<PAGE>
Pursuant to Rule 424B(3)
Registration No. 333-81305
PROPOSED MERGER--YOUR VOTE IS VERY IMPORTANT
[LOGO OF SUNGARD DATA SYSTEMS] [LOGO OF PENTAMATION ENTERPRISES, INC.]
The boards of directors of SunGard Data Systems Inc. and Pentamation
Enterprises, Inc. have approved the acquisition of Pentamation by SunGard
through a merger by which Pentamation will become a wholly-owned subsidiary of
SunGard.
In the merger, shareholders of Pentamation will receive a range of
approximately 1.0405122 to 1.1536120 shares of SunGard common stock in exchange
for each share of Pentamation common stock. An aggregate of approximately
950,000 to 1,100,000 shares of SunGard common stock will be issued in the
merger. SunGard's common stock is traded on the New York Stock Exchange under
the symbol "SDS."
The merger cannot be completed unless Pentamation shareholders approve the
merger. Pentamation has scheduled a special meeting for Pentamation
shareholders to vote on the merger. Your vote is very important.
Whether or not you plan to attend the special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to Pentamation. If
you sign, date and mail your proxy card without indicating how you want to
vote, your proxy will be counted as a vote in favor of the proposal submitted
at the special meeting.
Only shareholders of record of Pentamation common stock as of June 21, 1999
are entitled to attend and vote at the special meeting. The date, time and
place of the special meeting is as follows:
August 6, 1999
9:00 a.m., local time
The Corporate Offices of Pentamation
The Marketplace, 1st Floor
Five Bethlehem Plaza
Bethlehem, Pennsylvania 18018
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. Please pay
particular attention to the matters referred to under "Risk Factors" beginning
on page 11.
In addition, you may obtain information about SunGard from documents that
SunGard has filed with the Securities and Exchange Commission. See "Where To
Find More Information" on page 44.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the SunGard common stock to be issued in the merger
or determined if this document is accurate or adequate. Any representation
to the contrary is a criminal offense.
Proxy statement/prospectus dated July 6, 1999, and first mailed to shareholders
on or about July 7, 1999.
<PAGE>
PENTAMATION ENTERPRISES, INC.
One Bethlehem Plaza
Bethlehem, PA 18018
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 6, 1999
TO THE SHAREHOLDERS OF PENTAMATION ENTERPRISES, INC.:
You are cordially invited to attend a special meeting of shareholders of
Pentamation Enterprises, Inc. to be held at 9:00 a.m., local time, on August 6,
1999 at the corporate offices of Pentamation, located at The Marketplace, 1st
Floor, Five Bethlehem Plaza, Bethlehem, Pennsylvania 18018 for the following
purposes.
To consider and vote upon a proposal to (i) approve the agreement and plan
of reorganization and related agreement and plan of merger, dated as of May 6,
1999, among Pentamation, the principal shareholders of Pentamation, SunGard
Data Systems Inc., a Delaware corporation, and PEI Acquisition, Inc., a
Pennsylvania corporation and wholly-owned subsidiary of SunGard, and (ii)
approve the merger of PEI Acquisition, Inc. with and into Pentamation pursuant
to which Pentamation will become a wholly-owned subsidiary of SunGard and each
outstanding share of Pentamation common stock will be converted into the right
to receive a number of shares of SunGard common stock determined pursuant to
the share exchange formulas in the agreement and plan of merger; all on and
subject to the terms and conditions contained in the merger documents.
To transact such other business as may properly be brought before the
Pentamation special meeting, or any adjournments or postponements to the
Pentamation special meeting.
Information relating to the above proposal is set forth in the attached
proxy statement/prospectus. Shareholders of record at the close of business on
June 21, 1999 are entitled to notice of, and to vote at, the Pentamation
special meeting and any adjournments or postponements of the special meeting.
The presence, in person or by proxy, of shareholders entitled to cast at least
a majority of the votes which all shareholders are entitled to cast on the
particular matter at the meeting will constitute a quorum. Approval of the
merger will require the affirmative vote of a majority of the votes cast by
Pentamation shareholders. All shareholders are cordially invited to attend the
Pentamation special meeting in person.
By order of the Board of Directors
David P. Bloys
Secretary
Bethlehem, Pennsylvania
July 6, 1999
Whether or not you expect to attend the Pentamation special meeting, please
complete, date and sign the enclosed proxy card and mail it promptly in the
enclosed envelope in order to ensure representation of your shares. No postage
needs to be affixed if the proxy card is mailed in the United States.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SUNGARD/PENTAMATION MERGER............... 1
SUMMARY.................................................................. 2
Selected Historical Financial Information............................... 6
Market Price Information................................................ 8
Comparative Per Share Data.............................................. 10
RISK FACTORS............................................................. 11
Risks Relating to the Merger............................................ 11
Risks Relating to SunGard............................................... 12
RECENT DEVELOPMENTS...................................................... 15
THE PENTAMATION SPECIAL MEETING.......................................... 16
General................................................................. 16
Record Date............................................................. 16
Stock Entitled to Vote.................................................. 16
Quorum; Required Vote................................................... 16
Voting and Revocation of Proxies........................................ 16
Board Recommendation.................................................... 17
Solicitation of Proxies................................................. 17
Rights of Dissenting Pentamation Shareholders........................... 17
THE MERGER AND RELATED TRANSACTIONS...................................... 18
Background of the Merger................................................ 18
SunGard's Reasons for the Merger........................................ 18
Pentamation's Reasons for the Merger.................................... 19
Interests of Pentamation's Directors and Executive Officers in the
Merger................................................................. 20
Voting Agreements....................................................... 20
Escrow Agreement........................................................ 21
Resale Restrictions..................................................... 21
Rights of Dissenting Pentamation Shareholders........................... 21
Dissenters Rights Procedures............................................ 22
Material Federal Income Tax Consequences................................ 24
Anticipated Accounting Treatment........................................ 25
Regulatory Matters...................................................... 25
New York Stock Exchange Listing......................................... 25
THE MERGER DOCUMENTS..................................................... 26
General................................................................. 26
Merger Consideration.................................................... 26
Stock Options........................................................... 27
Stock Ownership Following the Merger.................................... 28
Exchange Procedures for Pentamation Stock............................... 28
Escrow Agreement and Indemnification Claims............................. 28
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Representations and Warranties........................................... 29
Covenants................................................................ 30
Non-Solicitation......................................................... 32
Conditions to the Merger................................................. 32
Termination.............................................................. 33
Expenses................................................................. 33
Amendment; Waiver........................................................ 33
Nondisclosure and Noncompetition Restrictions............................ 33
INFORMATION CONCERNING PENTAMATION........................................ 34
Business of Pentamation.................................................. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PENTAMATION................................................ 35
General.................................................................. 35
Results of Operations.................................................... 35
Liquidity and Capital Resources.......................................... 36
PRINCIPAL SHAREHOLDERS OF PENTAMATION..................................... 37
COMPARISON OF CAPITAL STOCK............................................... 37
Description of SunGard Capital Stock..................................... 37
Description of Pentamation Capital Stock................................. 38
COMPARISON OF RIGHTS OF HOLDERS OF SUNGARD COMMON STOCK AND HOLDERS OF
PENTAMATION COMMON STOCK................................................. 39
Percentage of Voting Stock; Influence Over Affairs....................... 39
Dividends................................................................ 39
Directors................................................................ 40
Cumulative Voting........................................................ 40
Limitation on Directors' Liability; Indemnification of Officers and
Directors............................................................... 40
Call of Special Meetings of Shareholders................................. 41
Action of Shareholders Without a Meeting................................. 41
Amendments to Certificate of Incorporation............................... 41
Amendments to Bylaws..................................................... 42
Certain Business Combinations............................................ 42
EXPERTS................................................................... 43
LEGAL MATTERS............................................................. 43
WHERE TO FIND MORE INFORMATION............................................ 44
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................. 44
Appendix A Reorganization Agreement
Appendix B Merger Agreement
Appendix C Escrow Agreement
Appendix D Dissenters Rights Statute
</TABLE>
This document incorporates important business and financial information
about SunGard that is not included in or delivered with this document. Copies
of this information are available to any person to whom this document is
delivered, upon written or oral request. Written requests for documents
relating to SunGard should be directed to Lawrence A. Gross, Vice President and
General Counsel of SunGard, SunGard Data Systems Inc., 1285 Drummers Lane,
Wayne, Pennsylvania, 19087, and oral requests should be directed to Mr. Gross
at 610-341-8700. In order to ensure timely delivery of the documents requests
should be made by July 30, 1999.
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SUNGARD/PENTAMATION MERGER
Q: Why is Pentamation agreeing to the merger with SunGard?
A: The Pentamation board of directors believes that the merger is in the best
interests of Pentamation and its shareholders. To review Pentamation's
reasons for the merger, see pages 19 and 20.
Q: What will happen to the shares of Pentamation in the merger?
A: In the merger, Pentamation shareholders will receive shares of SunGard
common stock in exchange for each for their shares of Pentamation common
stock. No fractional shares of SunGard common stock will be issued. In lieu
of fractional shares, the number of shares of stock to be issued to each
shareholder shall be rounded up or down to the nearest whole number of
shares of SunGard common stock.
Q: When will the merger be completed?
A: Pentamation and SunGard expect that the merger will become effective
promptly after shareholders of Pentamation approve the merger; provided
that the other conditions to the merger have been satisfied. A special
meeting of Pentamation Shareholders is scheduled for August 6, 1999.
Q: What should I do now?
A: You should mail your completed and signed proxy card in the enclosed
postage paid envelope as soon as possible so that your shares will be
represented at the special meeting.
Q: Can I change my vote after I have mailed in a signed proxy card?
A: Yes. You can change your vote in one of the following ways at any time
before your proxy is voted at the special meeting. You can revoke your
proxy by submitting a later dated signed proxy with respect to the same
shares orby delivering a written revocation to Pentamation's Secretary.
Alternatively, you can attend the special meeting in person, revoke your
proxy and vote your shares at the meeting. Attendance at the meeting will
not in and of itself constitute a revocation of a proxy.
Q: What other matters will be voted on at the special meeting?
A: We do not expect to ask Pentamation shareholders to vote on any matter other
than approval of the merger.
Q: Should I send in my share certificates now?
A: No. After the merger is completed, you will be sent written instructions for
sending in your share certificates and receiving the SunGard common stock to
which you are entitled.
Q: When will I receive shares of SunGard common stock in the merger?
A: If the merger is completed, SunGard will issue common stock to Pentamation
shareholders who have returned their Pentamation share certificates together
with a completed letter of transmittal supplied by SunGard's exchange agent,
Norwest Bank N.A. Pentamation shareholders will receive stock certificates
representing 90% of their shares of SunGard common stock to be issued in the
merger. The remaining 10% of their shares of SunGard common stock will be
held in escrow and released to Pentamation shareholders one year after the
merger is completed, less the number of shares, if any, that may be returned
to SunGard to satisfy claims SunGard may have against Pentamation under the
merger documents. Pentamation and the principal shareholders of Pentamation
made statements or promises about Pentamation, called representations and
warranties, in the merger documents. If these statements or promises turn out
to be incorrect, SunGard may have a claim against Pentamation, which would be
satisfied solely out of the escrowed shares.
Q: Whom should I call with questions and to obtain additional copies of this
document?
A: You should call David P. Bloys, Secretary of Pentamation at (610) 691-3616.
1
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that may be important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where To Find More Information" on page 44. We
have included page references parenthetically to direct you to a more complete
discussion of the topics presented in this summary. Unless the context
otherwise requires, all references to SunGard mean SunGard and its subsidiaries
and all references to Pentamation mean Pentamation and its subsidiaries.
The Companies
SunGard Data Systems Inc.
1285 Drummers Lane
Wayne, Pennsylvania 19807
610-341-8700
SunGard provides computer services, principally proprietary processing
services and software to the financial services industry, and computer disaster
recovery services.
Pentamation Enterprises, Inc.
One Bethlehem Plaza
Bethlehem, PA 18018
610-691-3616
Pentamation develops, markets and sells information systems for school
districts and local governments.
The Merger (page 18)
We have entered into an agreement and plan of reorganization, which is
attached as Appendix A, and a related agreement and plan of merger, which is
attached as Appendix B. We encourage you to read these merger documents because
they are the legal documents that govern the merger.
As a result of the merger, Pentamation will become a wholly-owned subsidiary
of SunGard and Pentamation common stock will be converted into SunGard common
stock as described below.
The Pentamation Special Meeting (page 16)
A special meeting of Pentamation shareholders will be held at the corporate
offices of Pentamation, located at The Marketplace, 1st Floor, Five Bethlehem
Plaza, Bethlehem, Pennsylvania 18018 on August 6, 1999 at 9 a.m, local time.
The purpose of the Pentamation special meeting is to vote upon the proposal to
approve the merger.
Who is Entitled to Vote; What Vote is Required (page 16)
You are entitled to vote any shares of Pentamation common stock held by you
at the close of business on June 21, 1999, the record date, at the Pentamation
special meeting. On the record date, there were 817,734 outstanding Pentamation
shares, each of which will be entitled to one vote.
The presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes which all shareholders are entitled to cast on
the particular matter at the meeting will constitute a quorum. Approval of the
merger will require the affirmative vote of a majority of the votes cast by
Pentamation shareholders.
Pentamation shareholders who own approximately 75% of the Pentamation shares
outstanding on the record date have entered into voting agreements with SunGard
in which these shareholders have agreed to vote their Pentamation shares in
favor of the merger.
Escrow Agreement (page 28)
In connection with the merger, Pentamation shareholders will be asked to
sign an escrow agreement with SunGard, a copy of which is attached as Appendix
C. Under the escrow agreement, the escrow agent will maintain an account for
each Pentamation shareholder containing the shareholder's stock being held in
escrow in accordance with the terms of the escrow agreement. The escrowed
stock, representing 10% of the stock to be issued in the merger, will be held
by the escrow agent in escrow for one year after completion of the merger and
used to satisfy any claims for indemnification by SunGard under the
reorganization agreement. See "The Merger Documents-Escrow Agreement and
Indemnification Claims."
2
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Merger Consideration (page 26)
If the shareholders of Pentamation approve the merger and SunGard and
Pentamation complete the merger, you will receive SunGard common stock in
exchange for your shares of Pentamation common stock. The exact number of
shares of SunGard common stock you will receive will be based upon an exchange
ratio that will not be fixed until the effective date of the merger. The
exchange ratio represents the number of shares of SunGard common stock that
Pentamation shareholders will receive for each share of Pentamation common
stock. The exchange ratio will be based on the average of the closing sale
prices of SunGard common stock over a 20 trading day period ending two days
prior to the effective date of the merger and upon the number of Pentamation
shares outstanding when the merger is completed.
Listed below is the approximate exchange ratio which would apply if the 20-
day average closing price of SunGard common stock was equal to the price listed
next to that ratio:
<TABLE>
<CAPTION>
Then each share of
Pentamation common
stock would be converted
into the following
approximate number
If the SunGard 20-day of shares of
average closing price is: SunGard common stock:
- ------------------------- ------------------------
<S> <C>
$30.00 1.1536120
31.00 1.1536120
32.00 1.1536120
33.00 1.1186531
34.00 to 46.00 1.0857520
47.00 1.0626508
48.00 1.0405122
49.00 1.0405122
</TABLE>
Please note that because the exchange ratio will be based upon the average
closing price of SunGard's common stock and because the market price of the
shares of SunGard common stock may fluctuate, Pentamation shareholders cannot
be sure as of the date of the special meeting of the market value of the shares
of SunGard common stock they will receive.
It is a condition to Pentamation's obligation to complete the merger that
the average price of SunGard common stock over a 20 trading day period ending
two days prior to the effective date of the merger is greater than or equal to
$32 per share.
No fractional shares of SunGard common stock will be issued in connection
with the merger. In lieu of fractional shares, the number of shares of SunGard
common stock to be issued to each shareholder will be rounded up or down to the
nearest whole number of shares.
Federal Income Tax Consequences (page 24)
SunGard received an opinion from its outside counsel that the merger will
constitute a "reorganization" within the meaning of the Internal Revenue Code
of 1986. This means that, as a general matter, Pentamation shareholders will
not be subject to tax as a result of the exchange of Pentamation shares solely
for SunGard common stock in the merger. Pentamation shareholders also will not
be able to take into account any losses on their Pentamation shares.
Dissenters Rights (page 22)
Pennsylvania corporate law grants Pentamation shareholders dissenters
rights. Pentamation shareholders have the right to dissent from the merger and
obtain payment of the fair value of their Pentamation common stock if they
follow the procedures set forth under the Pennsylvania dissenters rights
statute, a copy of which is attached as Appendix D. These procedures generally
require that a Pentamation shareholder who wishes to dissent file with
Pentamation a written notice of intention to dissent prior to the vote on the
merger proposal, make no change in the beneficial ownership of their
Pentamation shares from the date of filing until the effective time of the
merger and
3
<PAGE>
refrain from voting for the approval of the merger proposal. Other requirements
are set forth in the Pennsylvania dissenters rights statute. Dissenters rights
will be forfeited if these requirements are not fully, precisely and timely
satisfied. It is a condition to the closing of the merger that holders of less
than 10% of Pentamation's outstanding stock exercise their dissenters rights.
See "The Merger and Related Transactions--Dissenters Rights" and a copy of the
text of Subchapter D attached as Appendix D to this proxy statement/prospectus.
Reasons for the Merger (page 18)
In reaching its decision to approve the merger, the Pentamation board of
directors considered a number of factors, including:
. The value of the consideration to be received by the shareholders of
Pentamation, including the fact that the merger is expected to be treated as
a tax-free reorganization;
. Publicly available financial information regarding SunGard; and
. The opportunity for holders of Pentamation Stock to continue participating
in the potential for the future growth of Pentamation through the ownership
of SunGard common stock following the merger.
Recommendation of the Pentamation Board of Directors (page 17)
The board of directors of Pentamation has determined that the merger is fair
to and in the best interests of Pentamation and its shareholders. Therefore,
the board of directors of Pentamation recommends that Pentamation shareholders
vote to approve the merger.
Conditions to the Merger (page 32)
SunGard and Pentamation will complete the merger only if the conditions to
the merger that SunGard and Pentamation have agreed to are either satisfied or
waived. These conditions include, among other things, that:
. the merger has been approved by the Pentamation shareholders;
. the independent accountants for each of Pentamation and SunGard have
delivered a letter to SunGard to the effect that the merger will qualify as
a pooling of interests for accounting purposes;
. the holders of at least 90% of Pentamation's outstanding stock execute the
escrow agreement;
. there is no material adverse change in the business, assets, financial
condition or financial performance of Pentamation;
. the average price of SunGard common stock over a 20 trading day period
ending two days prior to the effective date of the merger is greater than or
equal to $32 per share; and
. Pentamation has completed its purchases of (i) real estate and (ii)
automobiles, each previously leased by Pentamation, from a partnership owned
by the principal shareholders of Pentamation in consideration for
Pentamation common stock.
Termination of the Merger (page 33)
SunGard and Pentamation can agree to terminate the merger documents without
completing the merger, and either of SunGard or Pentamation can terminate the
merger documents under various circumstances, including if the merger is not
completed by August 31, 1999, or if the conditions to the merger are not
satisfied or waived by August 31, 1999.
Regulatory Matters (page 25)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits us from
completing the merger until after SunGard and Pentamation furnished information
and materials to the Antitrust Division of the Department of Justice and to the
Federal Trade Commission and a required waiting period has ended. SunGard and
Pentamation filed the required information and received early termination of
the required waiting period. However, the Antitrust Division of the Department
of Justice and the Federal Trade Commission continue to have the authority to
challenge the merger on antitrust grounds before or after the merger is
completed.
