2, (ii)
failed to recommend approval of this Agreement and the Merger in the Proxy
Statement or withheld, withdrawn or modified in a manner adverse to West such
recommendation in favor the Merger, or (iii) failed to reject an Acquisition
Proposal within 10 days of its making;
(g) by East, upon a breach of any representation, warranty, covenant or
agreement on the part of West set forth in this Agreement, if (i) as a result
of such breach the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach and (ii) such breach
shall not have been cured by West within ten (10) business days following
receipt by West of written notice of such breach from East;
(h) by West, upon a breach of any representation, warranty, covenant or
agreement on the part of East set forth in this Agreement, if (i) as a result
of such breach the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach and (ii) such breach
shall not have been cured by East within ten (10) business days following
receipt by East of written notice of such breach from West;
(i) by East, if there shall have occurred any event or condition which
constitutes a Material Adverse Effect with respect to West since the date of
this Agreement, which condition or event shall not have been ameliorated such
that it is no longer a Material Adverse Effect within ten (10) business days
following receipt by West of notice from East (provided that, for the purposes
of this Section 7.1(i), as well as for purposes of Sections 3.12, 6.2(a) and
7.3, a Material Adverse Effect shall not be deemed to have occurred with
respect to West as a result of (i) any events or conditions affecting the
economy or East's industry in general, (ii) any events or conditions resulting
from the execution and/or announcement of this Agreement or (iii) in and of
itself, any change in the market price of West's Common Stock);
(j) by West, if there shall have occurred any event or condition which
constitutes a Material Adverse Effect with respect to East since the date of
this Agreement which condition or event shall not have been ameliorated such
that it is no longer a Material Adverse Effect within ten (10) business days
following receipt by East of notice from West (provided that, for purposes of
this Section 7.1(j), as well as for purposes of Section 6.3(a), a Material
Adverse Effect shall not be deemed to have occurred with respect to East as a
result of (i) any events or conditions affecting the economy or East's
industry in general, (ii) any events or conditions resulting from the
execution and/or announcement of this Agreement or (iii) the failure of the
revenue and/or net income of East for the quarter ending December 31, 1996 to
meet the published expectations of financial analysts or East management's
internal projections); or
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(k) by West, in the circumstances described in Section 1.6(a)(iii).
7.2 Notice of Termination; Effect of Termination.
(a) Subject to Sections 7.2(b) and (c), any termination of this Agreement
under Section 7.1 above will be effective immediately upon the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 7.1, this
Agreement shall be of no further force or effect, except (i) as set forth in
this Section 7.2, Section 7.3 and Article 8 (Miscellaneous), each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
(b) Any termination of this Agreement by East pursuant to Sections 7.1(d) or
7.1(e) hereof shall be of no force or effect unless prior to such termination
East shall have paid to West the amount payable pursuant to Section 7.3(b).
7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that West and East shall share equally all
fees and expenses, other than attorneys' and accountants fees and expenses,
incurred in relation to the printing and filing of the Proxy Statement
(including any preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto.
(b) In the event that this Agreement is terminated pursuant to Section
7.1(d), East shall immediately pay to West (by wire transfer or cashier's
check) $750,000; provided that such payment shall not be due in the case such
failure to obtain required stockholder approval is the result of a Material
Adverse Effect on West.
(c) In the event that this Agreement is terminated pursuant to either
Section 7.1(e) or Section 7.1(f), East shall immediately pay to West (by wire
transfer or cashier's check) $1,500,000; provided that such payment shall not
be due in the case of (i) a termination under Section 7.1(e) if East accepts
or recommends an East Superior Proposal as a result of a Material Adverse
Effect on West or (ii) a termination under Section 7.1(f) if the withholding,
withdrawal or modification by the Board of Directors of East of its
recommendation in favor of the Merger or the failure to reject an Acquisition
Proposal is the result of a Material Adverse Effect on West.
(d) In the event that (i) this Agreement is terminated pursuant to either
Section 7.1(d), Section 7.1(e) or Section 7.1(f) hereof and (ii) within six
months following such termination, East either consummates an Alternative
Transaction (as defined below) or enters into a definitive agreement with
respect to an Alternative Transaction, then, upon the consummation of such
Alternative Transaction, East shall pay to West (by wire transfer or cashier's
check) $3,000,000, less the amount of any payment previously made by East to
West pursuant to Sections 7.3(b) or 7.3(c) hereof; provided that such payment
shall not be due in the case of (A) a termination under Section 7.1(d) if the
East Board of Directors had withdrawn its recommendation in favor of the
Merger prior to such stockholder vote as the result of a Material Adverse
Effect on West, (B) a termination under Section 7.1(e) if East accepts or
recommends an East Superior Proposal as the result of a Material Adverse
Effect on West or (C) a termination under Section 7.1(f) if the withholding,
withdrawal or modification by the Board of Directors of East of its
recommendation in favor of the Merger or the failure to reject an Acquisition
Proposal is the result of a Material Adverse Effect on West. For purposes of
this Agreement, an "Alternative Transaction" shall mean any transaction which
gives effect to an Acquisition Proposal.
(e) Payment of the fees described in Section 7.3(b) above shall not be in
lieu of damages incurred in the event of breach of this Agreement.
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7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE VIII
General Provisions
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of East, West and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) if to West or Merger Sub, to:
Autodesk, Inc.
111 McInnis Parkway
San Rafael, CA 94903
Attention: President
Telephone No.: (415) 507-5000
Telecopy No.: (415) 507-6126
with a copy at the same address to the attention of the General Counsel,
and
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Mark A. Bertelsen
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(b) if to East, to:
Softdesk, Inc.