Accounting Treatment (page 25)
SunGard and Pentamation expect that the merger will be accounted for as a
pooling of
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interests, meaning that the companies will be treated as if they had always
been combined for accounting and financial reporting purposes. It is a
condition to the merger that SunGard obtains from both Pentamation's and
SunGard's independent accountants letters addressing the qualification of the
merger for pooling of interests accounting treatment.
Voting Agreements (page 20)
Pentamation shareholders who own approximately 75% of the Pentamation shares
outstanding on the record date have entered into voting agreements with SunGard
in which these shareholders have agreed to vote their Pentamation shares in
favor of the merger.
Share Ownership of Management (page 37)
On the record date, directors and executive officers of Pentamation and
their affiliates had voting control over 649,664 shares of Pentamation common
stock, or approximately 79% of the shares outstanding on the record date. This
number includes the shares covered by the voting agreements described above. In
addition, a partnership owned by two directors of Pentamation will receive
approximately 91,000 shares of Pentamation common stock in exchange for the
sale of real estate and automobiles previously leased by Pentamation from that
partnership.
Interests of Certain Persons in the Merger (page 20)
There are directors and executive officers of Pentamation who may be deemed
to have interests in the merger that are in addition to the interests of
Pentamation shareholders generally. As a condition of the merger, prior to the
completion of the merger, Pentamation has agreed to purchase real estate and
automobiles leased by Pentamation from a partnership owned by Jeffrey P.
Feather and David P. Bloys. The purchase of the real estate and the automobiles
is required under applicable accounting rules in order for the merger to be
accounted for as a pooling of interests. In addition, Donald V. Appleton,
President of Pentamation will receive options for the purchase of SunGard
common stock in consideration for the cancellation of his options to purchase
Pentamation common stock outstanding as of the effective date of the merger.
Effects of the Merger on the Rights of Pentamation's Shareholders (page 39)
When the merger is completed, Pentamation's shareholders will become
stockholders of SunGard. SunGard is a company governed by Delaware law and
SunGard's existing charter and bylaws. As a result, the rights of Pentamation's
shareholders will change.
5
<PAGE>
Selected Historical Financial Information of SunGard
The following selected historical consolidated financial data of SunGard
should be read in conjunction with the consolidated financial statements of
SunGard that are incorporated by reference in this document. All of the
selected historical consolidated financial data of SunGard has been restated
for three pooling-of-interests transactions completed during the first four
months of 1999. One of the pooling-of-interests transactions was with Automated
Securities Clearance, Ltd. (ASC). ASC was an "S" corporation prior to the
merger with SunGard; therefore, all income passed through directly to and all
income taxes were paid directly by the shareholder of ASC. Pro forma net income
is presented because generally accepted accounting principles require that pro
forma income taxes be reflected on the Statement of Income for all periods
presented, thereby reflecting income taxes which would have been paid by ASC if
ASC had been a "C" corporation.
<TABLE>
<CAPTION>
As of or for the
Three Months Ended
March 31, As of or for the Year Ended December 31,
-------------------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- -------- ---------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Income
Statement Data:
Revenues............... $ 331,788 $285,493 $1,252,591 $996,242 $765,979 $595,372 $480,562
Income (loss) from
operations............ (20,424) 40,918 216,200 153,745 77,965 91,190 75,559
Pro forma net income
(loss)................ (5,855) 22,930 128,574 92,022 47,433 55,117 47,022
Pro forma net income
(loss) per share:
Basic.................. $ (0.05) $ 0.20 $ 1.12 $ 0.84 $ 0.45 $ 0.57 $ 0.50
Diluted................ $ (0.05) $ 0.19 $ 1.08 $ 0.80 $ 0.43 $ 0.54 $ 0.47
Historical Balance Sheet
Data:
Total assets........... $1,317,745 $952,446 $1,147,183 $906,165 $781,075 $624,654 $522,949
Total short-term and
long-term debt........ $ 18,228 $ 20,144 $ 17,582 $ 21,928 $ 41,594 $ 12,703 $ 12,545
Stockholders' equity... $ 971,683 $678,255 $ 809,935 $647,951 $536,664 $452,188 $382,738
</TABLE>
6
<PAGE>
Selected Financial Information of Pentamation
The following selected financial data for the years ended September 30,
1998, 1997, 1996, 1995 and 1994 are derived from the audited financial
statements of Pentamation. The financial data for the six months ended March
31, 1999 and 1998 is derived from reviewed financial statements but is
unaudited. The financial data for the six months ended March 31, 1999 and 1998
include all adjustments, consisting of normal recurring accruals, which
Pentamation considers necessary for a fair presentation of its financial
position and the results of operations for these periods. Operating results for
the six months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending September 30, 1999. The
data should be read in conjunction with the financial statements, related
notes, and other financial information concerning Pentamation included herein.
See "Index to Financial Statements of Pentamation."
<TABLE>
<CAPTION>
Six Months Ended
March 31, Year Ended September 30,
----------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------- -------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Income
Statement Data:
Revenues................ $ 17,531 $ 12,682 $27,337 $21,959 $23,254 $21,300 $18,833
Income from operations.. 549 747 1,134 807 1,708 1,532 1,218
Net income.............. 300 472 636 478 1,033 883 682
Income per share:
Basic.................. $ 0.37 $ 0.56 $ 0.76 $ 0.55 $ 1.21 $ 1.00 $ 0.71
Diluted................ $ 0.36 $ 0.55 $ 0.75 $ 0.55 $ 1.21 $ 1.00 $ 0.71
<CAPTION>
March 31, September 30,
----------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------- -------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Balance Sheet
Data:
Total assets............ $ 20,720 $ 16,775 $20,823 $15,904 $13,089 $12,436 $10,308
Total short term and
long term debt......... $ 3,310 $ 5,491 $ 4,435 $ 3,349 $ 1,513 $ 1,250 $ 1,450
Stockholders' equity.... $ 4,995 $ 4,595 $ 4,605 $ 4,233 $ 3,708 $ 3,498 $ 3,153
</TABLE>
7
<PAGE>
Market Price Information
Since June 4, 1997, SunGard common stock has been listed and traded on the
New York Stock Exchange under the symbol "SDS." Previously, SunGard common
stock was listed on the Nasdaq Stock Market and the London Stock Exchange under
the symbol "SNDT." There is no established public trading market for
Pentamation's common stock. As a result, the market value of shares of
Pentamation common stock is not readily ascertainable.
The following table sets forth, for the periods indicated, the reported high
and low sale prices of SunGard common stock as reported on the New York Stock
Exchange since June 4, 1997 and on the Nasdaq Stock Market prior to June 4,
1997. Neither SunGard nor Pentamation has paid any regular dividends.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
SunGard
Fiscal Year Ended December 31, 1997:
First Quarter...................................... $25 3/8 $18 1/2
Second Quarter..................................... 24 3/4 20 3/4
Third Quarter...................................... 27 1/8 23
Fourth Quarter..................................... 31 7/16 22 1/2
Fiscal Year Ended December 31, 1998:
First Quarter...................................... 37 3/8 28 1/16
Second Quarter..................................... 40 31 7/16
Third Quarter...................................... 40 31 1/4
Fourth Quarter..................................... 39 11/16 21 11/16
Fiscal Year Ending December 31, 1999:
First Quarter...................................... 41 15/16 32 7/8
Second Quarter..................................... 39 15/16 27 9/16
Third Quarter (through July 2, 1999)............... 35 3/16 34
</TABLE>
On May 5, 1999, the last full trading day prior to the execution of the
agreement, the reported high sale price on the New York Stock Exchange of
SunGard common stock was $30.875 and the reported low sale price on the New
York Stock Exchange of SunGard common stock was $29.6875. Also, on that date,
the last reported sale price on the New York Stock Exchange of SunGard common
stock was $30.125 per share.
The following table sets forth:
. the closing sale price per share of SunGard common stock as reported on
the New York Stock Exchange;
. the applicable exchange ratio that will be used in the merger if the
average stock price on which the exchange ratio is based equals the
closing sale prices reflected in the table; and
. the equivalent per share price of one share of Pentamation common stock
on May 5, 1999, the last trading day prior to the execution of the
agreement, and on July 2, 1999, the most recent date for which prices
were available prior to printing this document.
<TABLE>
<CAPTION>
SunGard Applicable Equivalent
Common Exchange Pentamation
Stock Ratio Per Share Price
-------- ---------- ---------------
<S> <C> <C> <C>
May 5, 1999........................... $ 30.125 1.1536120 $34.753
July 2, 1999.......................... $34.9375 1.0857520 $37.933
</TABLE>
8
<PAGE>
The equivalent Pentamation per share price was calculated by multiplying the
closing sale price per share of SunGard common stock reflected in the table by
the applicable exchange ratio that would be used in the merger if the average
stock price on which the exchange ratio is based equaled the closing sale
prices reflected in the table. The equivalent Pentamation per share prices
reflect the value of SunGard common stock that Pentamation shareholders would
receive for each share of Pentamation common stock exchanged in the merger if
the average stock price of SunGard common stock on which the exchange ratio is
based equals the closing sale prices of SunGard common stock reflected in the
table.
Because the market price of SunGard common stock may fluctuate, the market
price per share of the shares of SunGard common stock that holders of
Pentamation common stock will receive in the merger may increase or decrease
prior to the merger. See "Risk Factors" on page 11.
Pentamation shareholders are urged to obtain a current market quotation for
SunGard common stock. No assurance can be given as to the future prices of, or
markets for, SunGard common stock.
9
<PAGE>
Comparative Per Share Data
The following table presents historical and pro forma per share data for
SunGard and historical and equivalent pro forma per share data for Pentamation.
This information is provided for illustrative purposes only and assumes that
the merger had occurred as of the beginning of each of the periods presented.
Estimated costs of the merger of approximately $600,000 are excluded from the
pro forma information. The pro forma information should not be relied upon as
necessarily indicative of the historical results that would have been obtained
if the companies had been combined during those periods or the results that
will be obtained in the future. The equivalent pro forma per share amounts for
Pentamation are calculated by multiplying the SunGard combined pro forma per
share amounts by an assumed exchange ratio of 1.1536120. The historical book
value per share is computed by dividing total stockholders' equity by the
number of shares outstanding at the end of the period. The pro forma book value
per share is computed by dividing pro forma stockholders' equity by the pro
forma number of shares outstanding as of the end of each of the periods
presented.
This information should be read in conjunction with the historical financial
statements and the related notes of SunGard and Pentamation, all of which are
included elsewhere or are incorporated by reference in this document. See
"Unaudited Pro Forma Financial Information" beginning on page 44.
<TABLE>
<CAPTION>
As of or for the As of or for the
Three Months Ended Year Ended
March 31, December 31,
-------------------------------------
1999 1998 1998 1997 1996
--------- -------------- ----- -----
(In thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C>
Historical--SunGard:
Diluted pro forma net income (loss) per
common share.......................... $(0.05) $ 0.19 $1.08 $0.80 $0.43
Book value per common share............ 8.24 5.99 6.98 5.77 5.01
Historical--Pentamation:
Diluted net income per common share.... 0.48 0.38 0.75 0.55 1.21
Book value per common share............ 6.12 5.29 5.56 4.93 4.30
Pro Forma Combined Per SunGard Share:
Diluted pro forma net income (loss) per
common share.......................... (0.05) 0.20 1.07 0.80 0.44
Book value per common share............ 8.18 5.95 6.93 5.72 4.98
Pentamation Per Share Equivalents:
Diluted net income (loss) per common
share................................. (0.06) 0.23 1.23 0.92 0.51
Book value per common share............ 9.44 6.86 7.99 6.60 5.74
</TABLE>
10
<PAGE>
RISK FACTORS
In determining whether you should vote in favor of the merger you should
consider carefully the risks associated with the merger and with ownership of
SunGard common stock following the merger. Some of these risks are described
below.
Risks Relating to the Merger
The exchange ratio in the merger is based on the market prices of SunGard
common stock over a period of time prior to the effective date of the merger
and will fluctuate within a specified range. Pentamation shareholders will not
know the final value of the SunGard common stock they will receive until the
effective date of the merger.
The exchange ratio, which is the multiple of a share of SunGard common stock
that Pentamation shareholders will receive for each share of Pentamation common
stock, is based on the average of the closing prices of SunGard common stock
over a period of time prior to the effective date of the merger.
Pentamation shareholders will not know the final exchange ratio and the
final value of the SunGard common stock they will receive until the effective
date of the merger. The market prices of SunGard common stock as of various
recent dates are set forth in the Summary under "Market Price Information."
Pentamation shareholders should obtain recent market quotations for SunGard
common stock. SunGard common stock historically has been subject to price
volatility. No assurance can be given as to the market price of SunGard common
stock at any time.
Pentamation could lose customers due to the merger.
Some of Pentamation's existing customers, particularly customers that are in
the same business as SunGard, may take the opportunity following a change of
control of Pentamation to review their contractual relationships. These reviews
could result in delayed or lost sales to either SunGard or Pentamation.
The merger is intended to qualify for pooling of interests accounting
treatment. If the merger fails to qualify for pooling of interests accounting
treatment, the combined financial results of SunGard and Pentamation could be
adversely affected.
The merger is intended to qualify for pooling of interests treatment under
generally accepted accounting principles. It is a condition to closing that
SunGard receive the opinion of PricewaterhouseCoopers LLP to this effect.
However, if the merger at any time is determined to not qualify for pooling of
interests treatment, the combined financial results of SunGard and Pentamation
could be adversely affected.
Under pooling of interests treatment, the accounts of SunGard will be
combined with those of Pentamation at their historical carrying amounts and
SunGard's financial statements for all prior periods will be restated, if
material, to reflect the accounts of SunGard as if the two companies had been
combined for all periods. If the merger does not qualify for pooling of
interests treatment, the purchase method of accounting may be applied. Under
the purchase method, the fair market value of the SunGard common stock issued
in the merger would be recorded as the cost of acquiring Pentamation's
business. That cost would be allocated to the individual assets of Pentamation
that were acquired and liabilities of Pentamation's that were assumed according
to their respective fair values. The fair market value of the SunGard common
stock to be issued in the transaction is in excess of the amounts at which the
net assets are carried in Pentamation's accounts. The excess would be allocated
to intangible assets and amortized as an expense over the estimated useful life
of each intangible asset.
Future sales of shares issued in the merger could adversely affect SunGard's
stock price.
Depending upon the exchange ratio, an aggregate of approximately 950,000 to
1,100,000 shares of SunGard common stock will be issued in the merger. These
shares will be immediately freely tradeable in the market except for shares
issued to affiliates of Pentamation which will become freely tradeable after
SunGard has published financial results covering at least 30 days of combined
operations. Sales of a substantial number of shares of SunGard common stock
could adversely affect the market price of SunGard common stock.
11
<PAGE>
Risks Relating to SunGard
SunGard's growth strategy depends in part on acquisitions. If SunGard is
unable to acquire businesses on favorable terms or successfully integrate and
manage the businesses acquired, SunGard's business and financial results may
suffer.
SunGard intends to grow by expanding its existing businesses and by
acquiring similar or complementary businesses, including acquisitions that are
intended to qualify for pooling of interests accounting treatment. This growth
strategy is subject to a number of risks that could adversely affect SunGard's
business and financial results, including:
. SunGard may not be able to find suitable businesses to acquire on
affordable terms;
. competition from other acquirors and stock market fluctuations may make
it more difficult for SunGard to find and complete acquisitions;
. SunGard may have to raise money in the debt or equity markets to finance
future acquisitions;
. one or more acquisitions may not qualify for pooling of interests
accounting treatment;
. at any given time, a large number of shares of SunGard common stock
issued to acquire businesses may become freely tradeable in the market;
and
. the Financial Accounting Standards Board, or FASB, recently voted
unanimously to eliminate the use of pooling of interests accounting
treatment beginning on January 1, 2001. In addition, FASB is considering
a variety of proposals to change the treatment of purchase accounting.
The resolution of these proposed changes may adversely affect SunGard's
ability to continue to grow by acquiring similar or complementary
businesses.
The businesses acquired by SunGard may perform worse than expected or may be
more difficult to integrate and manage than expected. If that happens, SunGard
may suffer a number of adverse consequences, including:
. SunGard may have to devote unanticipated financial and management
resources to the acquired businesses;
. SunGard may not be able to realize expected operating efficiencies; and
. SunGard may have to write off goodwill or other intangible assets if the
acquisition was accounted for as a purchase.
SunGard's success depends in part on adapting its computer services and
software to changes in technology and changes in its customers' businesses. If
SunGard does not successfully update its services and software, or if its new
products or services are not timely delivered or well received by customers,
SunGard's business and financial results may suffer.
SunGard's ability to successfully update its services and software and
timely develop and deliver new products and services required by its customers
is subject to a number of risks which could adversely affect SunGard's business
and financial results, including:
. SunGard may find it difficult to update its services and software and
timely develop and deliver its new products and services in a cost-
effective manner, especially when faced with rapid technological changes
that are hard to predict; and
. SunGard may find it difficult to update its services and software to
keep pace with business, regulatory and other developments in the
financial services industry in which most of SunGard's customers
operate.
12
<PAGE>
SunGard's business is dependent largely on the financial services industry.
If that industry does poorly, SunGard's business and financial results may
suffer.
SunGard sells most of its computer services and software to banks, mutual
funds, brokers, insurance companies and other financial services firms. If the
financial services industry or SunGard's customers in the financial services
industry experience problems, SunGard's business and financial results could be
adversely affected. For example, SunGard may suffer if securities trading
activity declines, the number or value of managed portfolios decreases, or
there is continued consolidation among firms in the financial services
industry.
The advent of year 2000, including any failure by SunGard to make its
products year 2000 compliant or to fulfill year 2000 commitments to customers,
may adversely affect SunGard's business and financial results.
SunGard has made many of its products year 2000 compliant so that they can
handle dates in the year 2000 and beyond. However, SunGard is still working on
making some of its most important products year 2000 compliant. In addition,
SunGard has made commitments to some customers that need to convert from non-
year 2000 compliant systems, and as a result, SunGard must meet significant
development obligations and complete conversions prior to the end of 1999.
SunGard's year 2000 compliance efforts are subject to a number of risks which
could adversely affect SunGard's business and financial results, including:
. SunGard may not be able to make all of its important products year 2000
compliant;
. SunGard may not be able to timely meet its year 2000 commitments to
customers;
. SunGard may have to add personnel and buy new software and hardware
earlier than planned to complete its year 2000 compliance efforts, which
could cause an unexpected increase in expenses;
. SunGard's expenses may increase faster than expected because year 2000
issues are causing a shortage in the availability of experienced
programmers; and
. SunGard may encounter unanticipated year 2000 problems, like a problem
with another company's software or hardware that interacts with
SunGard's products or that is used by SunGard.
SunGard believes that year 2000 compliance issues have caused some
acceleration of software buying and conversion activity. As a result, SunGard's
rate of internal growth may decline in the second half of 1999 or in the year
2000, which could adversely affect SunGard's business and financial results.
Forward-looking Statements May Prove Inaccurate.
This document contains or incorporates by reference forward-looking
statements made by SunGard and Pentamation that are subject to risks and
uncertainties and that may change at any time and differ from actual results.
Forward-looking statements include information about possible or assumed future
financial results of SunGard and Pentamation and usually contain words such as
"believes," "expects," "anticipates," or similar expressions. SunGard and
Pentamation derive most of their forward-looking statements from their
operating budgets and forecasts, which are based upon many detailed
assumptions. While SunGard and Pentamation believe that their assumptions are
reasonable, they caution that there are inherent difficulties in predicting
certain important factors such as:
. the timing and magnitude of software sales and services;
. the effect of year 2000 issues on software and services buying
decisions;
. the timing and scope of technological advances and year 2000 compliance;
. the integration and performance of acquired businesses;
. the effects of competitive pressures;
13
<PAGE>
. the prospects for future acquisitions; and
. the overall condition of the financial services industry.
These and other factors, some of which are discussed in this section or
elsewhere in this document and some of which are discussed in the documents
incorporated by reference, could affect the future financial results of SunGard
and Pentamation and could cause those results to differ materially from those
expressed in any forward-looking statements contained in or incorporated by
reference in this document.
14
<PAGE>
RECENT DEVELOPMENTS
SunGard
On March 9, 1999, SunGard signed an agreement to acquire Oshap Technologies
Ltd. Oshap is an Israeli-based technology company which has two principal
majority-owned subsidiaries. One majority-owned subsidiary, MINT Software
Technologies Ltd. is a leading provider to the financial services industry of
software solutions that enable the integration of disparate applications and
networks. The other majority-owned subsidiary, Decalog N.V., provides
comprehensive software solutions that enable global asset management
organizations to automate critical steps in the investment management process.
The acquisition is expected to be accounted for as a pooling of interests. A
maximum of approximately 5,750,000 shares of SunGard common stock will be
issued in connection with the acquisition of Oshap. SunGard also will offer to
acquire the minority interests in MINT and Decalog at a fixed price, which
could result in an additional issuance of approximately 450,000 shares of
SunGard common stock, plus a cash payment of between $25,000,000 and
$35,000,000. Also, options to buy common stock of MINT and Decalog will be
converted into approximately 500,000 options to buy shares of common stock of
SunGard. Total merger costs in connection with this acquisition, consisting
primarily of investment banking, legal, accounting, and printing fees, are
estimated to be approximately $5,000,000. These merger costs, which generally
are not deductible for income tax purposes, will be recorded as an operating
expense during the quarter in which the acquisition is completed, which is
expected to be the third quarter of 1999. The acquisition of the minority
interests will result in recording intangible assets of approximately
$51,000,000.
During the year ended December 31, 1998, Oshap recorded total revenues of
$32,319,000, and a net loss (before an extraordinary gain, which totaled
$3,074,000 after-tax) of $1,902,000. During the three months ended March
31,1999, Oshap recorded total revenues of $10,599,000, and a net loss of
$3,303,000. The net loss during the three months ended March 31, 1999 included
a write-off of approximately $2,020,000 (both before and after-tax) for fees
incurred in connection with the aborted initial public offerings of MINT and
Decalog, which had been planned prior to SunGard signing the agreement to
acquire Oshap, and $1,500,000 for Oshap's proportional share of one-time after-
tax items incurred by Tecnomatix Technologies Ltd., a minority-owned
investment. During the three months ended March 31, 1998, Oshap recorded total
revenues of $6,426,000 and net income of $463,000.
15
<PAGE>
THE PENTAMATION SPECIAL MEETING
General
The Pentamation special meeting is scheduled to be held on August 6, 1999 at
9:00 a.m., local time, at the corporate offices of Pentamation located at The
Marketplace, 1st Floor, Five Bethlehem Plaza, Bethlehem, Pennsylvania 18018.
The purpose of the Pentamation special meeting is to consider and vote upon the
proposed merger.
Record Date
The close of business on June 21, 1999 has been fixed by the Pentamation
board of directors as the Pentamation record date for the determination of
holders of shares of Pentamation common stock entitled to notice of and to vote
at the Pentamation special meeting. Only holders of record of Pentamation
common stock as of June 21, 1999, are entitled to notice of, and to vote at,
the Pentamation special meeting.
Stock Entitled to Vote
As of the close of business on the record date, there were 817,734 shares of
Pentamation common stock outstanding. Holders of Pentamation common stock will
be entitled to one vote for each share of Pentamation common stock that they
held on June 21, 1999. Accordingly, as of the record date, the holders of
Pentamation common stock are entitled to cast, in the aggregate, 817,734 votes.
Quorum; Required Vote
The presence, in person or by proxy of shareholders entitled to cast at
least a majority of the votes which all shareholders are entitled to cast on
the particular matter at the meeting will constitute a quorum for purposes of
conducting business at the Pentamation special meeting. Under Pennsylvania law
and Pentamation's charter, the affirmative vote of a majority of the votes cast
by Pentamation shareholders is necessary to approve the proposed merger.
Voting and Revocation of Proxies
Shares of Pentamation common stock represented by a proxy properly signed
and received at or prior to the Pentamation special meeting, unless
subsequently revoked, will be voted in accordance with the instructions on the
proxy. If you sign and return your proxy without indicating any voting
instructions, the shares of Pentamation common stock represented by the proxy
will be voted "for" the proposed merger. You may revoke your proxy and reclaim
your right to vote at any time by giving written notice of revocation to the
Secretary of Pentamation at any time before it is voted, by submitting to
Pentamation a duly executed, later-dated proxy or by voting the shares subject
to the proxy by written ballot at the Pentamation special meeting. You should
send all written notices of revocation and other communications with respect to
revocation of Pentamation proxies to: Pentamation Enterprises, Inc., One
Bethlehem Plaza, Bethlehem, PA 18018, Attention: David P. Bloys, Secretary.
Attendance at the Pentamation special meeting will not, in and of itself,
constitute a revocation of a proxy.
The Pentamation board of directors is not aware of any business to be acted
upon at the Pentamation special meeting other than as described in this proxy
statement/prospectus. If, however, other matters are brought before the
Pentamation special meeting, including, among other things, a motion to adjourn
or postpone the Pentamation special meeting to another time or place for the
purpose of soliciting additional proxies or otherwise, the persons appointed as
proxies will have discretion to vote or act on the matters according to their
best judgment. However, no proxy which is voted against the proposed merger
will be voted in favor of any adjournment or postponement. The grant of a proxy
will also confer discretionary authority on the persons named in the proxy to
vote on matters incident to the conduct of the Pentamation special meeting.
16
<PAGE>
Abstentions will be counted as shares present for purposes of determining
whether a quorum is present but will not be voted for or against the proposed
merger. Abstentions also will not be counted as votes cast for purposes of
determining whether sufficient votes have been received to approve the proposed
merger. Accordingly, abstentions will have no effect on the outcome of the vote
with respect to the proposed merger.
Board Recommendation
On May 6, 1999, the Board of Directors of Pentamation, in an action by
unanimous written consent, approved the reorganization agreement and merger
agreement and the transactions necessary to complete the merger. Prior to
reaching its decision, the Pentamation Board of Directors had received
information from its financial advisors, legal counsel, and others regarding
various aspects of SunGard, including its products, employees, suppliers and
management. Based on this information and a description of the terms of the
reorganization agreement and the merger agreement, the Board of Directors
approved the reorganization agreement, the merger agreement and the merger and
authorized the filing of a registration statement, the obtaining of all
regulatory approvals, and the performance of all additional actions necessary,
appropriate or advisable in order to complete the merger. The Board of
Directors of Pentamation recommends that the shareholders of Pentamation vote
FOR approval and adoption of the reorganization agreement and the merger
agreement and the transactions contemplated by the merger documents.
Solicitation of Proxies
The proxies are being solicited on behalf of the Pentamation board of
directors. The solicitation of proxies may be made by directors, officers and
regular employees of Pentamation in person or by mail, telephone, facsimile or
telegraph without additional compensation payable for that solicitation. The
cost of the solicitation will be borne by Pentamation.
Rights of Dissenting Pentamation Shareholders
Except as otherwise described in this proxy statement/prospectus, each
Pentamation shareholder who delivers to Pentamation a written demand for
appraisal of the shareholder's shares before the Pentamation special meeting
and who otherwise complies with the applicable procedures under Pennsylvania
law will be entitled to receive the fair value of his or her shares of
Pentamation stock in cash if the merger is completed. See "The Merger--Rights
of Dissenting Pentamation Shareholders."
It is a condition to the obligation of SunGard to complete the merger that
the aggregate number of shares of stock owned by those shareholders of
Pentamation who have exercised, or given notice of their intent to exercise,
their dissenters' rights will be less than ten percent of the total number of
outstanding shares of Pentamation stock.
17
<PAGE>
THE MERGER AND RELATED TRANSACTIONS
Background of the Merger
During 1998, SunGard concluded that the market for providing computer
information software and services to nonprofit organizations, principally
school districts and local governments, was a suitable complement to SunGard's
existing business that provides software and services to nonprofit entities.
After performing preliminary research on various providers of such software and
services to nonprofit entities, SunGard made initial contact with Pentamation
in the summer of 1998 to determine its potential interest in pursuing
acquisition discussions with SunGard.
In September 1998, senior officers of SunGard and Pentamation met to conduct
a preliminary discussion of the potential business and financial benefits of
combining the two companies.
At a special meeting in December 1998, SunGard's management apprised
SunGard's board of directors of these initial discussions, and SunGard's board
authorized SunGard's management to continue to pursue discussions with
Pentamation. In late December 1998, representatives of Janney Montgomery Scott,
Pentamation's advisors, and SunGard conducted preliminary discussions regarding
the financial terms of a transaction between SunGard and Pentamation. From
January 1999 through mid-March 1999, SunGard and Pentamation and its financial
advisors continued to have discussions regarding the financial terms of a
potential transaction as well as to explore the potential benefits of a
potential combination of the two companies. As a result of those discussions,
in January 1999 the senior managements of both SunGard and Pentamation
separately determined that an acquisition of Pentamation by SunGard was in the
best interests of each company and its stockholders, and the parties signed a
letter of intent dated January 25, 1999. A revised letter of intent was signed
on March 25, 1999. Subsequent to that date, SunGard conducted a "due diligence"
investigation of Pentamation, and the senior officers of SunGard and
Pentamation conducted negotiations to establish the terms of the merger
documents, which were signed on May 6, 1999. The merger was approved by the
Board of Directors of SunGard on March 30, 1999 and by the Board of Directors
of Pentamation on May 6, 1999.
SunGard's Reasons for the Merger's
The SunGard Board of Directors has unanimously determined that the terms of
the reorganization agreement and the merger agreement are fair to, and in the
best interests of, SunGard and its stockholders. In reaching its determination,
the SunGard Board of Directors consulted with SunGard's management, as well as
its legal counsel and accountants, and gave significant consideration to a
number of factors bearing on its decision. The following are the reasons the
SunGard Board of Directors believes the merger will be beneficial to SunGard
and its stockholders:
. SunGard seeks to grow both internally and through the acquisition of
complementary businesses. The products of Pentamation provide customers
with leading-edge software solutions for K through 12 school districts
and local governments. These products will complement and broaden
SunGard's existing product lines in its business that provides software
and services to nonprofit organizations.
. The combination of the technologies and product development resources of
SunGard and Pentamation should enable SunGard to respond more
effectively to the rapid technological change and continuing emergence
of systems for nonprofit organizations.
. SunGard believes there is a significant potential enhancement of the
strategic and market position of the combined entity beyond that
achievable by SunGard alone.
In addition to the reasons set forth above, in the course of its
deliberations concerning the merger, the SunGard Board of Directors consulted
with SunGard's management, legal counsel and accountants and reviewed a number
of other factors relevant to the merger, including:
. Information concerning the business, assets, operations, properties,
management, financial condition, operating results, competitive position
and prospects of SunGard and Pentamation;
18
<PAGE>
. The expected tax and accounting treatment of the merger;
. Reports from legal counsel on specific terms of the merger documents and
the voting agreements executed by certain directors, officers and other
affiliates of Pentamation; and
. SunGard's belief that the management styles and corporate cultures of
the two companies would be complementary.
The SunGard Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including:
. The possibility of management disruption associated with the merger and
the risk that key technical and management personnel of Pentamation or
SunGard might not continue with Pentamation or SunGard;
. The possibility that the merger might adversely affect Pentamation's or
SunGard's relationship with certain of their respective customers; and
. The risk that the potential benefits of the merger might not be
realized.
The SunGard Board of Directors concluded, however, that the benefits of the
transaction to SunGard and its stockholders outweighed the risks associated
with the foregoing factors.
The foregoing discussion of the information and factors considered by the
SunGard Board of Directors is not intended to be exhaustive, but is believed to
include all material factors considered by the SunGard Board of Directors. In
view of the wide variety of factors considered by the SunGard Board of
Directors, the SunGard Board of Directors did not consider it practicable to
quantify or otherwise assign relative weight to the specific factors.
Pentamation's Reasons for the Merger
On May 6, 1999, the Board of Directors of Pentamation, in an action by
unanimous written consent, approved the reorganization agreement and merger
agreement and the transactions necessary to consummate the merger. Prior to
reaching its decision, the Pentamation Board of Directors had received
information from its financial advisors, legal counsel, and others regarding
various aspects of SunGard, including its products, employees, suppliers and
management. Based on this information and a description of the terms of the
reorganization agreement and the merger agreement, the Board of Directors
approved the reorganization agreement, the merger agreement and the merger and
authorized the filing of a registration statement, the obtaining of all
regulatory approvals, and the performance of all additional actions necessary,
appropriate or advisable in order to consummate the merger. The Board of
Directors of Pentamation recommends that the shareholders of Pentamation vote
FOR approval and adoption of the reorganization agreement and the merger
agreement and the transactions contemplated in those documents.
In reaching its conclusion to enter into the reorganization agreement and
the merger agreement and to recommend that the shareholders of Pentamation vote
FOR the approval and adoption of those agreements, the directors of Pentamation
considered a number of factors, including, without limitation, the following:
. The value of the consideration to be received by the shareholders of
Pentamation, including the fact that the merger was expected to be
treated as a tax-free reorganization and that, with the merger, the
shareholders of Pentamation are acquiring an interest in a larger, more
diverse enterprise;
. The publicly available financial information regarding SunGard, and the
information regarding SunGard common stock, the relative financial
performance of SunGard, the business reputation and capabilities of
SunGard and its management, SunGard's financial strength, and the
liquidity and the historical performance of the publicly traded SunGard
common stock;
. The opportunity for holders of Pentamation Stock to continue
participating in the potential for the future growth of Pentamation
through the ownership of SunGard common stock following the merger;
19
<PAGE>
. The perceived strengths of Pentamation and SunGard combined, including
the potential developments and information that are expected to be
shared between the two companies after the merger is consummated; and
. the likelihood that the merger will be consummated.
In view of the wide variety of factors considered by the board of directors
of Pentamation in connection with its evaluation of the terms of the proposed
merger, the board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determinations.
Interests of Pentamation's Directors and Executive Officers in the Merger
General. There are directors and executive officers of Pentamation who may
be deemed to have interests in the merger that are in addition to the interests
of Pentamation shareholders generally. These interests are discussed below. The
Pentamation board of directors was aware of these interests at the time the
merger was approved.
Real Estate. David P. Bloys and Jeffrey P. Feather, who are directors,
officers and principal shareholders of Pentamation, are partners of GLS, a
Pennsylvania partnership that owns Five Bethlehem Plaza, Bethlehem,
Pennsylvania, which is real estate that Pentamation presently leases for its
operations. In connection with the merger, Pentamation will purchase the real
estate for approximately 87,000 shares of Pentamation common stock, subject to
adjustment so that the partnership receives the same number of SunGard shares
upon completion of the merger as the partnership would have received if the
real estate had been sold directly to SunGard in exchange for SunGard shares
for a purchase price equal to the net fair market value of the real estate. The
real estate has an appraised fair market value of $7,500,000. As of March 31,
1999, the mortgage balance on the real estate was $3,921,459. This purchase is
required in order to account for the merger as a pooling of interests. See "The
Merger and Related Transactions--Anticipated Accounting Treatment."
Automobiles. GLS, a partnership of which David P. Bloys and Jeffrey P.
Feather are partners, owns approximately 56 automobiles leased and utilized by
Pentamation in its operations. In connection with the merger, Pentamation will
purchase the automobiles for approximately 4,000 shares of Pentamation common
stock, subject to adjustment so that the partnership receives the same number
of SunGard shares upon completion of the merger as the partnership would have
received if the automobiles had been sold directly to SunGard in exchange for
SunGard shares for a purchase price equal to the net fair market value of the
automobiles. The automobiles have an appraised fair market value of $917,475.
As of March 31, 1999, the loan balance associated with the automobiles was
$790,855. This purchase is required in order to account for the merger as a
pooling of interests. See "The Merger and Related Transaction--Anticipated
Accounting Treatment."
Pentamation Options. Donald V. Appleton, the President of Pentamation, has
options to purchase 25,000 shares of Pentamation common stock. All of these
options are immediately exercisable. Upon completion of the merger, all such
options, if not previously exercised, will be assumed by SunGard. These options
will continue to have, and be subject to, the same terms and conditions set
forth in the option agreement under which they were issued and evidenced
(subject to the appropriate adjustments to the exercise price and number of
shares subject to the options based upon the merger exchange ratio.)
Voting Agreements
In connection with the merger, Pentamation shareholders who own 612,884
shares of Pentamation common stock, constituting approximately 75% of the
Pentamation shares outstanding on the record date, have entered into voting
agreements with SunGard in which these shareholders have agreed to vote their
Pentamation shares in favor of the merger.
Each Pentamation shareholder who executed a voting agreement also delivered
to SunGard an irrevocable proxy to vote their shares in favor of the merger. In
addition, each Pentamation shareholder who executed the
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voting agreement with respect to shares owned beneficially, but not of record,
agreed to use their reasonable best efforts to cause the record owner of the
shares they beneficially owned to execute and deliver to SunGard an irrevocable
proxy to vote their shares in favor of the merger.
Escrow Agreement
Under the escrow agreement, the escrow agent will maintain an account for
each Pentamation stockholder containing the stockholder's stock being held in
escrow in accordance with the terms of the escrow agreement. The escrowed
stock, representing 10% of the stock to be issued in connection with the
merger, will be held by the escrow agent in escrow for one year after
completion of the merger and used to satisfy any claims for indemnification by
SunGard under section 5.3 and section 14.1 of the reorganization agreement. See
"The Merger Documents--Escrow Agreement and Indemnification Claims".
Resale Restrictions
The SunGard common stock issued in connection with the merger will be freely
transferable, except that shares issued to any Pentamation shareholder who is
an affiliate of Pentamation or who becomes an affiliate of SunGard are subject
to a number of restrictions on resale. An affiliate is defined generally as
including directors, executive officers and other persons who control a
company. Pentamation shareholders who may be deemed affiliates have executed
affiliate agreements which:
. prohibit the affiliate from selling or otherwise reducing his risk in
any capital stock or options of Pentamation, and
. prohibit the affiliate from selling or otherwise reducing his risk in
any capital stock or options of SunGard
during the period which begins 30 days prior to consummation of the merger and
ends on the earlier of:
. the date on which financial results covering at least 30 days of post-
merger combined operations of SunGard and Pentamation have been
published by SunGard, and
. the date the agreement is terminated.
In addition, the affiliate agreements further prohibit the sale, transfer or
other disposition of SunGard common stock received by the affiliates in the
merger at any time after the restricted period referred to above unless the
sale, transfer or other disposition complies with the requirements of the
federal securities laws. The purpose of the affiliate agreements is to comply
with the requirements of federal securities laws and pooling of interests
accounting rules.
Rights of Dissenting Pentamation Shareholders
The following discussion is not a complete statement of the law pertaining
to dissenters rights under Pennsylvania Business Corporation Law, referred to
as the PA BCL, and is qualified in its entirety by the full text of section
1930 and Subchapter D of Chapter 15 of the PA BCL, which is referred to as
Subchapter D. Subchapter D is reprinted in its entirety as Appendix D to this
proxy statement/prospectus. Any Pentamation shareholder who desires to exercise
his or her dissenters rights should review carefully Subchapter D and is urged
to consult a legal advisor before electing or attempting to exercise their
rights. All references in Subchapter D to a "shareholder" and in this summary
to a "Pentamation shareholder" or a "holder of Pentamation stock" are to the
record holder of shares as to which dissenters rights are asserted.