7 Liberty Hill Road
Henniker, NH 03242
Attention: President
Telephone No.: (603) 428-5000
Telecopy No.: (603) 428-5325
with a copy at the same address to the attention of the General Counsel,
and
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with a copy to:
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Patrick J. Rondeau
Telephone No.: (617) 526-6000
Telecopy No.: (617) 526-5000
8.3 Interpretation; Knowledge. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity. References to the "knowledge of East," or any
similar expression shall mean the actual knowledge of any officer of East
after appropriate inquiry.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including East Schedules and the West Schedules (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being
understood that the Confidentiality Agreement shall continue in full force and
effect until the Closing and shall survive any termination of this Agreement;
and (b) are not intended to confer upon any other person any rights or
remedies hereunder, except as set forth herein.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that 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. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal
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court within the State of Delaware, in connection with any matter based upon
or arising out of this Agreement or the matters contemplated herein, agrees
that process may be served upon them in any manner authorized by the laws of
the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction
and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties.
In Witness Whereof, West, Merger Sub, and East have caused this Agreement to
be signed by themselves or their duly authorized respective officers, all as
of the date first written above.
Autodesk, Inc.
/s/ Carol Bartz
By:__________________________________
Softdesk, Inc.
/s/ David C. Arnold
By:__________________________________
Autodesk Acquisition Corporation
/s/ Carol Bartz
By:__________________________________
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AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This Amendment to Agreement and Plan of Reorganization, dated as of December
19, 1996 (the "Amendment"), is entered into by and among Autodesk, Inc., a
Delaware corporation ("West"), Autodesk Acquisition Corporation, a Delaware
corporation ("Merger Sub"), and Softdesk, Inc., a Delaware corporation
("East").
RECITALS
Whereas, East, West and Merger Sub have entered into an Agreement and Plan
of Reorganization dated December 10, 1996 (the "Merger Agreement"), which
provides that, among other things, upon the terms and subject to the
conditions thereof, Merger Sub will merge with and into East (the "Merger")
with East continuing as the Surviving Corporation and as a wholly owned
subsidiary of West; and
Whereas, the parties now desire to amend the Merger Agreement and the
related Stock Option Agreement between East and West dated December 10, 1996
(the "Option Agreement").
AGREEMENT
Now, Therefore, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Exchange Ratio.
1.1. Section 1.6(a) of the Merger Agreement, Conversion of East Common
Stock, shall be amended to (x) delete subparagraph (ii), (y) renumber
subparagraph (iii) to be subparagraph (ii) and amend it as set forth below,
"(ii) Further, notwithstanding the foregoing, if the average of the
closing prices of West's Common Stock as quoted on the Nasdaq National
Market for the five trading days immediately preceding the closing date is
less than $16.00 per share (as adjusted to reflect fully the effect of any
Recapitalization), West shall have the right to terminate this Agreement,
provided that such termination shall not be effective if East agrees,
within two business days after notice of West's intention to terminate the
Agreement pursuant to this Section 1.6(a)(ii), to consummate the
transaction at a fixed Exchange Ratio of 0.9375."
and (z) amend subparagraph (i) to read in its entirety as follows:
(i) Each share of Common Stock, par value $.01 per share, of East
(the "East Common Stock") issued and outstanding immediately prior to
the Effective Time (other than shares of East Common Stock to be
canceled pursuant to Section 1.6(b) will be canceled and extinguished
and automatically converted (subject to Sections 1.6(e) and (f)) into
the right to receive that fraction of a share of Common Stock, par
value $.01 per share, of West (the "West Common Stock") obtained by
dividing $15.00 by the average of the closing prices of West's Common
Stock as quoted on the Nasdaq National Market for the five trading days
immediately preceding the Closing Date (the "Exchange Ratio"), upon
surrender of the certificate representing such share of East Common
Stock in the manner provided in Section 1.8 (or in the case of a lost,
stolen or destroyed certificate, upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.10).
2. Additional Agreements.
2.1. The last clause of Section 5.4(b) of the Merger Agreement shall be
amended to provide as follows:
; provided, however, that East shall not accept or recommend to its
stockholders, or enter into any agreement concerning, an East Superior
Proposal for a period of not less than seven days after West's receipt of a
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copy of such East Superior Proposal (or a description of the significant
terms and conditions thereof, if not in writing).
2.2. The first sentence of Section 5.13 of the Merger Agreement shall be
amended to read in its entirety as follows:
From and after the Effective Time, the Surviving Corporation will fulfill
and honor in all respects the obligations of East to officers and
directors, employees and agents of East immediately prior to the Effective
Time pursuant to the provisions of the Certificate of Incorporation and the
Bylaws of East as in effect immediately prior to the Effective Time,
including specifically with regard to any allegations of breach of
fiduciary duty relating to this Agreement or the transactions contemplated
hereby.
3. Termination, Amendment and Waiver.
3.1. Section 7.1(k) shall be amended to refer to "Section 1.6(a)(ii)"
instead of "Section 1.6(a)(iii)."
3.2. Section 7.3(c) of the Merger Agreement shall be amended such that the
number "$1,500,000" shall be replaced with "$2,500,000."
3.3. Section 7.3(d) of the Merger Agreement shall be amended such that the
number "$3,000,000" shall be replaced with "$5,000,000."
4. Stock Option Agreement.
4.1. The first sentence of Section 2 of the Option Agreement is hereby
amended to read in its entirety as follows:
The Option may only be exercised by West, in whole or in part, at any
time or from time to time, upon the occurrence of (i) any of the events
resulting in a right to terminate the Merger Agreement pursuant to Sections
7.1(d), 7.1(e) or 7.1(f) thereof or (ii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) which beneficially owns, or
has the right to acquire beneficial ownership of, 50% or more of the then
outstanding shares of capital stock of East (any of the events specified in
Clauses (i) and (ii) of this sentence being referred to herein as an
"Exercise Event").