Subject to the exceptions stated below, holders of Pentamation stock who
comply with the applicable procedures summarized below will be entitled to
dissenters rights under Subchapter D. Voting against, abstaining from voting or
failing to vote on approval and adoption of the proposed merger will not
constitute a demand for appraisal within the meaning of Subchapter D.
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<PAGE>
Pentamation shareholders electing to exercise dissenters rights under
Subchapter D must not vote for approval of the proposed merger. A vote by a
shareholder against the proposed merger is not required to exercise dissenters
rights. However, if a shareholder returns a signed proxy but does not specify a
vote against the proposed merger or a direction to abstain, the proxy, if not
revoked prior to the special meeting of shareholders, will be voted for
approval of the proposed merger, which will have the effect of waiving that
shareholder's dissenters rights. It is a condition to the closing of the merger
that holders of less than 10% of Pentamation's outstanding stock exercise their
dissenters rights.
What Are Dissenters Rights? Pentamation shareholders who follow the
procedures of Subchapter D will be entitled to receive from Pentamation the
fair value of their shares, immediately before the effective time of the
Pentamation merger. Fair value takes into account all relevant factors but
excludes any appreciation or depreciation in anticipation of the merger.
Pentamation shareholders who elect to exercise their dissenters rights must
comply with all of the procedures to preserve those rights.
Shares Eligible for Dissenters Rights. Generally, if you chose to assert
your dissenters rights, you must dissent as to all of the shares you own. The
PA BCL distinguishes between record holders and beneficial owners. You may
assert dissenters rights as to fewer than all the shares registered in your
name only if you are not the beneficial owner of the shares with respect to
which you do not exercise dissenters rights.
Record Holder Who is Not the Beneficial Owner. A record holder may assert
dissenters rights on behalf of the beneficial owner. If you are a registered
owner and you wish to exercise dissenters rights on behalf of the beneficial
owner, you must disclose the name and address of the person or persons on whose
behalf you dissent. In that event, your rights shall be determined as if the
dissenting shares and the other shares were registered in the names of the
beneficial holders.
Beneficial Owner Who is Not the Record Holder. A beneficial owner of
Pentamation common stock who is not also the record holder, may assert
dissenters rights. If you are a beneficial owner who is not the record holder
and you wish to assert your dissenters rights you must submit a written consent
of the record holder to the Secretary of Pentamation prior to the vote, but in
no event later than the Pentamation special meeting. You may not dissent with
respect to some but less than all shares you own.
Dissenters Rights Procedures
Notice of Intention to Dissent. If you wish to exercise your dissenters
rights, you must follow the procedures set forth in Appendix D. You must file a
written notice of intention to demand the fair value of your shares with the
Secretary of Pentamation prior to the vote, but in no event later than the
Pentamation special meeting. You must not make any change in your beneficial
ownership of Pentamation shares from the date you file the notice until the
effective time of the merger. You must refrain from voting your shares for the
adoption of the merger proposal.
Notice of Approval. If the Pentamation shareholders approve the merger
proposal, Pentamation will mail a notice to all dissenters who filed a notice
of intention to dissent prior to the vote on the merger proposal and who
refrained from voting for the adoption of the merger proposal. Pentamation
expects to mail the notice of approval promptly after the merger. The notice of
approval will state where and when a demand for payment must be sent and where
the certificates for eligible shares must be deposited in order to obtain
payment. The notice of approval will also supply a form for demanding payment
which includes a request for certification of the date on which the holder, or
the person on whose behalf the holder dissents, acquired beneficial ownership
of the shares. The demand form will be accompanied by a copy of Subchapter D.
If you assert your dissenters rights, you must ensure that Pentamation
receives your demand form and your certificates on or before the demand
deadline. All mailings to Pentamation are at your risk. Accordingly,
Pentamation recommends that your notice of intention to dissent, demand form
and stock certificates be sent by certified mail only, by overnight courier or
by hand delivery.
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If you fail to file a notice of intention to dissent, fail to complete and
return the demand form, or fail to deposit stock certificates with Pentamation,
each within the specified time periods, you will lose your dissenters rights
under Subchapter D. You will retain all rights of a shareholder, or beneficial
owner, until those rights are modified by completion of the merger.
Payment of Fair Value by Pentamation. Upon timely receipt of the completed
demand form, the PA BCL requires Pentamation to either: remit to dissenters who
complied with the procedures, the amount Pentamation estimates to be the fair
value for such dissenting shares; or give written notice that no such
remittance will be made.
Pentamation will determine whether to make such a remittance or to defer
payment for such shares until completion of the necessary appraisal
proceedings. Pentamation may consider the number of shares, if any, with
respect to which shareholders dissented and any objections that may be raised
with respect to the standing of the dissenting shareholder.
The remittance or notice will be accompanied by: (i) the closing balance
sheet and statement of income of Pentamation for the fiscal year ended
September 30, 1998 or the latest available interim financial statements; (ii) a
statement of Pentamation's estimate of the fair value of the shares; and (iii)
notice of the right of the dissenter to demand payment or supplemental payment,
as the case may be, accompanied by a copy of Subchapter D.
Return of Deposited Certificates. If Pentamation does not remit the amount
of its estimate of the fair value of the shares, it will return any deposited
certificates with a notation that a demand for payment in accordance with
Subchapter D has been made. If shares carrying this notation are transferred
after that, each new certificate issued may bear a similar notation, together
with the name of the original dissenting holder or owner of such shares. A
transferee of such shares will not acquire by this transfer any rights in
Pentamation other than those which the original dissenter had after making
demand for payment of their fair value.
Dissenting Shareholders Estimate of Fair Value. If Pentamation gives notice
of its estimate of the fair value of your shares, without remitting this
amount, or remits payment of its estimate of the fair value of your shares and
you believe that the amount remitted or stated is less than the fair value of
such shares, you may send to Pentamation your own estimate of the fair value of
the shares. Such estimate shall be deemed a demand for payment of the amount of
the deficiency. If you do not file a holder's estimate within 30 days after the
mailing by Pentamation of its remittance or notice, you will only be entitled
to the amount stated in the notice or remitted to you by Pentamation.
Resort to Court for Relief. If, after the later of, 60 days after the
effective time of the merger or after the timely receipt of any holder's
estimate, demands remain unpaid, Pentamation may file an application for
relief, requesting the court determine the fair value of the shares. We cannot
assure you that Pentamation will file this application.
In the court proceeding all dissenters, wherever residing, whose demands
have not been settled will be made parties to any such appraisal proceeding.
The court may appoint an appraiser to receive evidence and recommend a decision
on the issue of fair value. Each dissenter made a party will be entitled to
recover an amount equal to the fair value of the dissenter's shares, plus
interest, or if Pentamation previously remitted any amount to the dissenter,
any amount by which the fair value of the dissenter's shares is found to exceed
the amount previously remitted, plus interest.
If Pentamation fails to file an application for relief, any dissenter who
made a demand and who has not already settled his or her claim against
Pentamation may file an application for relief in the name of Pentamation at
any time within 30 days after the expiration of the 60- day period after the
merger or after the timely receipt of any holder's estimate. If a dissenter
does not file an application within the 30-day period, each dissenter entitled
to file an application shall be paid Pentamation's estimate of the fair value
of the shares and no more, and may bring an action to recover any amount not
previously remitted.
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Costs and Expenses of Court Proceedings. The costs and expenses of the court
proceedings, including the reasonable compensation and expenses of the
appraiser appointed by the court, will be determined by the court and assessed
against Pentamation. The court may, however, apportion and assess any part of
the costs and expenses of court proceedings as it deems appropriate against all
or some of the dissenters who are parties and whose action in demanding
supplemental payment the court finds to be in bad faith. If Pentamation fails
to comply substantially with the requirements of Subchapter D, the court may
assess fees and expenses of counsel and of experts for the parties as it deems
appropriate against Pentamation and in favor of any or all dissenters. The
court may assess fees and expenses of counsel and experts against either
Pentamation or a dissenter, if the court finds that a party acted in bad faith.
If the court finds that the services of counsel for any dissenter substantially
benefitted other dissenters similarly situated and should not be assessed
against Pentamation, it may award counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who benefitted.
No Right to an Injunction. Under Pennsylvania corporate law, a Pentamation
shareholder has no right to obtain, in the absence of fraud or fundamental
unfairness, an injunction against the merger proposal, nor any right to
valuation and payment of the fair value of the holder's shares because of the
merger proposal, except to the extent provided by the dissenters rights
provisions of Subchapter D. Pennsylvania corporate law also provides that,
absent fraud or fundamental unfairness, the rights and remedies provided by
Subchapter D are exclusive.
Material Federal Income Tax Consequences
The following is a summary description of the material United States federal
income tax consequences of the merger to Pentamation and the Pentamation
shareholders who receive SunGard common stock in the merger or perfect
dissenters' rights. This summary does not address tax considerations which may
affect the
treatment of special status taxpayers such as financial institutions, broker-
dealers, life insurance companies, tax-exempt organizations, investment
companies and foreign taxpayers or of Pentamation shareholders who do not hold
their Pentamation stock as a capital asset at the date the merger is completed
or to the extent their Pentamation stock was received in connection with the
sale of real estate and automobiles by the GLS partnership. In addition, no
information is provided in this summary with respect to the tax consequences of
the merger either under applicable foreign, state or local laws or to persons
who acquired Pentamation common stock under employee stock options or otherwise
as compensation.
The following discussion is based on the Internal Revenue Code of 1986, as
in effect on the date of this proxy statement/prospectus, without consideration
of the particular facts or circumstances of any particular holder of
Pentamation stock. Pentamation and SunGard have not sought and will not seek
any rulings from the Internal Revenue Service, with respect to any of the
matters discussed in this summary. It is a condition to the closing that Blank
Rome Comisky & McCauley LLP, counsel to SunGard, render an opinion that the
merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986. Provided that the merger qualifies as a
statutory merger under applicable state law:
. the merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of
1986;
. no gain or loss will be recognized by SunGard upon the exchange of
Pentamation stock solely in exchange for SunGard common stock;
. no gain or loss will be recognized by Pentamation shareholders upon the
exchange of their Pentamation stock solely for SunGard common stock;
. the basis of SunGard common stock received by Pentamation shareholders
in the merger will be the same as the basis of their Pentamation stock
surrendered in exchange therefor;
. for capital gains purposes, the holding period of SunGard common stock
received by Pentamation shareholders in the merger will include the
period during which the Pentamation stock surrendered in exchange
therefor was held, provided that the Pentamation stock is held as a
capital asset at the date the merger is completed.
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This opinion will not address the federal income tax consequences with
respect to the SunGard stock received by GLS or its partners in connection with
the sale of real estate and automobiles by the GLS partnership to Pentamation
prior to the completion of the merger.
A Pentamation shareholder who perfects dissenters rights with respect to his
or her shares of Pentamation stock, and who does not withdraw his or her
rights, should, in general, treat the difference between the tax basis of the
shares of Pentamation stock held by the Pentamation stockholder with respect to
which dissenters rights are perfected and the amount received in payment
therefor as capital gain or loss. However, depending on the Pentamation
shareholder's particular circumstances, this amount might be treated for
federal tax purposes as a dividend by SunGard.
The foregoing is a general discussion of the material federal tax
consequences of the merger for Pentamation and Pentamation shareholders and is
included for general information only. The foregoing discussion does not take
into account the particular facts and circumstances of each Pentamation
shareholder's tax status and attributes. Accordingly, each Pentamation
shareholder should consult his or her own tax advisor regarding the specific
tax consequences of the merger, including the application and effect of
federal, state, local and other tax laws and the possible effects of changes in
these tax laws.
Anticipated Accounting Treatment
The merger is intended to be accounted for as a pooling of interests for
financial reporting purposes in accordance with generally accepted accounting
principles. SunGard's obligation to complete the merger is conditioned upon its
receipt of letters from PricewaterhouseCoopers LLP, SunGard's independent
accountants, and Halbert, Katz & Co., P.C., Pentamation's independent
accountants, that the merger may be accounted for as a pooling of interests.
SunGard has the right to waive the condition that the merger be accounted
for as a pooling of interests. If the merger is consummated but fails to
qualify for pooling of interests accounting treatment, then the transaction may
be accounted for as a purchase. Under that method, the fair market value of the
SunGard common stock issued in the merger would be recorded as the cost of
acquiring Pentamation's business. That cost would be allocated to the
individual assets of Pentamation that were acquired and liabilities of
Pentamation that were assumed according to their respective fair values. The
fair market value of the SunGard common stock to be issued in the merger is in
excess of the amounts at which the net assets are carried in Pentamation's
accounts. The excess would be allocated to intangible assets and amortized as
an expense over the estimated useful life of each intangible asset. As a
result, if the merger fails to qualify for pooling of interests accounting
treatment, and the transaction is accounted for under the purchase method, the
combined financial results of SunGard and Pentamation could be adversely
affected.
Regulatory Matters
SunGard and Pentamation have filed notification and report forms with the
Federal Trade Commission and the Antitrust Division of the Department of
Justice in connection with the merger as required by the HSR Act. These filings
commenced a 30-day waiting period under the HSR Act which must elapse before
Pentamation and SunGard may complete the merger. SunGard and Pentamation
received early termination of the waiting period. The Department of Justice and
the Federal Trade Commission will continue to have the authority to challenge
the merger on antitrust grounds before or after the merger is completed even
though the waiting period ended. There can be no assurance that a challenge to
the merger on antitrust grounds will not be made, or if a challenge is made,
that SunGard and Pentamation would prevail or would not be required to
terminate the reorganization agreement, divest assets, license proprietary
technology to third parties or accept conditions in order to complete the
merger. SunGard does not have any obligation under the reorganization agreement
to dispose of any assets or make any changes to its operations or make any
commitments to any governmental agency even if these actions might facilitate
the completion of the merger.
New York Stock Exchange Listing
SunGard will cause the shares of SunGard common stock to be issued in
connection with the merger to be listed on the New York Stock Exchange upon the
effective date of the merger.
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THE MERGER DOCUMENTS
General
The following is a summary of the material provisions of the merger
documents, consisting of the reorganization agreement and the merger agreement.
A copy of the reorganization agreement is attached as Appendix A to this proxy
statement/prospectus and a copy of the merger agreement is attached as Appendix
B to this proxy statement/prospectus. The merger documents are incorporated
into this proxy statement/prospectus by reference, and you are urged to read
them carefully.
The merger documents provide for the merger of a newly-formed, wholly-owned
subsidiary of SunGard with and into Pentamation. As a result of the merger, the
SunGard subsidiary will cease to exist, Pentamation will become a wholly owned
subsidiary of SunGard and Pentamation shareholders will become stockholders of
SunGard. Pentamation will continue as the surviving corporation of the merger
and will retain all of its separate corporate existence, with all its rights
and powers unaffected by the merger. The merger will become effective upon the
filing of articles of merger with the Pennsylvania Secretary of the
Commonwealth or at any later time that may be specified in the articles of
merger. The filing of the articles of merger is anticipated to take place as
soon as practicable after the adoption and approval of the merger by the
Pentamation shareholders, if the other conditions to the merger are satisfied
or waived. We currently anticipate that the merger will be completed, and the
merger will be effective, shortly after the meeting of Pentamation shareholders
to approve the merger. There can be no assurance, however, that the conditions
to the merger will be satisfied by that time, or at all, or that the merger
documents will not be terminated. See "--Conditions to the Merger" and "The
Merger and Related Transactions--Regulatory Matters."
Merger Consideration
Pentamation Common Stock. When the merger is completed, each outstanding
share of Pentamation common stock will be converted into the right to receive
SunGard common stock. The number of shares of SunGard common stock into which
each share of Pentamation common stock will be converted will vary based upon:
. the average of the closing sale prices of SunGard common stock over a 20
trading day period ending two days prior to the effective date of the
merger and
. the fair market value of the real estate and automobiles purchased by
Pentamation from GLS, a partnership owned by Jeffrey P. Feather and
David P. Bloys, less the debt to which such assets are subject. This net
amount will be payable as part of the merger consideration by dividing
that amount by the SunGard average stock price as determined above. The
number of shares resulting from this calculation is sometimes referred
to as the additional shares. It is expected that the fair market value
less debt of these assets will be approximately $3,700,000 when the
merger is completed.
The actual exchange ratios will be determined as follows:
. if the average stock price is between $34 and $46, each share of
Pentamation common stock will be converted into SunGard common stock
determined by dividing (a) 915,000 shares of SunGard common stock plus
the additional shares by (b) the number of Pentamation shares
outstanding or issuable upon the exercise of stock options as of the
date the merger is completed.
. if the average stock price is less than $34, each share of Pentamation
common stock will be converted into SunGard common stock determined by
dividing (a) the number of shares of SunGard common stock resulting from
dividing $31,110,000 by the average stock price, but in no event more
than 972,188 shares, plus the additional shares by (b) the number of
Pentamation shares outstanding or issuable upon the exercise of stock
options as of the date the merger is completed.
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. if the average stock price is greater than $46, each share of
Pentamation common stock will be converted into SunGard common stock
determined by dividing (a) the number of shares of SunGard common stock
resulting from dividing $42,090,000 by the average stock price, but in
no event less
than 876,875 shares, plus the additional shares by (b) the number of
Pentamation shares outstanding or issuable upon the exercise of stock
options as of the date the merger is completed.
Listed below is the approximate exchange ratios which would apply if the
20-day average closing price of SunGard common stock was equal to the price
listed next to that ratio:
<TABLE>
<CAPTION>
Then each share of
Pentamation common
stock would be converted
into the following
approximate number
If the SunGard 20-day of shares of
average closing price is: SunGard common stock:
------------------------- ------------------------
<S> <C>
$30.00 1.1536120
31.00 1.1536120
32.00 1.1536120
33.00 1.1186531
34.00 to 46.00 1.0857520
47.00 1.0626508
48.00 1.0405122
49.00 1.0405122
</TABLE>
Please note that because the exchange ratio will be based upon the average
closing price of SunGard common stock and because the market price of the
shares of SunGard common stock may fluctuate, Pentamation shareholders cannot
be sure as of the date of the special meeting of the market value of the
shares of SunGard common stock they will receive.
It is a condition to Pentamation's obligation to complete the merger that
the average price of SunGard common stock over a 20 trading day period ending
two days prior to the effective date of the merger is greater than or equal to
$32 per share.
No Fractional Shares. No fractional shares of SunGard common stock will be
issued in connection with the merger. In lieu of fractional shares, the number
of shares of SunGard stock to be issued to each shareholder shall be rounded
up on down to the nearest whole number of shares of SunGard common stock.
Stock Options
Upon completion of the merger, all rights with respect to Pentamation
common stock under each Pentamation option to acquire Pentamation common stock
then outstanding will be converted into and become rights to acquire SunGard
common stock, and SunGard will substitute a SunGard stock option in exchange
for each Pentamation option. As of the record date, there were options
outstanding to purchase a total of 25,000 shares of Pentamation common stock
all of which were held by Donald V. Appleton, President of Pentamation. In the
event such options have not been exercised by Mr. Appleton prior to the
effective date of the merger:
. the number of shares of SunGard common stock subject to each Pentamation
option will be equal to the number of shares of Pentamation common stock
subject to each Pentamation option immediately prior to the completion
of the merger, multiplied by the merger exchange ratio, rounded to the
nearest whole share; and
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. the exercise price per share under each Pentamation option will be
adjusted by dividing the exercise price per share under the Pentamation
option by the merger exchange ratio, rounded up to the nearest cent.