4.2. The last sentence of Section 2 of the Option Agreement is hereby
amended to read in its entirety as follows:
Notwithstanding the foregoing, the Option may not be exercised if West is
in breach in any material respect of any of its covenants or agreements
contained in the Merger Agreement.
4.3. The last sentence of Section 7(a) of the Option Agreement is hereby
deleted.
5. General
5.1. All other terms and conditions of the Merger Agreement and Option
Agreement, including without limitation the representations, warranties,
covenants and agreements of the respective parties, shall remain in full force
and effect without other or further amendment or modification, and fully
applying to the respective agreements as hereby amended.
5.2. Capitalized terms used in this Amendment but not defined herein shall
have the meanings ascribed thereto in the Merger Agreement and the Option
Agreement, as the case may be.
5.3. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which, when taken together,
shall constitute one and the same instrument.
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In Witness Whereof, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the date first
above written.
Autodesk, Inc.
/s/ Eric Herr
By: _________________________________
Title: President & Chief Operating
Officer
Softdesk, Inc.
/s/ David C. Arnold
By: _________________________________
Title: Chairman, President & CEO
Autodesk Acquisition Corporation
/s/ Eric Herr
By: _________________________________
Title: President & Chief Operating
Officer
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ANNEX B
December 19, 1996
The Board of Directors
Softdesk, Inc.
7 Liberty Hill Road
Henniker, NH 03242
ATTENTION: MR. DAVID C. ARNOLD, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Gentlemen:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view and as of the date hereof, to the holders of common
stock of Softdesk, Inc. (the "Company"), of the consideration to be received
by the holders of the Company's common stock pursuant to the terms of the
merger (the "Merger") detailed in the Agreement and Plan of Reorganization
dated December 10, 1996 by and among the Company, Autodesk, Inc. (the
"Acquiror"), and Autodesk Acquisition Corporation, as amended by the Amendment
dated December 19, 1996 (as amended, the "Agreement"). This Opinion applies
only to the fairness of the consideration to be received by the holders of the
Company's common stock as provided by the terms of the Agreement and should
not be deemed to constitute a recommendation by Wessels, Arnold & Henderson,
L.L.C. ("Wessels, Arnold & Henderson") to stockholders of the Company to vote
in favor of approval of the Agreement. Capitalized terms used herein shall
have the respective meanings ascribed to them in the Agreement unless
otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock of the
Company is proposed to be converted into and represent the right to receive
such number of shares of the Acquiror's common stock as is equal to the
Exchange Ratio. In general, the Exchange Ratio is equal to a ratio calculated
by dividing $15.00 by the average of the closing prices of Autodesk Common
Stock as quoted on the Nasdaq National Market for the five days immediately
preceding the Closing Date (subject to adjustment in the event of a stock
split or stock dividend effected between the date hereof and the Effective
Time). The Merger is intended to qualify as a tax-free reorganization for US
Federal Income tax purposes and to be accounted for as a pooling-of-interests
under applicable accounting principles if the conditions for such accounting
treatment are satisfied. The terms and conditions of the Merger are set forth
more fully in the Agreement.
Wessels, Arnold & Henderson, as part of its investment banking services, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. We will
render to the Board of Directors an Opinion as to the fairness, from a
financial point of view, to the holders of the Company's common stock of the
consideration to be received by the holders of the Company's common stock in
connection with the Merger, and will receive a fee for our services. In the
ordinary course of business, Wessels, Arnold & Henderson acts as a market
maker and broker in the publicly traded securities of both the Company and the
Acquiror and receives customary compensation in connection therewith, and also
provides research coverage for the Company and the Acquiror. In the ordinary
course of business, Wessels, Arnold & Henderson actively trades in the
publicly traded securities of both the Company and the Acquiror for its own
account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
In connection with our review of the Merger, and in arriving at our Opinion,
we have: (i) reviewed and analyzed the financial terms of the Agreement; (ii)
reviewed and analyzed certain publicly available financial and other data with
respect to the Company and Acquiror and certain other relevant and operating
data relating
B-1
<PAGE>
to the Company and Acquiror made available to us from published sources and
from the internal records of the Company and Acquiror; (iii) conducted
discussions with members of the senior management of the Company with respect
to the business and prospects of the Company; (iv) conducted discussions with
members of the senior management of the Acquiror with respect to the business
and prospects of the Acquiror; (v) reviewed the current and historical
reported prices and trading activity for the Company's common stock and the
Acquiror's common stock; (vi) compared the financial performance of the
Company and the Acquiror and the prices of the Company's common stock and the
Acquiror's common stock with that of certain other comparable publicly-traded
companies and their securities; (vii) reviewed the financial terms, to the
extent publicly available, of certain comparable merger transactions; and
(viii) estimated the present value of Softdesk using a discounted cash flow
analysis. In addition, we have conducted such other analyses and examinations
and considered such other financial, economic and market criteria as we have
deemed necessary in arriving at our Opinion, including the review of an
alternative merger proposal.
In rendering our Opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror (including without limitation
the financial statements and related notes of the Company and Acquiror), and
have not independently verified such information. Additionally, we have not
considered the possible effects of any legal or other contingency matters. We
have not performed an independent evaluation or appraisal of any of the
respective assets or liabilities of the Company or the Acquiror and we have
not been furnished with any such valuations or appraisals.
It is understood that this letter is for the information of the Board of
Directors of the Company only, and this letter shall not be published or
otherwise used and no public references to Wessels, Arnold & Henderson shall
be made without our prior written consent, which consent shall not be
unreasonably withheld; provided, however, that this letter may be included in
its entirety in the prospectus/proxy statement submitted to the stockholders
of the Company for the purpose of approving the Merger and offering the
Acquiror common stock to be issued in the Merger or disclosed as required by
applicable law. Further, our Opinion speaks only as of the date hereof and is
based on the conditions as they exist and information that we have been
supplied as of the date hereof. It shall be understood that, although
subsequent developments may affect this Opinion, we do not have any obligation
to update, revise or reaffirm this Opinion.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that as of the date hereof, the consideration to be received by the
holders of the Company's common stock pursuant to the Agreement is fair from a
financial point of view to the holders of the Company's common stock.
Very truly yours,
Wessels, Arnold & Henderson, L.L.C.
/s/ Michael P. Ogborne
By: _________________________________
Mr. Michael P. Ogborne
Managing Director
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law,
Autodesk's Certificate of Incorporation, as amended, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. In addition, as permitted by
Section 145 of the Delaware General Corporation Law, the Bylaws of Autodesk
provide that: (i) Autodesk is required to indemnify its directors and officers
and persons serving in such capacities in other business enterprises
(including, for example, subsidiaries of Autodesk) at Autodesk's request, to
the fullest extent permitted by Delaware law; (ii) Autodesk may, in its
discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (iii) Autodesk is required to advance
expenses, as incurred, to its directors and officers in connection with
defending a proceeding, provided that payment of expenses incurred by a
director or officer of the corporation in advance of the final disposition of
such proceeding shall be made only on receipt of an undertaking by the officer
or director to repay all amounts advanced if it should ultimately be
determined that the officer or director is not entitled to be indemnified;
(iv) the rights conferred in the Bylaws are not exclusive, and Autodesk is
authorized to enter into indemnification agreements with its directors,
officers and employees; and (v) Autodesk may not retroactively amend the Bylaw
provisions in a way that is adverse to such directors, officers and employees.
Autodesk's policy is to enter into indemnification agreements with each of
its directors and officers that provide the maximum indemnity allowed to
directors and officers by Section 145 of the Delaware General Corporation Law
and the Bylaws, as well as certain additional procedural protections. In
addition, the indemnification agreements provide that directors and officers
will be indemnified to the fullest possible extent permitted by law against
all expenses (including attorney's fees) and settlement amounts paid or
incurred by them in an action or proceeding, including any action by or in the
right of Autodesk, arising out of such person's services as a director or
officer of Autodesk, any subsidiary of Autodesk or any other company or
enterprise to which such person provides services at the request of Autodesk.
Autodesk will not be obligated pursuant to the indemnification agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the
Board of Directors or brought to enforce a right to indemnification under the
indemnification agreement, Autodesk's Bylaws or any statute or law. Under the
agreements, Autodesk is not obligated to indemnify the indemnified party (i)
for any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous; (ii) for any amounts paid in settlement
of a proceeding unless Autodesk consents to such settlement; (iii) on account
of any suit in which judgment is rendered against the indemnified party for an
accounting of profits made from the purchase or sale by the indemnified party
of securities of Autodesk pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and related laws; or (iv) if a final decision
by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnification provisions in the Bylaws and the indemnification
agreements entered into between Autodesk and its directors and officers may be
sufficiently broad to permit indemnification of Autodesk's directors and
officers for liabilities arising under the Securities Act.
The Amended Agreement provides that commencing with the effectiveness of the
Merger, Autodesk will indemnify the current officers and directors of Softdesk
for any action or inaction by such person prior to the Merger.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Reorganization, dated as of December 10, 1996,
by and among Autodesk, Inc., Autodesk Acquisition Corporation and
Softdesk Inc., as amended by the Amendment dated December 19, 1996
(attached as Annex A to the Proxy Statement/Prospectus)
3.1 --Certificate of Incorporation of Autodesk, as amended (incorporated
by reference to the exhibit filed with Autodesk's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995).
3.2 --Bylaws of Autodesk, as amended to date (incorporated by reference to
the exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
4.1 --Preferred Shares Rights Agreement dated December 14, 1995
(incorporated by reference to Autodesk's Report on Form 8-A filed on
January 5, 1996, as amended on January 8, 1996).
5.1 --Opinion and Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, dated March 3, 1997.
8.1 --Tax Opinion of Hale and Dorr, LLP, dated March 3, 1997.
8.2 --Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, dated March 3, 1997.
10.1* --Form of Indemnification Agreement entered into between Autodesk and
each of its directors and officers (incorporated by reference to the
exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
10.2* --Autodesk's 1987 Stock Option Plan, as amended (incorporated by
reference to the exhibit filed with Autodesk's Annual Report on Form
10-K for the fiscal year ended January 31, 1995).
10.3* --Autodesk's Employee Qualified Stock Purchase Plan and form of
Subscription Agreement, as amended (incorporated by reference to the
exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
10.4* --Autodesk's 1990 Directors' Option Plan, as amended (incorporated by
reference to the exhibit filed with Autodesk's Annual Report on Form
10-K for the fiscal year ended January 31, 1996).
10.5* --Autodesk's 1996 Stock Plan (incorporated by reference to the exhibit
filed with Autodesk's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996).
10.6* --Agreement between Autodesk and Carol A. Bartz dated April 7, 1992
(incorporated by reference to the exhibit filed with Autodesk's
Report on Form 10-Q for the fiscal quarter ended April 30, 1992).
10.7* --Written Description of Oral Employment Agreement between Autodesk
and David C. Arnold.
10.8* --Written Description of Oral Employment Agreement between Autodesk
and Jesse F. Devitte.
11.1 --Softdesk, Inc. and Subsidiaries Computation of Per Share Earnings.
21.1 --Subsidiaries of Autodesk (incorporated by reference to the exhibit
filed with Autodesk's Report on Form 10-K for the fiscal year ended
January 31, 1996).