The options will be subject to adjustment as appropriate to reflect any
stock split, stock dividend, reverse stock split, reclassification,
recapitalization or other similar transaction subsequent to the completion of
the merger.
Stock Ownership Following the Merger
Based on the number of shares of Pentamation common stock issued and
outstanding as of the record date and assuming an average SunGard stock price
of $34.9375 during the 20 day measurement period, closing price per share of
SunGard common stock on June 29, 1999, an aggregate of approximately 1,020,903
shares of SunGard common stock will be issued to Pentamation shareholders.
Based on the number of shares of SunGard common stock issued and outstanding as
of April 30, 1999, and after giving effect to the additional shares of SunGard
common stock that are proposed to be issued in the merger, assuming no exercise
of outstanding options to purchase SunGard common stock or Pentamation common
stock, the former shareholders of Pentamation would hold approximately 0.9% of
SunGard's total issued and outstanding shares.
Exchange Procedures for Pentamation Stock
SunGard will designate its transfer agent, Norwest Bank, N.A., to act as the
"exchange agent" under the merger documents and the escrow agreement. As soon
as is practicable after the date the merger is completed, SunGard or the
exchange agent will mail or deliver, to each Pentamation stockholder as of June
21, 1999, instructions for use in surrendering his or her Pentamation stock
certificates to the exchange agent. Upon the surrender of a Pentamation stock
certificate to the exchange agent in accordance with the instructions, the
exchange agent will exchange the Pentamation stock certificate for:
. new certificates representing 90% of the number of shares of SunGard
common stock into which the shares of Pentamation stock represented by
the Pentamation stock certificate have been converted in accordance with
the merger documents, which will be promptly delivered as instructed by
the holder, and
. new certificates for the balance of the number of shares of SunGard
common stock into which the shares of Pentamation stock represented by
the Pentamation stock certificate have been converted in accordance with
the merger documents, which will be held in escrow and distributed in
accordance with the terms of the escrow agreement.
If applicable, the new certificates will be accompanied by any distributions
due with respect to shares of SunGard common stock that were paid to SunGard's
shareholders of record as of a date between the date the merger is completed
and the date of distribution of the certificates. Until surrendered to the
exchange agent, each outstanding Pentamation stock certificate will be deemed
to evidence ownership of the number of shares of SunGard common stock into
which the shares of Pentamation stock have been converted in accordance with
the merger agreement, subject to the escrow requirement described above.
Escrow Agreement and Indemnification Claims
In connection with the merger, Pentamation shareholders will be asked to
sign an escrow agreement with SunGard, a copy of which is attached as Appendix
C. It is a condition to SunGard's obligation to complete the merger that the
holders of at least 90% of Pentamation's outstanding stock execute the escrow
agreement. However, the terms of the escrow agreement will be binding on each
Pentamation shareholder by virtue of the merger and regardless of whether such
Pentamation shareholder has executed the escrow agreement.
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Under the escrow agreement, the escrow agent will maintain an account for
each Pentamation shareholder containing the shareholders' stock being held in
escrow in accordance with the terms of the escrow agreement. The escrowed
stock, representing 10% of the stock to be issued to in connection with the
merger, will be held by the escrow agent in escrow and used to satisfy any
claims for indemnification by SunGard under section 5.3 or section 14.1 of the
reorganization agreement. The escrowed stock will be distributed to the
Pentamation shareholders one year after the date the merger is completed, less
the shares used to pay any claims made by SunGard for indemnification matters
under section 5.3 or section 14.1 of the reorganization agreement. For purposes
of paying indemnification claims, the shares will be valued based upon the
average of the closing sale prices of SunGard common stock during the 20
trading days ending two trading days prior to the completion of the merger.
The escrow agreement provides that each of the Pentamation shareholders will
grant to Jeffrey P. Feather the full power and authority to represent them for
the purpose of handling claims under the escrow agreement, including settling
all related disputes, and agreeing to any waiver, consent or amendment under or
to the escrow agreement; provided that no waiver, consent or amendment will
affect the method of allocation of payments from the escrowed stock with
respect to any Pentamation shareholder who does not expressly consent to such
change.
The escrow agreement provides for the indemnification of the exchange agent
by SunGard and the Pentamation shareholders from any action, claim or
proceeding, arising out of or relating in any way to the escrow agreement or
any transaction to which the escrow agreement relates. This indemnification
will not be available if the action, claim or proceeding is the result of the
willful misconduct or gross negligence of the escrow agent.
A copy of the escrow agreement is attached as Appendix C.
Representations and Warranties
The reorganization agreement contains statements and promises, called
representations and warranties, made by Pentamation and SunGard. Some of
Pentamation's representations and warranties relate to the following:
. organization of Pentamation and its subsidiaries;
. effect of the reorganization agreement;
. capital stock and ownership;
. financial and corporate records;
. compliance with law;
. financial statements;
. assets;
. obligations;
. operations since latest balance sheet;
. accounts receivable;
. tangible property;
. real property;
. environmental matters;
. software and intangibles;
. contracts;
. employee and independent contractor matters;
. employee benefit plans;
. customers, prospects and suppliers;
. tax matters;
. proceedings and judgments;
. insurance;
. questionable payments;
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. related party transactions;
. broker fees;
. acquisition proposals;
. matters concerning affiliates;
. accounting matters;
. vote required;
. anti-trust regulatory requirements; and
. full disclosure.
Some of SunGard's representations and warranties relate to the following:
. organization;
. effect of reorganization agreement;
. capital stock and ownership
. filings with the SEC;
. investment matters.
To review all of the representations and warranties contained in the
reorganization agreement you should read the reorganization agreement, which is
attached as Appendix A.
The reorganization agreement provides that if the representations and
warranties of Pentamation are determined to have been incorrect at the time the
reorganization agreement was signed or at the time the merger is completed,
SunGard may make claims against the Pentamation shareholders for any resulting
losses suffered by SunGard. Pentamation shareholders will not have liability
for any representation or warranty if a claim for indemnification is not made
by April 30, 2000 with respect to matters expected to be encountered in the
routine audit process of a wholly owned subsidiary of SunGard, or by 12 months
after the completion of the merger with respect to all other matters, except
that there is no time limit for losses suffered by SunGard with respect to any
matter involving:
. pending litigation disclosed by Pentamation in excess of disclosed
amounts;
. intentional misrepresentation, fraud or a criminal matter;
. title to or infringement caused by any software, technology, service or
product which, at any time before the completion of the merger, was
marketed, licensed, maintained, supported, owned, or claimed to have
been owned by Pentamation;
. record or beneficial ownership of any shares of capital stock or
membership interests in Pentamation or its subsidiaries;
. taxes;
. environmental matters; or
. covenants or other obligations to be performed after the completion of
the merger.
Covenants
The reorganization agreement includes several covenants and agreements of
Pentamation and SunGard which govern their actions until the merger is
completed. These covenants and agreements include the following which require
that:
. Pentamation conduct its business in a diligent manner and not make any
material change in its business practices;
. Pentamation preserve intact its current business organization, keep
available the services of its current officers, employees, salesmen,
agents and representatives and maintain the goodwill of its customers,
suppliers, and other persons or entities having a business relationship
with Pentamation;
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. Pentamation consult regularly with SunGard as to the management of its
business and affairs;
. Pentamation shall:
. maintain its real property and tangible property in good condition
and repair,
. maintain its insurance policies and permits in full force and
effect,
. repair, restore or replace any of its assets that are damaged,
destroyed, lost or stolen,
. comply with all applicable contracts, permits and laws,
. properly file all tax returns, annual reports and other returns and
reports required to be filed by it, and
. fully pay when due all taxes and fees;
. Pentamation maintain its corporate existence and good standing in its
jurisdiction of incorporation and its good standing in each jurisdiction
where it is currently qualified as a foreign corporation, and not amend
its articles of incorporation or bylaws;
. without SunGard's prior written consent, Pentamation will not:
. generally act other than in the ordinary course of its business
consistent with its past practices;
. even in the ordinary course of its business consistent with past
practices, incur any obligation or enter into any contract or
transaction, involving, in any single case, an amount exceeding
$50,000 or, in the aggregate, an amount exceeding $100,000, except
with respect to draws on its existing line of credit in the ordinary
course of business;
. permit or cause a breach or default under any agreement;
. alter its capitalization; or
. enter into any contract that commits it to take any action
inconsistent with any of the provisions of the merger documents;
. Pentamation shall submit to SunGard monthly financial statements
prepared in accordance with generally accepted accounting principles;
. Pentamation shall provide SunGard with reasonable access to its
personnel, facilities, assets, existing books, records, tax returns,
work papers and other documents and permit and assist SunGard to contact
its customers, prospects and suppliers;
. Pentamation and its principal shareholders shall use their best efforts
to obtain all consents necessary to complete the merger;
. Pentamation and the principal shareholders shall not engage in
discussions with any third party regarding an acquisition of
Pentamation;
. Pentamation and its principal shareholders shall promptly advise SunGard
of any fact to their knowledge that would have been required to be
disclosed under the Reorganization Agreement;
. Pentamation and the principal shareholders shall not take any action
that would prevent the merger from being accounted as a pooling of
interests;
. Pentamation and its principal shareholders on the one hand, and SunGard
on the other hand, shall make all necessary anti-trust regulatory
filings with the appropriate governmental agencies;
. Neither Pentamation nor its principal shareholders shall transfer,
dispose of or encumber any shares of Pentamation stock;
. SunGard shall maintain its corporate existence and good standing in the
State of Delaware, and not amend its charter or bylaws in any manner
that would be inconsistent with its obligations under the merger
documents;
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. SunGard shall not enter into any contract that commits it to take any
action that would be inconsistent with any of the provisions of the
merger documents;
. SunGard shall permit Pentamation, its principal shareholders and
authorized representatives access to all publicly available information
concerning SunGard;
. SunGard, Pentamation and the principal shareholders shall use their
respective best efforts to complete the merger;
. SunGard shall file all reports required to be filed with the Securities
and Exchange Commission; and
. SunGard shall promptly advise Pentamation and its principal shareholders
of any fact to its knowledge that would have been required to be
disclosed under the reorganization agreement.
To review all of the covenants and agreements contained in the
reorganization agreement, you should read the reorganization agreement, which
is attached as Appendix A.
Non-Solicitation
In the merger documents, Pentamation and the principal shareholders agreed
that they will not solicit, initiate, encourage, or respond to any inquiries or
proposals from, or participate in any discussions or negotiations with, any
third parties concerning any merger, consolidation or similar transaction, any
bulk sale of Pentamation's or its subsidiaries' assets or any sale of
Pentamation's or its subsidiaries' capital stock. You should read the
reorganization agreement, which is attached as Appendix A, for a more complete
discussion of the nonsolicitation provision.
Conditions to the Merger
The completion of the merger depends upon the satisfaction or waiver of
certain conditions, including, among other things:
. the registration statement must become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been
issued by the SEC with respect to the registration statement;
. the independent accountants for Pentamation and SunGard each shall have
delivered a letter to SunGard to the effect that the merger may be
accounted for as a pooling of interests;
. the merger must be approved by Pentamation's shareholders;
. the representations and warranties of the parties are not false or
misleading in any material respect;
. all of the terms and conditions of the reorganization agreement must be
substantially satisfied or performed;
. there may not be any legal proceeding, judgment or new law that seeks to
or does prohibit or restrain, or that seeks damages as a result of, the
completion of the merger or any of the other transactions provided for
in the merger documents;
. there may not be any material adverse change or loss that affects
Pentamation or its business, assets, financial condition or financial
performance since the date of the reorganization agreement;
. the escrow agreement must have been signed by the holders of at least
90% of Pentamation's outstanding stock;
. the sale to Pentamation of the facilities located at Five Bethlehem
Plaza, Bethlehem, PA, from which Pentamation operates, must be completed
and Pentamation must have obtained title, title insurance, title surveys
and other documentation acceptable to SunGard;
. if SunGard has elected to obtain environmental surveys with respect to
the Bethlehem property, such surveys must show that the property is in
compliance with environmental laws;
. the sale to Pentamation of the fleet of automobiles leased by
Pentamation must be completed; and
. the waiting period under the HSR Act must have expired or been
terminated.
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In addition, it is a condition to the obligations of Pentamation to complete
the merger that the average price of SunGard common stock over a 20 trading day
period ending two days prior to the effective date of the merger is greater
than or equal to $32 per share. In the event that the average price of SunGard
common stock is less than $32 per share, Pentamation may either waive such
condition and complete the merger, or postpone the completion of the merger
until the condition is satisfied. If this condition is not satisfied by August
31, 1999, Pentamation could also terminate the merger.
To review all of the conditions to the merger, you should read the
reorganization agreement attached as Appendix A.
Termination
The reorganization agreement may be terminated prior to the completion of
the merger, whether before or after approval of the merger by the shareholders
of Pentamation;
. by mutual written consent of Pentamation and SunGard; or
. by either Pentamation or SunGard if the merger is not completed by
August 31, 1999, unless the failure to complete the merger is because of
a failure by the terminating party to perform any obligation required to
be performed by that party;
Expenses
All fees and expenses incurred in connection with the merger documents and
the transactions contemplated by the merger documents will be paid by the party
incurring those expenses, whether or not the merger is completed.
Amendment; Waiver
The merger documents may not be amended except by an instrument in writing
signed on behalf of each of the parties. No waiver under the merger documents
will be enforceable unless it is in writing and signed by the party against
whom the enforcement of that waiver is being sought. Pentamation may agree to
any amendment or supplement to the merger documents, or a waiver of any
provision of the merger documents, either before or after the approval of the
shareholders of Pentamation is obtained and without seeking further shareholder
approval, so long as such amendment, supplement or waiver does not result in a
decrease in the merger exchange ratio or have a material adverse effect on the
shareholders of Pentamation.
Nondisclosure and Noncompetition Restrictions
In the merger documents, Pentamation and each of Jeffrey P. Feather, David
P. Bloys and Donald V. Appleton agreed with SunGard that during the later of
the period which ends five years after the effective date of the merger or the
period which ends two years after their employment with SunGard terminates,
they will not:
. communicate with or solicit any person who is a customer, prospect,
supplier, employee, salesman, agent or representative of, or consultant
to SunGard in an effort to obtain the person as a customer, supplier,
employee, salesman, agent or representative of or consultant to, any
other person that is competitive with or similar to the SunGard
enterprise resource planning business;
. market or sell any software, technology, product or service that is
similar to or competitive with any proprietary software, technology,
product or services of the SunGard enterprise resource planning
business;
. establish, own, manage, operate, finance or control, or participate in
the establishment, ownership, management, operation, financing or
control of, or be a director, officer, employee, salesman, agent or
representative of, or consultant to any business that competes with or
is similar to the SunGard enterprise resource planning business;
They have also agreed not to disclose or use any confidential or proprietary
information of the SunGard business, including the Pentamation business.
The provisions of the noncompetition restrictions will not apply to Mr.
Appleton in the event that his employment is terminated by SunGard without
cause after the completion of the merger.
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<PAGE>
INFORMATION CONCERNING PENTAMATION
Business of Pentamation
Pentamation develops, markets and sells information systems for school
districts and local governments. Its integrated systems include the hardware,
network design, application software and implementation necessary to provide a
total solution to its customers' information needs. Pentamation also provides
all necessary software and hardware installation, end user training,
documentation, specialized software enhancements, data conversions and, as
described below, support and maintenance services required by its customers.
Pentamation began operations in January 1970 and has been based in Bethlehem,
Pennsylvania since that time. The Company has approximately 326 employees.
Pentamation's education systems are currently used by over 500 school
districts ranging in size from a few hundred to over 60,000 students. Its K-12
information systems include financial, human resource and student management
systems and applications.
Pentamation's government systems are currently serving hundreds of local
government organizations throughout the United States. Pentamation is a leader
is providing financial, human resource and revenue management information
support systems for local governments.
Pentamation also provides extensive and effective support services for its
products for its customers. Support services are provided through a fully
automated service call management system, a web-accessible knowledge base, an
automated call distribution system and centralized call center.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PENTAMATION
General
Pentamation provides information systems for school districts and local
governments. Its information systems include the hardware, network design,
application software and implementation necessary to provide an integrated
solution to its customers' information requirements.
Pentamation's revenues come from three primary sources: the sale of new
systems, implementation and other services associated with sales, and support
and maintenance services.
Pentamation's growth over the years in revenue and income has come from
increased sales and an expanding customer base. The Company maintains its own
internal full-time sales force. In many cases, sales are completed through a
competitive process wherein the Company responds to requests for proposals from
government agencies and school districts.
While the overall trend in revenues and profits has been positive, revenues
can fluctuate when viewed on a quarter to quarter or year to year basis.
Pentamation utilizes line of credit bank financing to the extent necessary
to supplement the self funding of its operations.
Results of Operations
Revenues. Net revenue for the six months ended March 31, 1999 totaled
$17,531,000, an increase of 36% from the same period in 1998. Revenues from
software licenses grew 95%, from $3,475,000 to $6,759,000, and software
training and installation revenues grew 158%, from $935,000 to $2,411,000. The
revenue and installation growth was attributable to strong backlog resulting
from the introduction of new products and increased sales performance in the
preceding year. Additionally, in September, 1998, Pentamation completed the
acquisition of TreSun, Inc., a Florida based supplier of application software
for local governments, which also accounted in part for the increased revenues.
Revenues from software maintenance services grew 18%, from $3,297,000 to
$3,880,000, in the comparative six-month periods due to the increase in
software sales. Revenue per employee was $58,000 for the six months ended March
31, 1999, and $49,000 for the same period in 1998.
Net revenue in 1998 increased 24% to $27,337,000 from $21,952,000 in 1997
and 18% from $23,254,000 in 1996. The increase was due to strong software sales
during 1997 and 1998, as well as the services associated with the
implementation of new sales.
Due to the increase in installed systems, software maintenance revenue
increased 36% from 1996 to 1998. Sales per employee were $101,000, $90,000 and
$110,000 in 1998, 1997 and 1996, respectively.
Expenses. Operating expenses for the six months ended March 31, 1999 totaled
$16,982,000, an increase of 42% over the same period in 1998. This increase was
due to staff expansion and the use of additional office space and equipment.
Headcount increased from 275 at March 31, 1998 to 321 at March 31, 1999.
Operating margin was 3% for the six months ended March 31, 1999 and 6% for the
same period in 1998. An expense of $485,000 and $922,000 for acceleration of
capitalized software in service was recorded for the periods ended September
30, 1998 and March 31, 1999 for certain capitalized software products, which in
management's view had no significant continuing value.
Marketable securities held for certain company employees as part of a
deferred compensation plan are recorded as an asset. As such, increases and
decreases in market value of these securities result in increases and decreases
in compensation expense and corresponding increases and decreases in net
unrealized gains on marketable securities available for sale. Compensation
expense for the six months ended March 31, 1999 under these principles was
approximately $136,000. No such compensation expense was recorded for the six
months ended March 31, 1998.
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Operating expenses in 1998 increased 24% to $26,203,000 from $21,152,000 in
1997 and increased 22% from $21,547,000 in 1996. The increase was due primarily
to increased staffing levels required to support the new business and growing
customer base and the staffing and associated expenses necessary to insure that
Pentamation's software products are year 2000 compliant.
Headcount increased from 1996 to 1998 by 90, and payroll expenses increased
42% from 1996 to 1998. Operating margins were 4%, 4% and 7% in 1998, 1997 and
1996, respectively.
Income Tax. Income tax expense for the year ended September 30, 1998 was
$389,000, an effective rate of 38% compared to 39% and 36% for the same period
in 1997 and 1996.
Liquidity and Capital Resources
At March 31, 1999, cash was up by $168,000 from a year earlier. This change
was the result of fluctuations in sales and collections, which can vary greatly
from month to month due to timing of sales and billing. Receivables were
$8,325,000, up from $6,351,000 a year earlier, due to higher sales. The ratio
of total current assets to total current liabilities was 0.83:1 at March 31,
1999 and 1.17:1 at March 31,1998.
At September 30, 1998, Pentamation had cash of $425,000, up from $137,000 at
September 30, 1997. Receivables at September 30, 1998 were $8,145,000 and the
ratio of total current assets to total current liabilities was 0.85:1. Cash at
September 30, 1997 and September 30, 1996 was $136,000 and $412,000. The ratio
of current total assets to total current liabilities was 1.00:1 and 1.01:1 at
September 30, 1997 and September 30, 1996.
As of March 31, 1999, Pentamation had an unsecured line of credit of
$5,000,000 from a local bank. This line of credit was $5,000,000, $3,250,000
and $3,000,000 at September 30, 1998, September 30, 1997 and September 30,
1996, respectively. Amounts outstanding were $1,250,000, $1,300,000 and $0 on
the same dates.
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PRINCIPAL SHAREHOLDERS OF PENTAMATION
The following table sets forth as of the record date information with
respect to the beneficial ownership of Pentamation common stock by (i) each
person who is the beneficial owner of more than 5% of the outstanding shares of
Pentamation, (ii) each director of Pentamation, (iii) each of the executive
officers of Pentamation and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Name Shares Percent
---- ------- -------
<S> <C> <C>
Jeffrey P. Feather,
Director, Chairman and
Chief Executive
Officer................ 321,384 (/1/) 39.3%
David P. Bloys,
Director, Vice Chairman,
Secretary and
Treasurer.............. 326,030 (/2/) 39.9%
Donald V. Appleton,
President............... 27,250 (/3/) 3.2%
All directors and
executive officers (3
persons)................ 674,664 (/3/) 80.1%
Joseph A. Sullivan
(/4/)................... 60,000 7.4%
</TABLE>
- --------
(1) Includes shares held by Mr. Feather's spouse and minor child.
(2) Includes shares held by Mr. Bloys as custodian for his children.
(3) Includes options held by Mr. Appleton to acquire 25,000 shares.
(4) Mr. Sullivan is a former director and officer of Pentamation.
The amounts shown do not include approximately 91,000 shares of Pentamation
common stock, subject to adjustment, to be issued to GLS, a partnership owned
by Messrs. Feather and Bloys, in connection with the sale of real estate and
automobiles leased by Pentamation from GLS. When issued and assuming no
adjustment, GLS will beneficially own approximately 10.0% of the outstanding
Pentamation common stock, Mr. Feather will beneficially own approximately
366,884 shares or 40.4% of the outstanding Pentamation common stock and Mr.
Bloys will beneficially own 371,530 shares or 40.9% of the outstanding
Pentamation common stock.
COMPARISON OF CAPITAL STOCK
Description of SunGard Capital Stock
The authorized capital stock of SunGard consists of 320,000,000 shares of
SunGard common stock, and 5,000,000 shares of preferred stock, $0.01 par value.
SunGard Common Stock. As of April 30, 1999, there were approximately
118,680,529 shares of SunGard common stock outstanding, held of record by
approximately 4,300 stockholders. SunGard common stock is listed and traded on
the NYSE under the symbol "SDS." Holders of SunGard common stock are entitled
to one vote per share on all matters to be voted upon by the stockholders. The
stockholders may not cumulate votes in connection with the election of
directors. The holders of SunGard common stock are entitled to receive ratably
dividends, if any, declared from time to time by the SunGard board of directors
out of funds legally available for dividends. In the event of a liquidation,
dissolution or winding up of SunGard, the holders of SunGard common stock are
entitled to share ratably in all assets remaining after payment of liabilities.
The SunGard common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the SunGard common stock. All outstanding shares of SunGard
common stock are fully paid and non-assessable, and the shares of SunGard
common stock to be outstanding upon completion of the merger will be fully paid
and non-assessable.
SunGard Preferred Stock. SunGard has 5,000,000 shares of SunGard preferred
stock authorized and no shares are outstanding. The SunGard board of directors
has the authority to issue up to 5,000,000 shares of SunGard preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued and undesignated shares of
SunGard preferred stock and to fix the
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number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the SunGard board of directors, without stockholder
approval, can issue SunGard preferred stock with voting and conversion rights
which could adversely affect the voting power or other rights of the holders of
SunGard common stock. The issuance of SunGard preferred stock may have the
effect of delaying, deferring or preventing a change in control of SunGard.
SunGard Transfer Agent and Registrar. The transfer agent and registrar for
the SunGard common stock is Norwest Bank Minnesota, N.A., Shareholder Services
Administration, 161 N. Concorde Exchange, P.O. Box 738, South St. Paul, MN
55075 and its telephone number is (651) 450-4064.
Description of Pentamation Capital Stock
Pentamation is authorized by its Articles of Incorporation, as amended, to
issue 5,000,000 shares of common stock, $.015 par value per share. As of May 6,
1999, there were 817,734 shares outstanding and held of record by 109
shareholders. Pentamation acts as its own transfer agent and registrar with
respect to its common stock.
The holders of Pentamation common stock are entitled to one vote per share
on all matters to be voted upon the by the shareholders. Shareholders may
cumulate votes in connection with the election of directors. The holders of
common stock are entitled to receive 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 liquidation, dissolution or winding up of Pentamation, or
the merger or consolidation of Pentamation with another corporation in which
Pentamation's shareholders receive distributions of cash, assets or securities
as a result of such consolidation or merger, or the sale, transfer or other
disposition of all or substantially all the assets of Pentamation, the holders
of shares of Pentamation common stock are entitled to share ratably in all
Pentamation assets available for distribution.
Shares of Pentamation common stock have no preemptive or conversion rights
or other subscription rights. All outstanding shares of Pentamation common
stock are fully paid and nonassessable.
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COMPARISON OF RIGHTS OF HOLDERS OF SUNGARD
COMMON STOCK AND HOLDERS OF PENTAMATION COMMON STOCK
Upon completion of the merger, the holders of Pentamation common stock will
become holders of SunGard common stock. There are certain material differences
between the rights and privileges of the holders of Pentamation common stock
and the holders of SunGard common stock.
SunGard is incorporated under the laws of the State of Delaware and
Pentamation is incorporated under the laws of the Commonwealth of Pennsylvania.
As a result, the rights of stockholders of SunGard are governed by the Delaware
General Corporation Law, referred to as the DGCL, the restated certificate of
incorporation of SunGard and the amended and restated bylaws of SunGard, and
the rights of shareholders of Pentamation are governed by the Pennsylvania
Business Corporation Law, referred to as the PA BCL, the Pentamation articles
of incorporation and the Pentamation bylaws. If the merger is consummated, the
shareholders of Pentamation will become stockholders of SunGard. The following
is a summary of the material differences between the rights of holders of
Pentamation common stock and the rights of holders of SunGard common stock.
These differences arise from differences between the DGCL and the PA BCL, as
well as from differences between the corporate governing instruments of SunGard
and Pentamation. This summary does not purport to identify all of the
differences that may be material to Pentamation shareholders and is subject to
the detailed provisions of the relevant laws and governing instruments. This
summary should be read in conjunction with "Comparison of Capital Stock."
Percentage of Voting Stock; Influence Over Affairs
Upon completion of the merger, the percentage ownership of SunGard by each
former Pentamation shareholder will be substantially less than the Pentamation
shareholder's current percentage ownership of Pentamation. Accordingly, former
Pentamation shareholders will have a significantly smaller voting influence
over the affairs of SunGard than they currently enjoy over the affairs of
Pentamation.
Dividends
SunGard. Under the DGCL, a corporation may pay dividends out of surplus,
defined as the excess of net assets over capital. If no such surplus exists,
dividends may be paid out of its net profits for the fiscal year, provided that
dividends may not be paid out of net profits if the capital of such corporation
is less than the aggregate amount of capital represented by the outstanding
stock of all classes having a preference upon distribution of assets.
SunGard's certificate provides that when and as dividends are declared on
the common stock, the holders of common stock are entitled to share equally,
share for share, in the dividends. Under SunGard's certificate, holders of
preferred stock will be entitled to dividends as designated by the board of
directors.
Pentamation. Under the PA BCL, a corporation is prohibited from making a
distribution to shareholders if, after giving effect thereto:
. that corporation would be unable to pay its debts as they become due in
the usual course of business; or
. the total assets of that corporation would be less than the sum of its
total liabilities plus the amount that would be needed, if that
corporation were then dissolved, to satisfy the rights of shareholders
having superior preferential rights upon dissolution to the shareholders
receiving such distribution. For the purpose of valuing the assets of
the corporation, the board of directors may base its determination on
one or more of the following: the book value, or the current value, of
the corporation's assets and liabilities, unrealized appreciation and
depreciation of the corporation's assets and liabilities or any other
method that is reasonable in the circumstances.
39
<PAGE>
The Pentamation bylaws provide that, subject to the PA BCL and the
Pentamation charter, the board of directors may declare dividends upon the
outstanding shares of the corporation.
Directors
SunGard. SunGard's bylaws provide that its board of directors will not
consist of less than two nor more than eight directors, with the exact number
to be determined by the board of directors. The number of directors is
currently fixed at eight. Directors are elected at each annual meeting of
stockholders and serve until the next annual meeting of stockholders or until
their directors are duly elected and qualified.
Pentamation. Pentamation's bylaws provide that its board of directors will
consist of seven directors; provided that (i) whenever all the shares of
Pentamation are owned beneficially and of record by either one or two
shareholders, the number of directors may be less than three, but not less than
the number of shareholders; and (ii) whenever there are three or more
shareholders, there must be at least three directors.
Cumulative Voting
SunGard. Because SunGard's certificate does not provide for cumulative
voting for directors, each stockholder who is entitled to vote at an election
of directors has the right to vote the number of shares owned by him or her for
as many persons as there are directors to be elected, but may not cumulate his
or her votes for directors.
Pentamation. Because Pentamation's articles do not opt-out of cumulative
voting for directors, each shareholder who is entitled to vote at an election
of directors, has the right to multiply the number of votes to which he or she
may be entitled by the total number of directors to be elected in the same
election and may cast the whole number of his votes for one candidate or may
distribute them among any two or more candidates.
Limitation on Directors Liability; Indemnification of Officers and Directors
SunGard. The DGCL provides, in substance, that Delaware corporations have
the power, under specified circumstances, to indemnify their directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by third parties and in connection with actions or suits
by or in the right of the corporation, by reason of the fact that they were or
are such directors, officers, employees and agents, against expenses (including
attorney's fees) and, in the case of actions, suits or proceedings brought by
third parties, against judgments, fines and amounts paid in settlement actually
and reasonably incurred in any such action, suit or proceedings.
SunGard's bylaws provide for indemnification to the fullest extent permitted
by the Delaware General Corporation Law.
As permitted by the DGCL, SunGard's certificate eliminates the personal
liability of its directors to SunGard and its stockholders, in certain
circumstances, for monetary damages arising from a breach of the director's
duty of care. Additionally, SunGard has entered into indemnification agreements
(in the form approved by SunGard's stockholders at its 1987 Annual Meeting)
with each of its directors and officers. These agreements provide
indemnification to the fullest extent permitted by law and, in certain
respects, provide greater protection than that specifically provided by the
DGCL. The agreements do not provide indemnification for, among other things,
conduct that is adjudged to be fraud, deliberate dishonesty or willful
misconduct.
SunGard has obtained directors' and officers' liability insurance that
covers certain liabilities, including liabilities to SunGard and its
stockholders, in the amount of $20 million.
40
<PAGE>
Pentamation. Under the PA BCL, a corporation may include in its bylaws a
provision, adopted by a vote of its shareholders, which eliminates the personal
liability of its directors, as such, for monetary damages for any action taken
or the failure to take any action unless: (i) such directors have breached or
failed to perform their duties; and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. A Pennsylvania
corporation is not empowered, however, to eliminate personal liability where
the responsibility or liability of a director is pursuant to any criminal
statute or is for the payment of taxes pursuant to any federal, state or local
law. The Pentamation articles and bylaws do not contain such a provision.
The provisions of the PA BCL regarding indemnification are substantially
similar to those of the DGCL. Unlike the DGCL, however, the PA BCL expressly
permits indemnification in connection with any action, including a derivative
action, unless a court determines that the acts or omissions giving rise to the
claim constituted willful misconduct or recklessness. The Pentamation bylaws
provide for indemnification of representatives against liability incurred by
reason of the fact that such representative was serving in an indemnified
capacity within the scope permitted by the PA BCL, so long as the indemnified
person acted in good faith, in what he reasonably believed to be in the best
interest of Pentamation, and in the case of a criminal action or proceeding,
had no reasonable cause to believe that his conduct was unlawful.
Pentamation has not obtained directors' and officers' liability insurance.
Call of Special Meetings of Shareholders
SunGard. SunGard's bylaws provide that a special meeting of its stockholders
may be called at any time by the board, the chairman of the board or the
president, and must be called upon written request from the holders of a
majority of the outstanding shares of capital stock of SunGard entitled to vote
at the meeting.
Pentamation. Under the PA BCL, special meetings of shareholders may be
called by the board of directors, by any officers or by any other persons as
provided in the bylaws, and, unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting. The Pentamation bylaws, however,
provide that special meetings of the shareholders may only be called at any
time by the President, and not any other officers of Pentamation.
Action of Shareholders Without a Meeting
SunGard. SunGard's bylaws provide that any action required to or which may
be taken at an annual or special meeting may be taken without a meeting by a
consent in writing by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to take the action at a meeting
at which all shares entitled to vote thereon were present and voted.
Pentamation. Under the PA BCL, any corporate action may be taken without a
meeting by unanimous written consent unless otherwise restricted by the bylaws
of the corporation, and may be taken with partial written consent if the bylaws
of a corporation so provide. The Pentamation bylaws allow shareholders to take
action without a meeting only by unanimous written consent.
Amendments to Certificate of Incorporation
SunGard. Under the DGCL, unless the certificate of incorporation imposes a
higher voting requirement, the approval of the holders of a majority of the
stock entitled to vote, and a majority of each class entitled to vote as a
class, is required in order to amend any provision of a corporation's
certificate of incorporation. SunGard's certificate does not impose any higher
voting requirement with respect to the amendment of its certificate of
incorporation.
41
<PAGE>
Pentamation. Under the PA BCL, an amendment to the articles requires the
approval of the board of directors followed by the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon and, if
any class or series of shares is entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in each such class vote.
Furthermore, the PA BCL provides that, unless otherwise provided in the
articles, an amendment of the articles of a corporation need not be adopted by
the board of directors prior to its submission to the shareholders for approval
if it is proposed by a petition of shareholders entitled to cast at least 10%
of the votes that all shareholders are entitled to cast thereon. Pentamation's
articles do not require any higher voting requirements with respect to the
amendment of the articles.
Amendments to Bylaws
SunGard. SunGard's bylaws may be altered, amended or repealed, in whole or
in part, by the affirmative vote of a majority of the members of SunGard's
board or by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of SunGard entitled to vote.
Pentamation. The Pentamation bylaws may be amended or repealed by the vote
of shareholders entitled to cast at least a majority of the votes which all
Pentamation's shareholders are entitled to cast or by the vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
Certain Business Combinations
SunGard. The DGCL provides that, subject to certain limited exceptions, the
approval of the holders of a majority of the stock entitled to vote is required
for any merger or consolidation of a Delaware corporation with another
corporation or the sale, lease or exchange of all or substantially all of that
corporation's assets. SunGard's certificate does not impose any higher voting
requirements for the approval of these actions.
Section 203 of the DGCL also restricts certain transactions between a
corporation organized under Delaware law (or its majority-owned subsidiaries)
and any person holding 15% or more of the corporation's outstanding voting
stock, who together with his, her or its affiliates or associates is defined as
an "Interested Stockholder." Section 203 prevents, for a period of three years
following the date that a person becomes an Interested Stockholder, the
following types of transactions between the corporation and the Interested
Stockholder (unless certain conditions, described below, are met):
. mergers or consolidations;
. sales, leases, exchanges or other transfers of 10% or more of the
aggregate assets of the corporation;
. issuances or transfers by the corporation of any stock of the
corporation which would have the effect of increasing the Interested
Stockholder's proportionate share of the stock of any class or series of
the corporation;
. any other transaction which has the effect of increasing the
proportionate share of the stock of any class or series of the
corporation which is owned by the Interested Stockholder; and
. receipt by the Interested Stockholder of the benefit (except
proportionately as a stockholder) of loans, advances, guarantees,
pledges or other financial benefits provided by the corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date the person becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction if, upon the
consummation of the transaction where the stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors and certain employee stock plans. Business combinations
are also permitted within the three-year period if
42
<PAGE>
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the holders of at least 66-2/3% of the outstanding
voting stock not owned by the Interested Stockholder. In addition, any
transaction is exempt from the statutory ban if it is proposed at a time when
the corporation has proposed, and a majority of certain continuing directors of
the corporation have approved, a transaction with a party who is not an
Interested Stockholder of the corporation (or who becomes such with board
approval) if the proposed transaction involves:
. certain mergers or consolidations involving the corporation;
. a sale or other transfer of over 50% of the aggregate assets of the
corporation; or
. a tender or exchange offer for 50% or more of the outstanding voting
stock of the corporation.
Section 203 does not apply to corporations which do not have a class of
voting stock that is listed on a national securities exchange, authorized for
quotation with a registered national securities association, or held of record
by more than 2,000 shareholders. Otherwise, section 203 applies automatically
to Delaware corporations unless the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by
section 203 or the corporation has amended its certificate of incorporation or
bylaws in accordance with section 203 to provide that the corporation will not
be governed by section 203. SunGard has not adopted an amendment to its
certificate or bylaws exempting it from section 203, which accordingly applies
to SunGard.
Pentamation. The PA BCL provides that, subject to certain limited
exceptions, the approval of the holders of a majority of the votes cast is
required for any merger or consolidation of a Pennsylvania corporation with
another corporation or the sale, lease or exchange of all or substantially all
of that corporation's assets. Under the PA BCL, an abstention is not considered
a vote cast and therefore has no effect on the outcome of the shareholder vote.
Pentamation's articles do not impose any higher voting requirements for the
approval of these actions. Although the PA BCL contains provisions that may
restrict certain business combinations between a corporation and interested
shareholders, these statutory restrictions do not apply to Pentamation.
EXPERTS
The consolidated balance sheets of SunGard and subsidiaries as of December
31, 1998 and 1997 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998, incorporated in this document and in the
registration statement by reference to the Annual Report on Form 10-K of
SunGard for the year ended December 31, 1998, have been so incorporated in
reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheets of Pentamation and subsidiaries as of
September 30, 1998 and 1997 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1998 contained in this document have been so
included in reliance upon the report of Halbert, Katz & Co., P.C., certified
public accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of SunGard common stock offered by this document
will be passed upon for SunGard by Blank Rome Comisky & McCauley LLP.
43
<PAGE>
WHERE TO FIND MORE INFORMATION
SunGard filed a registration statement on Form S-4 to register with the SEC
the SunGard common stock to be issued to Pentamation shareholders in the
merger. This document is a part of that registration statement and constitutes
a prospectus of SunGard in addition to a proxy statement of Pentamation for the
Pentamation special meeting. As allowed by the SEC, this document does not
contain all the information that can be found in the registration statement or
the exhibits to the registration statement. SunGard files annual, quarterly and
special reports, proxy statements and other information and Pentamation files
annual reports and other information with the SEC. You can read and copy any
reports, statements or other information we file at the SEC's Public Reference
Rooms at 450 Fifth Street, N.W., Washington, D.C., 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the Public Reference Room.