23.1 --Consent of Ernst & Young LLP.
23.2 --Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 5.1)
23.3 --Consent of Arthur Andersen LLP.
24.1 --Powers of Attorney (See signatures).
99.1 --Opinion of Wessels, Arnold & Henderson, L.L.C. (attached as Annex B
to the Proxy Statement/Prospectus).
99.2 --Softdesk Stockholder Letter, dated March 6, 1997.
99.3 --Softdesk Notice of Special Meeting of Stockholders, dated March 6,
1997.
99.4 --Softdesk Form of Proxy.
</TABLE>
- --------
* Indicates management compensatory plan, contract or arrangement.
II-2
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Autodesk
Schedule II--Valuation and Qualifying Accounts
Softdesk
Schedule II--Valuation and Qualifying Accounts
Report of Independent Public Accountants on Schedule
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements, management's discussion and analysis or notes thereto.
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 of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the 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 the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 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) 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 Registrant 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.
(c) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 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 the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, 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.
(d) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such
II-3
<PAGE>
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<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 San Rafael, State of
California, on this 28th day of February, 1997.
AUTODESK, INC.
/s/ Carol A. Bartz
By:__________________________________
Carol A. Bartz, Chairman of the
Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carol A. Bartz and John E. Calonico, jointly
and severally his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Registration Statement on Form S-4 and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-
in-fact, or their substitute or substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Carol A. Bartz Chairman of the Board and February 28, 1997
____________________________________ Chief Executive Officer
Carol A. Bartz (Principal Executive
Officer)
/s/ John E. Calonico Vice President, Finance and February 28, 1997
____________________________________ Acting Financial Officer
John E. Calonico (Principal Financial and
Accounting Officer)
/s/ J. Hallam Dawson Director February 28, 1997
____________________________________
J. Hallam Dawson
/s/ Mary Alice Taylor Director February 28, 1997
____________________________________
Mary Alice Taylor
/s/ Mark A. Bertelsen Director February 28, 1997
____________________________________
Mark A. Bertelsen
/s/ Crawford W. Beveridge Director February 28, 1997
____________________________________
Crawford W. Beveridge
/s/ Morton Topfer Director February 28, 1997
____________________________________
Morton Topfer
</TABLE>
II-5
<PAGE>
SCHEDULE II
AUTODESK, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS--
BEGINNING ADDITIONS-- RETURNS AND BALANCE AT
DESCRIPTION OF YEAR PROVISIONS WRITE-OFFS END OF YEAR
- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal year ended January 31,
1996
Allowance for doubtful ac-
counts...................... $6,457,000 $3,527,000 $3,253,000 $6,731,000
Allowance for returns, stock
balancing, and product
rotation.................... $6,892,000 $58,889,000 $51,174,000 $14,607,000
Fiscal year ended January 31,
1995
Allowance for doubtful ac-
counts...................... $5,204,000 $2,198,000 $945,000 $6,457,000
Allowance for returns, stock
balancing, and product
rotation.................... $1,290,000 $34,224,000 $28,622,000 $6,892,000
Fiscal year ended January 31,
1994
Allowance for doubtful ac-
counts...................... $4,138,000 $2,024,000 $958,000 $5,204,000
Allowance for returns, stock
balancing, and product
rotation.................... $ -0- $8,965,000 $7,675,000 $1,290,000
</TABLE>
S-1
<PAGE>
SCHEDULE II
SOFTDESK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE, CHARGED TO BALANCE,
BEGINNING COSTS AND CHARGED TO END OF
OF PERIOD EXPENSES REVENUES DEDUCTIONS OTHER(1) PERIOD
--------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
December 31,
1994................... $ 395 $519 $104 $259 $ -- $ 759
1995................... 759 697 796 180 89 2,161
1996................... 2,161 797 700 685 -- 2,973
</TABLE>
- --------
(1) Allowance for doubtful accounts acquired from Foresight Resources Corp.,
in an acquisition accounted for as an immaterial pooling.
S-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Softdesk, Inc:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Softdesk, Inc., and subsidiaries
included in this Form S-4 and have issued our report thereon dated February 7,
1997. Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in
Item 21(b) is the responsibility of the Company's management and is presented
for purposes of complying with Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedure applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein, in
relation to the basic consolidated financial statement taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 7, 1997
S-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<C> <S>
2.1 --Agreement and Plan of Reorganization, dated as of December 10, 1996,
by and among Autodesk, Inc., Autodesk Acquisition Corporation and
Softdesk Inc., as amended by the Amendment dated December 19, 1996
(attached as Annex A to the Proxy Statement/Prospectus)
3.1 --Certificate of Incorporation of Autodesk, as amended (incorporated
by reference to the exhibit filed with Autodesk's Annual Report on
Form 10-K for the fiscal year ended January 31, 1995).
3.2 --Bylaws of Autodesk, as amended to date (incorporated by reference to
the exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
4.1 --Preferred Shares Rights Agreement dated December 14, 1995
(incorporated by reference to Autodesk's Report on Form 8-A filed on
January 5, 1996, as amended on January 8, 1996).
5.1 --Opinion and Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, dated March 3, 1997.
8.1 --Tax Opinion of Hale and Dorr, LLP, dated March 3, 1997.
8.2 --Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, dated March 3, 1997.
10.1* --Form of Indemnification Agreement entered into between Autodesk and
each of its directors and officers (incorporated by reference to the
exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
10.2* --Autodesk's 1987 Stock Option Plan, as amended (incorporated by
reference to the exhibit filed with Autodesk's Annual Report on Form
10-K for the fiscal year ended January 31, 1995).
10.3* --Autodesk's Employee Qualified Stock Purchase Plan and form of
Subscription Agreement, as amended (incorporated by reference to the
exhibit filed with Autodesk's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996).
10.4* --Autodesk's 1990 Directors' Option Plan, as amended (incorporated by
reference to the exhibit filed with Autodesk's Annual Report on Form
10-K for the fiscal year ended January 31, 1996).
10.5* --Autodesk's 1996 Stock Plan (incorporated by reference to the exhibit
filed with Autodesk's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996).
10.6* --Agreement between Autodesk and Carol A. Bartz dated April 7, 1992
(incorporated by reference to the exhibit filed with Autodesk's
Report on Form 10-Q for the fiscal quarter ended April 30, 1992).
10.7* --Written Description of Oral Employment Agreement between Autodesk
and David C. Arnold.
10.8* --Written Description of Oral Employment Agreement between Autodesk
and Jesse F. Devitte.
11.1 --Softdesk, Inc. and Subsidiaries Computation of Per Share Earnings.
21.1 --Subsidiaries of Autodesk (incorporated by reference to the exhibit
filed with Autodesk's Report on Form 10-K for the fiscal year ended
January 31, 1996).
23.1 --Consent of Ernst & Young LLP.
23.2 --Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 5.1)
23.3 --Consent of Arthur Andersen LLP.
24.1 --Powers of Attorney (See signatures).
99.1 --Opinion of Wessels, Arnold & Henderson, L.L.C. (attached as Annex B
to the Proxy Statement/Prospectus).
99.2 --Softdesk Stockholder Letter, dated March 6, 1997.
99.3 --Softdesk Notice of Special Meeting of Stockholders, dated March 6,
1997.
99.4 --Softdesk Form of Proxy.
</TABLE>
- --------
* Indicates management compensatory plan, contract or arrangement.
<PAGE>
EXHIBIT 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
March 3, 1997
Autodesk, Inc.
111 McInnis Parkway
San Rafael, California 94903
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by you
with the Securities and Exchange Commission on or about this date (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of your Common Stock, par value
$0.01 per share (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and
issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this Opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in
the Registration Statement, including the Proxy Statement/Prospectus
constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 8.1
March 3, 1997
Softdesk, Inc.
7 Liberty Hill Road
Henniker, NH 03242
Re: Merger pursuant to Agreement and Plan of Reorganization among Autodesk,
Inc., Autodesk Acquisition Corporation, and Softdesk, Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Proxy Statement/Prospectus relating to the Agreement and Plan of
Reorganization dated as of December 10, 1996, as amended as of December 19,
1996 (the "Merger Agreement"), by and among Autodesk, Inc., a Delaware
corporation ("Autodesk"), Autodesk Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of Autodesk ("Merger Sub"), and
Softdesk, Inc., a Delaware corporation ("Softdesk"). Pursuant to the Merger
Agreement, Merger Sub will merge with and into Softdesk (the "Merger"). Except
as otherwise provided, capitalized terms not defined herein have the meanings
set forth in the Merger Agreement and the exhibits thereto or in the letters
delivered to Hale and Dorr LLP by Autodesk and Softdesk containing certain
representations of Autodesk and Softdesk relevant to this opinion (the
"Representation Letters"). All section references, unless otherwise indicated,
are to the United States Internal Revenue Code of 1986, as amended (the
"Code").
In our capacity as counsel to Softdesk in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, certain affiliate agreements executed in connection with the Merger,
and such other documents as we considered relevant to our analysis. In our
examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the
legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the
terms of such Merger Agreement and documents and that the Merger will be
consummated at the Effective Time pursuant to the terms and conditions set
forth in the Merger Agreement without the waiver or modification of any such
terms and conditions. Furthermore, we have assumed that all representations
contained in the Merger Agreement, as well as those representations contained
in the Representation Letters, are, and at the Effective Time will be, true
and complete in all material respects, and that any representation made in any
of the documents referred to herein "to the best of the knowledge and belief"
(or similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person
or entity has represented that such person or entity is not a party to, does
not have, or is not aware of, any plan, intention, understanding, or
agreement, there is no such plan, intention, understanding, or agreement. We
have not attempted to verify independently such representations, but in the
course of our representation, nothing has come to our attention that would
cause us to question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at
any other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
1
<PAGE>
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use,
or other tax consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of Softdesk that are subject to special tax rules, and we express
no opinion regarding the tax consequences of the Merger arising in connection
with the ownership of options or warrants for Softdesk stock.
On the basis of, and subject to the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Autodesk, Merger Sub, or
Softdesk as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of Softdesk
upon the exchange of Softdesk stock solely for shares of Autodesk stock in
the Merger;
4. Cash received by the shareholders of Softdesk in lieu of fractional
shares of Autodesk stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section
302, as if such fractional shares had been issued in the Merger and then
redeemed by Autodesk;
5. The tax basis of the shares of Autodesk stock received by the
shareholders of Softdesk in the Merger will be equal to the tax basis of
the shares of Softdesk stock exchanged therefor in the Merger, reduced by
any basis allocable to a fractional share of Autodesk stock treated as sold
or exchanged under Section 302; and
6. The holding period for the shares of Autodesk stock received by the
shareholders of Softdesk will include the holding period for the shares of
Softdesk stock exchanged therefor in the Merger, provided that the shares
of Softdesk stock are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Wilson, Sonsini, Goodrich &
Rosati, P.C. has delivered, and has not withdrawn, an opinion that is
substantially similar to this one. No opinion is expressed as to any federal
income tax consequence of the Merger except as specifically set forth herein,
and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to the use of our name in the Registration Statement in connection
with references to this opinion and the tax consequences of the Merger. In
giving this consent, however, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
2
<PAGE>
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
EXHIBIT 8.2
March 3, 1997
Autodesk, Inc.