SunGard's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
The SEC allows SunGard to "incorporate by reference" information into this
document, which means that SunGard can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in this document. This
document incorporates by reference the documents set forth below that SunGard
previously filed with the SEC. These documents contain important information
about SunGard and its finances.
<TABLE>
<CAPTION>
SunGard SEC Filings (File No. 1-12989) Period
-------------------------------------- ----------------------------
<S> <C>
Annual Report on Form 10-K......................... Year ended December 31, 1998
Quarterly Report on Form 10-Q...................... Quarter ended March 31, 1999
Registration Statement on Form 8-A................. Filed on May 14, 1997
</TABLE>
SunGard is also incorporating by reference additional documents that it may
file with the SEC between the date of this document and the date of the
Pentamation special meeting.
SunGard has supplied all information contained or incorporated by reference
in this document relating to SunGard and Pentamation has supplied all this
information relating to Pentamation.
You should rely only on the information contained or incorporated by
reference in this document to vote on the merger. We have not authorized anyone
to provide you with information that is different from what is contained in
this document. This document is dated July 6, 1999. You should not assume that
the information contained in this document is accurate as of any date other
than July 6, 1999, and neither the mailing of the document to shareholders nor
the issuance of SunGard common stock in the merger shall create any implication
to the contrary.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
SunGard expects that the merger will be accounted for as a pooling of
interests, which means that for accounting and financial reporting purposes
SunGard will treat SunGard and Pentamation as if they had always been combined.
The pro forma information is provided for illustrative purposes only and should
not be relied upon as necessarily being indicative of the historical results
that SunGard and Pentamation would have had if the companies actually had
always been combined, or the results which may be obtained in the future.
The Unaudited Pro Forma Combined Condensed Financial Data should be read
along with the historical financial statements and the related notes of SunGard
and Pentamation which are incorporated by reference in this document.
44
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Balance Sheet (1)
December 31, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents
and short-term
investments............ $ 283,692 $ -- $ -- $ 283,692
Accounts receivable,
net.................... 297,416 8,492 -- 305,908
Prepaid expenses and
other current assets... 31,710 2,841 -- 34,551
Deferred income taxes... 22,315 (107) -- 22,208
---------- ------- ------- ----------
Total current
assets............. 635,133 11,226 -- 646,359
Property and equipment,
net.................... 144,757 1,625 1,029 (5) 147,411
Intangible and other
long-term assets....... 367,293 7,868 -- 375,161
---------- ------- ------- ----------
Total assets........ $1,147,183 $20,719 $ 1,029 $1,168,931
========== ======= ======= ==========
Liabilities and
Stockholders' Equity:
Short-term and current
portion of long-term
debt................... $ 14,766 $ 624 $ -- $ 15,390
Accounts payable........ 16,198 2,140 -- 18,338
Accrued compensation and
benefits............... 90,723 1,774 -- 92,497
Other accrued expenses.. 73,211 1,328 -- 74,539
Deferred revenues....... 139,534 6,777 -- 146,311
---------- ------- ------- ----------
Total current
liabilities........ 334,432 12,643 -- 347,075
Long-term debt.......... 2,816 3,532 4,763 (5) 11,111
---------- ------- ------- ----------
337,248 16,175 4,763 358,186
---------- ------- ------- ----------
Stockholders' Equity:
Preferred stock....... -- -- -- --
Common stock.......... 1,161 20 (9)(2)(5) 1,172
Capital in excess of
par value............ 294,243 1,772 (3,725)(2)(5) 292,290
Notes receivable from
stockholders......... -- (570) -- (570)
Restricted stock plans
and deferred
compensation......... (1,591) -- -- (1,591)
Retained earnings..... 524,095 6,035 -- 530,130 (3)
Accumulated other
comprehensive income
(loss)............... (6,933) 43 -- (6,890)
---------- ------- ------- ----------
810,975 7,300 (3,734) 814,541
Treasury stock.......... (1,040) (2,756) -- (3,796)
---------- ------- ------- ----------
Total stockholders'
equity............... 809,935 4,544 (3,734) 810,745
---------- ------- ------- ----------
Total liabilities and
stockholders'
equity............... $1,147,183 $20,719 $ 1,029 $1,168,931
========== ======= ======= ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
45
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Balance Sheet (1)
December 31, 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and
short-term investments... $119,460 $ 137 $ -- $119,597
Accounts receivable, net.. 239,368 6,843 -- 246,211
Prepaid expenses and other
current assets........... 25,356 1,425 -- 26,781
Deferred income taxes..... 21,409 (191) -- 21,218
-------- ------- ------- --------
Total current assets.. 405,593 8,214 -- 413,807
Property and equipment,
net...................... 131,689 1,608 948 (5) 134,245
Intangible and other long-
term assets.............. 368,883 5,613 -- 374,496
-------- ------- ------- --------
Total assets.......... $906,165 $15,435 $ 948 $922,548
======== ======= ======= ========
Liabilities and
Stockholders' Equity:
Short-term and current
portion of long-term
debt..................... $ 18,848 $ 417 $ -- $ 19,265
Accounts payable.......... 20,586 1,486 -- 22,072
Accrued compensation and
benefits................. 61,095 1,683 -- 62,778
Other accrued expenses.... 38,629 408 -- 39,037
Deferred revenues......... 115,976 4,276 -- 120,252
-------- ------- ------- --------
Total current
liabilities.......... 255,134 8,270 -- 263,404
Long-term debt............ 3,080 2,932 4,824 (5) 10,836
-------- ------- ------- --------
258,214 11,202 4,824 274,240
-------- ------- ------- --------
Stockholders' Equity:
Preferred stock......... -- -- -- --
Common stock............ 1,124 20 (9)(2)(5) 1,135
Capital in excess of par
value.................. 240,494 1,772 (3,867)(2)(5) 238,399
Notes receivable from
stockholders........... (500) (695) -- (1,195)
Restricted stock plans
and deferred
compensation........... (1,532) -- -- (1,532)
Retained earnings....... 415,502 5,495 -- 420,997 (3)
Accumulated other
comprehensive income
(loss)................. (6,646) 75 -- (6,571)
-------- ------- ------- --------
648,442 6,667 (3,876) 651,233
Treasury stock............ (491) (2,434) -- (2,925)
-------- ------- ------- --------
Total stockholders'
equity................. 647,951 4,233 (3,876) 648,308
-------- ------- ------- --------
Total liabilities and
stockholders' equity... $906,165 $15,435 $ 948 $922,548
======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
46
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Balance Sheet (1)
December 31, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and
short-term investments... $100,918 $ 412 $ -- $101,330
Accounts receivable, net.. 187,916 6,728 -- 194,644
Prepaid expenses and other
current assets........... 19,121 842 -- 19,963
Deferred income taxes..... 14,846 (315) -- 14,531
-------- ------- ------- --------
Total current assets.. 322,801 7,667 -- 330,468
Property and equipment,
net...................... 116,788 1,305 740 (5) 118,833
Intangible and other long-
term assets.............. 341,486 3,823 -- 345,309
-------- ------- ------- --------
Total assets.......... $781,075 $12,795 $ 740 $794,610
======== ======= ======= ========
Liabilities and
Stockholders' Equity:
Short-term and current
portion of long-term
debt..................... $ 35,827 $ 138 $ -- $ 35,965
Accounts payable.......... 15,547 1,223 -- 16,770
Accrued compensation and
benefits................. 47,876 1,477 -- 49,353
Other accrued expenses.... 34,228 716 -- 34,944
Deferred revenues......... 105,166 4,158 -- 109,324
-------- ------- ------- --------
Total current
liabilities.......... 238,644 7,712 -- 246,356
Long-term debt............ 5,767 1,375 3,372 (5) 10,514
-------- ------- ------- --------
244,411 9,087 3,372 256,870
-------- ------- ------- --------
Stockholders' Equity:
Preferred stock......... -- -- -- --
Common stock............ 657 20 (9)(2)(5) 668
Capital in excess of par
value.................. 222,840 1,772 (2,623)(2)(5) 221,989
Notes receivable from
stockholders........... (1,385) (700) -- (2,085)
Restricted stock plans
and deferred
compensation........... (2,043) -- -- (2,043)
Retained earnings....... 318,357 5,016 -- 323,373 (3)
Accumulated other
comprehensive loss..... (287) -- -- (287)
-------- ------- ------- --------
538,139 6,108 (2,632) 541,615
Treasury stock............ (1,475) (2,400) -- (3,875)
-------- ------- ------- --------
Total stockholders'
equity................. 536,664 3,708 (2,632) 537,740
-------- ------- ------- --------
Total liabilities and
stockholders' equity... $781,075 $12,795 $ 740 $794,610
======== ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
47
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Statement of Income (1)
For the year ended December 31, 1998
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.................... $1,252,591 $27,337 $ -- $1,279,928
Operating expenses,
excluding merger and
restructuring costs........ 1,024,544 26,203 (448)(5) 1,050,299
---------- ------- ----- ----------
228,047 1,134 448 229,629
Merger and restructuring
costs...................... 11,847 -- -- 11,847
---------- ------- ----- ----------
Operating income............ 216,200 1,134 448 217,782
Net interest income
(expense).................. 6,915 (109) (448)(5) 6,358
---------- ------- ----- ----------
Income before income taxes.. 223,115 1,025 -- 224,140(3)
Income taxes................ 93,147 389 -- 93,536
---------- ------- ----- ----------
Net income.................. $ 129,968 $ 636 $ -- $ 130,604(3)
========== ======= ===== ==========
Pro forma net income........ $ 128,574 $ 636 $ -- $ 129,210
========== ======= ===== ==========
Pro forma basic net income
per common share........... $ 1.12 $ 0.76 -- $ 1.12
Shares used to compute pro
forma basic net income per
common share............... 114,477 838 129 (2) 115,444
Pro forma diluted net income
per common share........... $ 1.08 $ 0.75 -- $ 1.07
Shares used to compute pro
forma diluted net income
per common share........... 119,522 848 130 (2) 120,500
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
48
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Statement of Income (1)
For the year ended December 31, 1997
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.................... $996,242 $21,959 $ -- $1,018,201
Operating expenses,
excluding merger and
restructuring costs........ 828,828 21,152 (347)(5) 849,633
-------- ------- ---- ----------
167,414 807 347 168,568
Merger and restructuring
costs...................... 13,669 -- -- 13,669
-------- ------- ---- ----------
Operating income............ 153,745 807 347 154,899
Net interest income
(expense).................. 2,637 (26) (347)(5) 2,264
-------- ------- ---- ----------
Income before income taxes.. 156,382 781 -- 157,163(3)
Income taxes................ 62,528 303 -- 62,831
-------- ------- ---- ----------
Net income.................. $ 93,854 $ 478 $ -- $ 94,332(3)
======== ======= ==== ==========
Pro forma net income........ $ 92,022 $ 478 $ -- $ 92,500
======== ======= ==== ==========
Pro forma basic net income
per common share........... $ 0.84 $ 0.55 -- $ 0.84
Shares used to compute pro
forma basic net income per
common share............... 109,764 862 132 (2) 110,758
Pro forma diluted net income
per common share........... $ 0.80 $ 0.55 -- $ 0.80
Shares used to compute pro
forma diluted net income
per common share........... 114,689 862 132 (2) 115,683
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
49
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Statement of Income (1)
For the year ended December 31, 1996
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues...................... $765,979 $23,254 $ -- $789,233
Operating expenses, excluding
merger and restructuring
costs........................ 636,931 21,546 (284)(5) 658,193
-------- ------- ----- --------
129,048 1,708 284 131,040
Merger and restructuring
costs........................ 51,083 -- -- 51,083
-------- ------- ----- --------
Operating income.............. 77,965 1,708 284 79,957
Net interest and other income
(expense).................... 5,265 (87) (284)(5) 4,894
-------- ------- ----- --------
Income before income taxes.... 83,230 1,621 -- 84,851(3)
Income taxes.................. 33,855 588 -- 34,443
-------- ------- ----- --------
Net income.................... $ 49,375 $ 1,033 $ -- $ 50,408(3)
======== ======= ===== ========
Pro forma net income.......... $ 47,433 $ 1,033 $ -- $ 48,466
======== ======= ===== ========
Pro forma basic net income per
common share................. $ 0.45 $ 1.21 -- $ 0.46
Shares used to compute pro
forma basic net income per
common share................. 104,660 855 131 (2) 105,646
Pro forma diluted net income
per common share............. $ 0.43 $ 1.21 -- $ 0.44
Shares used to compute pro
forma diluted net income per
common share................. 110,243 855 131 (2) 111,229
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
50
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Balance Sheet (1)
March 31, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents
and short-term
investments............ $ 361,106 $ 185 $ -- $ 361,291
Accounts receivable,
net.................... 289,728 8,325 -- 298,053
Prepaid expenses and
other current assets... 33,814 2,139 -- 35,953
Deferred income taxes... 28,264 (141) -- 28,123
---------- ------- ------ ----------
Total current
assets............. 712,912 10,508 -- 723,420
Property and equipment,
net.................... 146,475 1,602 1,062 (5) 149,139
Intangible and other
long-term assets....... 458,358 8,128 -- 466,486
---------- ------- ------ ----------
Total assets........ $1,317,745 $20,238 $1,062 $1,339,045
========== ======= ====== ==========
Liabilities and
Stockholders' Equity:
Short-term and current
portion of long-term
debt................... $ 15,665 $ 1,196 $ -- $ 16,861
Accounts payable........ 14,586 1,458 -- 16,044
Accrued compensation and
benefits............... 82,130 2,213 -- 84,343
Other accrued expenses.. 90,320 1,089 -- 91,409
Deferred revenues....... 140,798 7,172 -- 147,970
---------- ------- ------ ----------
Total current
liabilities........ 343,499 13,128 -- 356,627
Long-term debt.......... 2,563 2,114 4,712 (5) 9,389
---------- ------- ------ ----------
346,062 15,242 4,712 366,016
---------- ------- ------ ----------
Stockholders' Equity:
Preferred stock....... -- -- -- --
Common stock.......... 1,179 20 (9)(2)(5) 1,190
Capital in excess of 495,123 1,772 (3,641)(2)(5) 493,254
par value............
Notes receivable from
stockholders......... -- (561) -- (561)
Restricted stock plans
and deferred
compensation......... (1,268) -- -- (1,268)
Retained earnings..... 486,109 6,431 -- 492,540 (3)
Accumulated other
comprehensive income
(loss)............... (9,460) 90 -- (9,370)
---------- ------- ------ ----------
971,683 7,752 (3,650) 975,785
Treasury stock.......... -- (2,756) -- (2,756)
---------- ------- ------ ----------
Total stockholders'
equity............... 971,683 4,996 (3,650) 973,029
---------- ------- ------ ----------
Total liabilities and
stockholders'
equity............... $1,317,745 $20,238 $1,062 $1,339,045
========== ======= ====== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
51
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Statement of Income (1)
For the three months ended March 31, 1999
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues..................... $331,788 $9,260 $ -- $341,048
Operating expenses, excluding
merger and restructuring
costs....................... 270,812 8,622 (202)(5) 279,232
-------- ------ ----- --------
60,976 638 202 61,816
Merger and restructuring
costs....................... 81,400 -- -- 81,400
-------- ------ ----- --------
Operating income (loss)...... (20,424) 638 202 (19,584)
Net interest income
(expense)................... 3,275 (24) (202)(5) 3,049
-------- ------ ----- --------
Income (loss) before income
taxes....................... (17,149) 614 -- (16,535)(3)
Income taxes................. 26,011 218 -- 26,229
-------- ------ ----- --------
Net income (loss) before
extraordinary gain.......... ($43,160) $ 396 $ -- ($42,764)(3)
Extraordinary gain on sale of
subsidiaries, net of income
taxes....................... 10,371 -- -- 10,371
-------- ------ ----- --------
Net income (loss)............ ($32,789) $ 396 $ -- ($32,393)
======== ====== ===== ========
Pro forma net income (loss).. ($5,855) $ 396 $ -- ($5,459)
======== ====== ===== ========
Pro forma basic net income
(loss) per common share,
before extraordinary item... ($0.14) $ 0.48 -- ($0.13)
Pro forma basic net income
(loss) per common share,
after extraordinary item.... ($0.05) $ 0.48 -- ($0.05)
Shares used to compute pro
forma basic net income
(loss) per common share..... 117,489 818 126 (2) 118,433
Pro forma diluted net income
(loss) per common share,
before extraordinary item... ($0.14) $ 0.48 -- ($0.13)
Pro forma diluted net income
(loss) per common share,
after extraordinary item.... ($0.05) $ 0.48 -- ($0.05)
Shares used to compute pro
forma diluted net income
(loss) per common share..... 117,489 828 116 (2) 118,433 (4)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
52
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Balance Sheet (1)
March 31, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash, cash equivalents and
short-term investments.... $140,665 $ 41 $ -- $140,706
Accounts receivable, net... 259,788 6,780 -- 266,568
Prepaid expenses and other
current assets............ 23,731 1,855 -- 25,586
Deferred income taxes...... 22,435 (88) -- 22,347
-------- ------- ------ --------
Total current assets... 446,619 8,588 -- 455,207
Property and equipment,
net....................... 142,250 1,624 911 (5) 144,785
Intangible and other long-
term assets............... 363,577 6,241 -- 369,818
-------- ------- ------ --------
Total assets........... $952,446 $16,453 $ 911 $969,810
======== ======= ====== ========
Liabilities and
Stockholders' Equity:
Short-term and current
portion of long-term
debt...................... $ 17,309 $ 417 $ -- $ 17,726
Accounts payable........... 22,419 1,513 -- 23,932
Accrued compensation and
benefits.................. 51,348 1,660 -- 53,008
Other accrued expenses..... 56,154 869 -- 57,023
Deferred revenues.......... 124,126 3,453 -- 127,579
-------- ------- ------ --------
Total current
liabilities........... 271,356 7,912 -- 279,268
Long-term debt............. 2,835 4,078 4,704 (5) 11,617
-------- ------- ------ --------
274,191 11,990 4,704 290,885
-------- ------- ------ --------
Stockholders' Equity:
Preferred stock.......... -- -- -- --
Common stock............. 1,132 20 (9)(2)(5) 1,143
Capital in excess of par
value................... 250,489 1,772 (3,784)(2)(5) 248,477
Notes receivable from
stockholders............ (485) (694) -- (1,179)
Restricted stock plans
and deferred
compensation............ (1,393) -- -- (1,393)
Retained earnings........ 436,008 5,821 -- 441,829 (3)
Accumulated other
comprehensive income
(loss).................. (7,005) 75 -- (6,930)
-------- ------- ------ --------
678,746 6,994 (3,793) 681,947
Treasury stock............. (491) (2,531) -- (3,022)
-------- ------- ------ --------
Total stockholders'
equity.................. 678,255 4,463 (3,793) 678,925
-------- ------- ------ --------
Total liabilities and
stockholders' equity.... $952,446 $16,453 $ 911 $969,810
======== ======= ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
53
<PAGE>
SunGard Data Systems Inc.