111 McInnis Parkway
San Rafael, California 94903
Ladies and Gentlemen:
We have acted as counsel for Autodesk, Inc., a Delaware corporation
("Autodesk") in connection with the preparation and execution of the Agreement
and Plan of Reorganization dated as of December 10, 1996 (the "Reorganization
Agreement") amended as of December 19, 1996 among Autodesk, Autodesk Acquisition
Corporation, a wholly-owned subsidiary of Autodesk incorporated in Delaware
("Merger Sub"), and Softdesk, Inc. a Delaware corporation ("Softdesk").
Pursuant to the Reorganization Agreement, Merger Sub will merge with and into
Softdesk (the "Merger"), and Softdesk will become a wholly-owned subsidiary of
Autodesk. Unless otherwise defined, capitalized terms referred to herein have
the meanings set forth in the Reorganization Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement on Form S-4 filed by Autodesk with the
Securities and Exchange Commission (which contains a joint proxy
statement/prospectus) (the "Registration Statement"), the Reorganization
Agreement (including Exhibits) and such other documents pertaining to the Merger
as we have deemed necessary or appropriate. We have also relied upon
certificates of officers of Autodesk and Softdesk respectively (the "Officers'
Certificates").
In connection with rendering this opinion, we have also assumed (without
any independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
<PAGE>
Autodesk, Inc.
March 3, 1997
Page 2
2. Any statement made in any of the documents referred to herein,"to the
best of the knowledge" of any person or party is correct without such
qualification;
3. All statements, descriptions and representations contained in any of the
documents referred to herein or otherwise made to us are true and correct in all
material respects and no actions have been (or will be) taken which are
inconsistent with such representations; and
4. The Merger will be reported by Autodesk and Softdesk on their respective
federal income tax returns in a manner consistent with the opinion set forth
below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof) and the statements set forth in the Officers'
Certificates are true and correct as of the date hereof, then:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Autodesk, Merger Sub, or Softdesk
as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of Softdesk upon
the exchange of Softdesk stock solely for shares of Autodesk stock in the
Merger;
4. Cash received by the shareholders of Softdesk in lieu of fractional
shares of Autodesk stock will be treated as received as a distribution in
redemption of such fractional shares, subject to the provisions of Section 302,
as if such fractional shares had been issued in the Merger and then redeemed by
Autodesk;
5. The tax basis of the shares of Autodesk stock received by the
shareholders of Softdesk in the Merger will be equal to the tax basis of the
shares of Softdesk stock exchanged therefor in the Merger, reduced by any basis
allocable to a fractional share of Autodesk stock treated as sold or exchanged
under Section 302; and
6. The holding period for the shares of Autodesk stock received by the
shareholders of Softdesk will include the holding period for the shares of
Softdesk stock exchanged therefor in the Merger, provided that the shares of
Softdesk stock are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Hale and Dorr LLP has
delivered, and has not withdrawn, an opinion that is substantially similar to
this one. No opinion is expressed as to any federal income tax consequence of
the Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
<PAGE>
Autodesk, Inc.
March 3, 1997
Page 3
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal income
tax laws.
This opinion addresses only the matters set forth above, and does not
address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including any transaction
undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Reorganization
Agreement are not consummated in accordance with the terms of such
Reorganization Agreement and without waiver or breach of any material provision
thereof or if all of the representations, warranties, statements and assumptions
upon which we relied are not true and accurate at all relevant times. In the
event any one of the statements, representations, warranties or assumptions upon
which we have relied to issue this opinion is incorrect, our opinion might be
adversely affected and may not be relied upon.
This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name in connection with references to this
opinion and the tax consequences of the Merger. In giving this consent,
however, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 10.7
WRITTEN DESCRIPTION OF ORAL EMPLOYMENT AGREEMENT
BETWEEN AUTODESK AND DAVID C. ARNOLD
In connection with the anticipated Merger, Autodesk has entered into an oral
agreement with David C. Arnold pursuant to which Mr. Arnold will receive
certain employment and stock compensation packages consistent with his
anticipated employment with Autodesk following the Merger. Pursuant to Mr.
Arnold's agreement with Autodesk, Mr. Arnold will receive (i) a base salary of
$225,000 per year, (ii) a target bonus equal to 50% of base salary, subject to
Autodesk's financial performance and achievement of other corporate goals and
(iii) an option to purchase 200,000 shares of Autodesk Common Stock at an
exercise price per share equal to the closing price per share of Autodesk
Common Stock as reported on the Nasdaq on the Closing Date. Mr. Arnold's
option will become exercisable with respect to 20% of the shares subject to
the option on each anniversary of the Closing Date.
<PAGE>
EXHIBIT 10.8
WRITTEN DESCRIPTION OF ORAL EMPLOYMENT AGREEMENT
BETWEEN AUTODESK AND JESSE F. DEVITTE
In connection with the anticipated Merger, Autodesk has entered into an oral
agreement with Jesse F. Devitte pursuant to which Mr. Devitte will receive
certain employment and stock compensation packages consistent with his
anticipated employment with Autodesk following the Merger. Pursuant to Mr.
Devitte's agreement with Autodesk, Mr. Devitte will receive (i) a base salary
of $175,000 per year, (ii) a target bonus equal to 40% of base salary, subject
to Autodesk's financial performance and achievement of other corporate goals
and (iii) an option to purchase 75,000 shares of Autodesk Common Stock at an
exercise price per share equal to the closing price per share of Autodesk
Common Stock as reported on the Nasdaq on the Closing Date. Mr. Devitte's
option will become exercisable with respect to 20% of the shares subject to
the option on each anniversary of the Closing Date.
<PAGE>
EXHIBIT 11.1
SOFTDESK, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted Average Number of Shares
outstanding:
Common Stock........................... 5,999 5,946 5,432
Common equivalent shares resulting from
stock options issued (treasury stock
method)............................... -- 215 187
--------- ------ ------
Total............................... 5,999 6,161 5,619
========= ====== ======
Pro forma net income (loss) applicable
to common stock....................... $ (797) $3,579 $2,590
========= ====== ======
Pro forma net income (loss) per common
share................................. $ (0.13) $ 0.58 $ 0.46
========= ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 20, 1996, included in the Proxy Statement
of Softdesk, Inc., that is made a part of the Registration Statement (Form S-
4) and Prospectus of Autodesk, Inc. for the registration of 5,650,000 shares
of Autodesk's common stock.
Ernst & Young LLP
Palo Alto, California
March 3, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
February 28, 1997
<PAGE>
EXHIBIT 99.2
[LOGO OF SOFTDESK]
March 6, 1997
Dear Softdesk Stockholder:
As most of you are aware, Softdesk, Inc. has entered into an agreement to
merge with Autodesk, Inc. (as amended, the "Merger Agreement"). At a Special
Meeting of Stockholders to be held on March 31, 1997, you will be asked to
consider and approve the Merger Agreement. Under the Merger Agreement, each
share of Softdesk Common Stock will be converted into a fractional share,
valued at $15.00, of Common Stock of Autodesk, subject to adjustment in certain
circumstances and as explained more fully in the accompanying Proxy
Statement/Prospectus.
The Softdesk Board of Directors has unanimously approved the Merger Agreement
and recommends that you vote FOR the approval and adoption of the Merger
Agreement. Our Board believes that the merger should enable Softdesk to benefit
from the marketing and distribution expertise of Autodesk and the technological
and other synergies that will result from a combination of the two
organizations.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign and date the accompanying proxy card and return it promptly in
the enclosed postage-prepaid envelope.
Sincerely,
David C. Arnold
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.3
SOFTDESK, INC.
7 LIBERTY HILL ROAD
HENNIKER, NEW HAMPSHIRE, USA 03242
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON MONDAY, MARCH 31, 1997
A Special Meeting of Stockholders (the "Special Meeting") of Softdesk, Inc.,
a Delaware corporation ("Softdesk") will be held at the office of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts on Monday, March 31, 1997 at
10:00 a.m., local time, to consider and act upon the following matters:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Reorganization dated as of December 10, 1996 (the
"Agreement") by and among Autodesk, Inc., a Delaware corporation
("Autodesk"), Autodesk Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Autodesk ("Merger Sub"), and Softdesk, as
amended by the Amendment dated December 19, 1996 (as amended, the
"Amended Agreement"), pursuant to which, among other things (a) Merger
Sub will be merged with and into Softdesk, which will be the surviving
corporation, and Softdesk will become a wholly-owned subsidiary of
Autodesk and (b) each outstanding share of Common Stock, par value $0.01
per share, of Softdesk will be converted into the right to receive a
fractional share, valued at $15.00, of Autodesk Common Stock, subject to
adjustment in certain circumstances and as explained more fully in the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
A copy of the Amended Agreement is attached as Annex A to the accompanying
Proxy Statement/Prospectus.
Stockholders of record at the close of business on January 31, 1997 will be
entitled to notice of and to vote at the Special Meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors,
R. Drew Ogden, Secretary
Henniker, New Hampshire
March 6, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE
PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT 99.4
SOFTDESK, INC.
SPECIAL MEETING OF STOCKHOLDERS--MARCH 31, 1997
The undersigned, having received notice of the meeting and management's
Proxy Statement therefor, and revoking all prior proxies, hereby appoint(s)
David C. Arnold, John A. Rogers and Patrick J. Rondeau, and each of them (with
full power of substitution), as proxies of the undersigned to attend the
Special Meeting of Stockholders of Softdesk, Inc. (the "Company") to be held
on Monday, March 31, 1997 and any adjourned sessions thereof, and there to
vote and act upon the following matters in respect of all shares of Common
Stock of the Company which the undersigned would be entitled to vote or act
upon, with all powers the undersigned would possess if personally present.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company
in a fiduciary, custodial or joint capacity or capacities, this proxy is
signed by the undersigned in every such capacity as well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT
THEREOF.
1. To approve and adopt the Agreement and Plan of Reorganization, dated as
of December 10, 1996, as amended by an Amendment to the Agreement and Plan of
Reorganization, dated December 19, 1996 (as amended, the "Agreement"), among
Autodesk, Inc., a Delaware corporation ("Autodesk"), Autodesk Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of Autodesk ("Sub"),
and the Company, and to approve the merger of Sub with and into the Company
(the "Merger"), pursuant to which, upon the terms and subject to the
conditions set forth in the Agreement, (i) the Company will become a wholly-
owned subsidiary of Autodesk, (ii) each outstanding share of the Company's
Common Stock will be converted into the right to receive that number of shares
of Common Stock, $.01 par value per share, of Autodesk ("Autodesk Common
Stock") as is equal to $15.00 divided by the average of the closing prices of
Autodesk Common Stock as quoted on the Nasdaq National Market for the five
trading days immediately preceding the date of the Merger (subject to
adjustment in certain circumstances as provided in the Agreement) and (iii)
each outstanding option to purchase the Company's Common Stock will be assumed
by Autodesk and will become an option to purchase Autodesk Common Stock, with
appropriate adjustment to the exercise price thereof and the number of shares
issuable thereunder.
FOR [_] AGAINST [_] ABSTAIN [_]
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY PROPOSAL SPECIFIED
ABOVE, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
-------------------------------------
-------------------------------------
Signature(s)
Dated: ______________________________
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as
such. Joint owners should each sign personally. If a corporation, sign in full
corporate name, by authorized officer. If a partnership, please sign in
partnership name, by authorized person.