Pro Forma Combined Condensed Statement of Income (1)
For the three months ended March 31, 1998
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
SunGard Pentamation Adjustments Combined
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues...................... $285,493 $6,514 $ -- $292,007
Operating expenses, excluding
merger and restructuring
costs........................ 236,428 6,137 (212)(5) 242,353
-------- ------ ----- --------
49,065 377 212 49,654
Merger and restructuring
costs........................ 8,147 -- -- 8,147
-------- ------ ----- --------
Operating income.............. 40,918 377 212 41,507
Net interest income
(expense).................... 1,236 (6) (212)(5) 1,018
-------- ------ ----- --------
Income before income taxes.... 42,154 371 -- 42,525(3)
Income taxes.................. 18,432 44 -- 18,476
-------- ------ ----- --------
Net income.................... $ 23,722 $ 327 $ -- $ 24,049(3)
======== ====== ===== ========
Pro forma net income.......... $ 22,930 $ 327 $ -- $ 23,257
======== ====== ===== ========
Basic pro forma net income per
common share................. $ 0.20 $ 0.38 $ 0.20
Shares used to compute basic
pro forma net income per
common share................. 112,757 857 132(2) 113,746
Diluted pro forma net income
per common share............. $ 0.19 $ 0.38 -- 0.20
Shares used to compute pro
forma diluted net income per
common share................. 118,015 867 133(2) 119,015
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
54
<PAGE>
SunGard Data Systems Inc.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(Unaudited)
Note 1--Basis of Presentation
The unaudited pro forma combined financial information has been presented
based solely on historical financial results of SunGard and Pentamation, and is
not necessarily indicative of the results which would have been obtained if the
acquisition of Pentamation by SunGard had actually occurred during the periods
presented.
All historical financial information of SunGard has been restated, as
required by generally accepted accounting principles, to include the historical
financial information of Automated Securities Clearance, Ltd., Sterling
Wentworth Corporation, and FDP Corporation, all of which were acquired by
SunGard in pooling-of-interests transactions during the first four months of
1999.
Pentamation has a fiscal year which ends on September 30. SunGard reports
all financial information on a calendar year basis. The pro forma financial
information for the periods presented combine SunGard's calendar year with
Pentamation's fiscal year, except that the three months ended March 31, 1999
presents Pentamation as if their fiscal period were converted to a calendar
period as of December 31, 1998.
Note 2--Exchange Ratio
Under the agreement, excluding the purchase of automobiles and facilities
(see Note 5), each outstanding Pentamation common share will be converted into
a maximum of 1.1536120 shares of SunGard Common Stock. The actual exchange
ratio, excluding the purchase of automobiles and facilities (see Note 5), will
range from 1.0405122 to 1.1536120, depending upon the average closing price of
SunGard Common Stock during the 20 trading day period ending 2 days prior to
the effective date of the arrangement. All options to purchase Pentamation
common shares will be converted into options to purchase shares of SunGard
Common Stock, using the same exchange ratio.
The maximum exchange ratio was used in computing shares and per share
amounts in the accompanying unaudited pro forma combined condensed financial
information.
Note 3--Merger Costs
All pro forma information excludes merger costs, estimated to be
approximately $600,000. These costs are principally comprised of legal,
accounting and printing costs.
Note 4--Antidilutive shares
The number of dilutive shares used in the calculation of pro forma diluted
net income per common share during the three months ended March 31, 1999
excludes 4,509,000 shares because those shares are antidilutive due to a net
loss during the period.
Note 5--Automobiles and Facilities
Under the Reorganization Agreement, facilities and automobiles currently
leased by Pentamation and owned by a partnership controlled by certain
affiliates of Pentamation will be sold to Pentamation prior to the consummation
of the merger between SunGard and Pentamation. Also, the debt directly related
to the automobiles and facilities will be assumed by SunGard. Additional shares
of SunGard Common Stock will be issued based on the fair market value of the
automobiles and facilities, as determined by an independent appraisal, less the
fair market value of the debt directly related to the automobiles and
facilities. The number of SunGard shares estimated to be issued is
approximately 110,000 shares. The issuance of these additional shares is not
material to the pro forma financial information presented. The pro forma
adjustments represent the approximate book value of the automobiles and
facilities, and the related debt. The estimated costs for interest,
depreciation, taxes, and operating expenses offset the rent expense paid by
Pentamation to the Partnership.
55
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Pentamation Enterprises, Inc.--Independent Accountants' Report.......... F-2
Consolidated Balance Sheets as of September 30, 1998 and 1997........... F-3
Consolidated Statements of Income for the years ended September 30,
1998, 1997 and 1996.................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1998, 1997 and 1996...................................... F-5
Consolidated Statements of Cash Flow for the years ended September 30,
1998, 1997 and 1996.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Pentamation Enterprises, Inc.--Independent Accountants' Report.......... F-14
Consolidated Balance Sheets as of March 3, 1999 and 1998................ F-15
Consolidated Statements of Income for the six months ended
March 31, 1999 and 1998................................................ F-16
Consolidated Statements of Shareholders' Equity for the six months ended
March 31, 1999 and 1998................................................ F-17
Consolidated Statements of Comprehensive Income for the six months ended
March 31, 1999 and 1998................................................ F-18
Consolidated Statements of Cash Flows for the six months ended March
31,1999 and 1998....................................................... F-19
Notes to Consolidated Financial Statements.............................. F-20
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
Pentamation Enterprises, Inc. and Subsidiaries
Bethlehem, Pennsylvania
We have audited the accompanying consolidated balance sheets of Pentamation
Enterprises, Inc. and Subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 Pentamation Enterprises, Inc. and Subsidiaries as of September 30, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
Halbert, Katz & Co., P.C.
November 18, 1998
F-2
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash.............................................. $ 425,481 $ 136,832
Trade receivables, less allowance for doubtful
accounts of $129,000 and $64,600 at September
30, 1998 and 1997, respectively.................. 6,518,825 5,286,860
Earned but unbilled receivables................... 1,626,888 1,557,302
Prepaid expenses and other current assets......... 1,216,389 1,020,495
Deferred income taxes............................. 382,300 277,800
------------ ------------
Total current assets.......................... 10,169,883 8,279,289
------------ ------------
Property and equipment, net of accumulated
depreciation of $5,080,638 and $4,361,268 at
September 30, 1998 and 1997, respectively......... 1,707,324 1,608,139
Software products, net of accumulated amortization
of $6,769,762 and $5,369,320 at September 30, 1998
and 1997, respectively............................ 8,491,802 5,612,837
------------ ------------
10,199,126 7,220,976
------------ ------------
Other assets:
Marketable securities available for sale.......... 381,548 340,145
Deposits.......................................... 72,475 63,900
------------ ------------
454,023 404,045
------------ ------------
Total assets.................................. $ 20,823,032 $ 15,904,310
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Short-term and current portion of long-term
debt............................................. $ 604,183 $ 417,000
Accounts payable.................................. 1,652,053 1,486,033
Accrued compensation and benefits................. 2,339,964 1,683,947
Other accrued expenses............................ 375,458 398,414
Accrued income taxes.............................. -- 9,000
Deferred revenue.................................. 6,926,122 4,275,811
------------ ------------
Total current liabilities..................... 11,897,780 8,270,205
------------ ------------
Long-term debt..................................... 3,831,079 2,932,500
Deferred income taxes.............................. 489,000 468,800
------------ ------------
4,320,079 3,401,300
------------ ------------
Total liabilities............................. 16,217,859 11,671,505
------------ ------------
Commitments and contingencies...................... -- --
------------ ------------
Shareholders' equity:
Common stock, authorized 5,000,000 shares; stated
value $.015; issued and outstanding 817,734
shares in 1998, and 858,103 shares in 1997
(excluding 501,727 shares in 1998 and 461,358
shares in 1997, held in the treasury)............ 19,792 19,792
Additional paid-in capital........................ 1,771,739 1,771,739
Retained earnings................................. 6,130,833 5,494,680
------------ ------------
7,922,364 7,286,211
Less:
Treasury stock, at cost......................... (2,756,267) (2,434,228)
Notes receivable for common stock............... (603,990) (694,645)
Net unrealized gain on marketable securities
available for sale............................. 43,066 75,467
------------ ------------
4,605,173 4,232,805
------------ ------------
Total liabilities and shareholders' equity.... $ 20,823,032 $ 15,904,310
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................ $27,337,075 $21,959,309 $23,254,371
----------- ----------- -----------
Costs and expenses:
Cost of sales and direct
operating........................ 17,169,382 14,304,766 14,845,169
Sales marketing and
administration................... 6,505,701 5,391,162 5,388,322
Product development............... 407,815 263,349 288,456
Amortization and depreciation..... 2,119,812 1,193,037 1,024,574
----------- ----------- -----------
26,202,710 21,152,314 21,546,521
----------- ----------- -----------
Income from operations.............. 1,134,365 806,995 1,707,850
Interest and miscellaneous income... 60,226 45,234 33,794
Interest expense.................... (169,438) (71,429) (120,729)
----------- ----------- -----------
Income before taxes................. 1,025,153 780,800 1,620,915
Income taxes........................ 389,000 303,000 588,000
----------- ----------- -----------
Net income.......................... $ 636,153 $ 477,800 $ 1,032,915
=========== =========== ===========
Basic net income per common share... $ .76 $ .55 $ 1.21
=========== =========== ===========
Shares used to compute basic net
income
per common share................... 837,612 862,241 854,773
=========== =========== ===========
Diluted net income per common
share.............................. $ .75 $ .55 $ 1.21
=========== =========== ===========
Shares used to compute diluted net
income
per common share................... 847,612 862,241 854,773
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Notes gain on
receivable marketable
Additional for securities Total
Common paid-in Retained Treasury common available shareholders'
stock capital earnings stock stock for sale equity
-------- ----------- ----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1995................... $ 19,792 $ 1,502,691 $ 3,983,965 ($ 2,008,520) $ -- $ -- $ 3,497,928
Issuance of notes
receivable for the
purchase of 100,000
shares of treasury
stock.................. -- -- -- (700,000) -- (700,000)
Purchase of 117,540
shares of treasury
stock at cost.......... -- -- -- (822,780) -- -- (822,780)
Sales of 100,000 shares
of treasury stock...... -- 269,048 -- 430,952 -- -- 700,000
Net income.............. -- -- 1,032,915 -- -- -- 1,032,915
-------- ----------- ----------- ------------ ---------- -------- -----------
Balance, September 30,
1996................... 19,792 1,771,739 5,016,880 (2,400,348) (700,000) -- 3,708,063
Proceeds from collection
of notes receivable.... -- -- -- -- 5,355 -- 5,355
Purchase of 4,840 shares
of treasury stock at
cost................... -- -- -- (33,880) -- -- (33,880)
Net unrealized gain on
marketable securities
available for sale..... -- -- -- -- -- 75,467 75,467
Net income.............. -- -- 477,800 -- -- -- 477,800
-------- ----------- ----------- ------------ ---------- -------- -----------
Balance, September 30,
1997................... 19,792 1,771,739 5,494,680 (2,434,228) (694,645) 75,467 4,232,805
Proceeds from collection
of notes receivable.... -- -- -- -- 90,655 -- 90,655
Purchase of 40,369
shares of treasury
stock at cost.......... -- -- -- (322,039) -- -- (322,039)
Net unrealized loss on
marketable securities
available for sale..... -- -- -- -- -- (32,401) (32,401)
Net income.............. -- -- 636,153 -- -- -- 636,153
-------- ----------- ----------- ------------ ---------- -------- -----------
Balance, September 30,
1998................... $19,792 $1,771,739 $6,130,833 ($2,756,267) ($603,990) $43,066 $4,605,173
======== =========== =========== ============ ========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net income............................... $ 636,153 $ 477,800 $ 1,032,915
---------- ---------- -----------
Reconciliation of net income to cash
flow from operations:
Depreciation and amortization.......... 2,119,812 1,193,037 1,024,574
Bad debts expense...................... 100,000 64,612 167,002
Deferred income taxes.................. (84,300) (43,000) 70,000
Accounts receivable and other current
assets................................ (1,065,328) (504,297) (559,266)
Accounts payable and accrued expenses.. 638,608 161,271 401,049
Deferred revenue....................... 2,570,881 118,060 (270,542)
---------- ---------- -----------
4,279,673 989,683 832,817
---------- ---------- -----------
Net cash provided by operating
activities.......................... 4,915,826 1,467,483 1,865,732
---------- ---------- -----------
Cash flows from investing activities:
Cash paid for property and equipment..... (762,805) (904,530) (682,882)
Cash paid for software products.......... (3,165,585) (2,382,302) (1,368,488)
Cash paid for acquired business, net of
cash acquired........................... (1,126,599) -- --
Decrease in notes receivable for common
stock................................... 90,655 5,355 --
Purchase of marketable securities,
available for sale...................... ( 73,804) (264,678) --
---------- ---------- -----------
Net cash used in investing
activities.......................... (5,038,138) (3,546,155) (2,051,370)
---------- ---------- -----------
Cash flows from financing activities:
Repayments of debt....................... (467,000) (173,000) (1,387,500)
Borrowings from notes payable............ 1,200,000 2,010,000 1,650,000
Purchase of treasury stock............... (322,039) (33,880) (822,780)
---------- ---------- -----------
Net cash provided by financing
activities.......................... 410,961 1,803,120 (560,280)
---------- ---------- -----------
Net increase (decrease) in cash........... 288,649 (275,552) (745,918)
Cash, beginning of year................... 136,832 412,384 1,158,302
---------- ---------- -----------
Cash, end of year......................... $ 425,481 $ 136,832 $ 412,384
========== ========== ===========
Supplemental disclosure of cash flow
Information
Cash paid during the year:
Interest, net of capitalized interest of
$237,475, $187,440 and $44,991 for the
years ended September 30, 1998, 1997
and 1996, respectively.................. $ 169,595 $ 54,070 $ 155,117
========== ========== ===========
Income taxes........................... $ 565,830 $ 334,425 $ 678,490
========== ========== ===========
Noncash investing and financing activities
Long-term debt incurred in connection with
TreSun Corporation acquisition........... $ 352,762 $ -- $ --
========== ========== ===========
The Company retired fully depreciation
assets................................... $ -- $ -- $ 1,315,458
========== ========== ===========
Officers of the Company acquired 100,000
shares of the Company's treasury stock
through the issuance of notes
receivable............................... $ -- $ -- $ 700,000
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1998, 1997 and 1996
Note 1 Operations and summary of significant accounting policies
Nature of operations
Pentamation Enterprises, Inc. ("the Company"), which was organized in 1969,
markets application software and associated computer hardware, software
support, hardware maintenance and technical services primarily to K-12
education institutions and local governments throughout the United States.
Payments for software products can be extended beyond one year, depending on
customer's installation schedule. The Company grants credit in the normal
course of business to its customers in those sectors and requires no
collateral. There is no geographical concentration of credit risk.
The financial statements include the accounts of Pentamation Enterprises,
Inc. and its wholly-owned subsidiaries, individually and collectively referred
to as "the Company". All intercompany accounts and transactions have been
eliminated in consolidation.
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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.
Revenue and cost recognition
Software
The Company recognizes revenue upon delivery of all software and hardware
portions of sales contracts. Revenue from installation of software and hardware
based on contractual agreements is recognized over the period the installation
is performed.
Software and hardware costs are accrued upon the recognition of the related
revenue. Installation costs are recognized as incurred.
Technical and maintenance (including deferred revenue recognition)
The Company provides technical and maintenance services to its customers
under various contractual arrangements with the remaining terms ranging from
one month to five years. The Company recognizes revenue as services are
performed over the terms of the related contracts. Computer software
maintenance and customer support costs and the costs of developing computer
programs for customers for a fee under contractual arrangements are expensed as
incurred.
Capitalized computer software development costs and research and development
expenditures
Capitalized computer software development costs consist of costs to
internally develop software and externally purchase software. Capitalization of
software development costs begins upon the establishment of technological
feasibility. The ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies. Management monitors the
estimates that affect the recoverability of these development costs.
F-7
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
Capitalized software development costs and amortization and accumulated
amortization of capitalized software development costs are as follows:
<TABLE>
<CAPTION>
Capitalized Software Development
Costs
-------------------------------------
Accumulated Amortization
Year ended September 30, Capitalized amortization expense
------------------------ ----------- ------------ ------------
<S> <C> <C> <C>
1998................................. $2,990,000 $6,770,000 $1,400,000
========== ========== ==========
1997................................. $2,267,000 $5,369,000 $ 592,000
========== ========== ==========
1996................................. $1,306,000 $4,777,000 $ 524,000
========== ========== ==========
</TABLE>
Included in capitalized software development costs is capitalized interest cost
of $237,000, $187,000 and $45,000 in 1998, 1997 and 1996, respectively.
Capitalized computer software in service includes externally purchased
computer software at its fair market value at the time of acquisition of
$3,373,000 and $2,083,000 at September 30, 1998 and 1997, respectively.
The Company amortizes capitalized software development costs over their
expected life (generally 5 to 7 years). Due to inherent technological changes
in the software development industry, the period over which such capitalized
software costs are being amortized may have to be accelerated.
During 1998, management determined that the net book value of certain
Company capitalized software products had no continuing value. Accordingly, an
expense of approximately $485,000 for acceleration of amortization of
capitalized software in service was recorded.
Research and development costs are expensed as incurred and approximated
$408,000, $263,000 and $288,000 in the years ended September 30, 1998, 1997 and
1996, respectively. Substantially all of the Company's research and development
activities relate to development of new computer software to be marketed and
sold. Research and development activities include costs incurred for the
conceptual formulation or translation of knowledge into a design to establish
technological feasibility.
Equipment, furniture and fixtures and depreciation
Equipment and furniture and fixtures are stated at cost. The cost and
accumulated depreciation of assets sold or retired is eliminated from the
accounts, and the resulting gain or loss is included in income.
Normal maintenance and repair expenditures are expensed as incurred; major
renewals or improvements which extend the life or increase the value of assets
are capitalized.
The cost of equipment and furniture and fixtures is depreciated over the
estimated useful lives of the related assets using the straight-line method.
The estimated useful lives generally used for major asset categories are as
follows:
<TABLE>
<CAPTION>
Estimated
Asset class useful life
----------- ------------
<S> <C>
Computer equipment in service................................... 3 to 5 years
Capitalized computer software in service........................ 5 to 7 years
Furniture and fixtures.......................................... 5 to 7 years
</TABLE>
F-8
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
Marketable securities available for sale
Marketable securities available for sale are valued at their market value in
accordance with Statement of Financial Accounting Standards No. 115. The gain
or loss on sale of marketable securities is computed using the specific
identification method.
Advertising
Advertising costs are charged directly to operations when incurred. Total
advertising costs incurred during the years ended September 30, 1998, 1997 and
1996, were approximately $86,000, $52,000 and $70,000, respectively.
Reclassifications
The financial statements for the years ended September 30, 1997 and 1996,
have been reclassified to conform with the presentation for the year ended
September 30, 1998.
Note 2 Acquisition
On September 29, 1998, the Company acquired TreSun Corporation in a business
combination accounted for as a purchase. TreSun Corporation is primarily
engaged in designing, developing, selling, installing and maintaining
proprietary data processing software systems for local governments. The results
of operations of the TreSun Corporation have been included in the accompanying
financial statements since the date of acquisition. The cost of the acquisition
was approximately $1,724,000, which includes a value of $1,114,000 for the
capitalized software acquired (purchase software). This software is being
amortized over 7 years. The acquisition agreement also provided for contingent
consideration of 20% of the software revenues collected in excess of $200,000
during the first 12 months after the closing date; 20% of the software revenues
collected in excess of $200,000 during the second 12 months following the
closing date and a final payment of 20% of the software revenues collected
during the 36 months following the closing date less any contingency payments
previously paid. No accrual for contingent consideration has been recorded.
Note 3 Marketable securities available for sale
The following is a summary of marketable securities classified as available
for sale.
<TABLE>
<CAPTION>
Gross Unrealized Holding
------------------------
Fair
value Cost Gains Losses
-------- -------- ------- -------
<S> <C> <C> <C> <C>
September 30, 1998:
Marketable equity securities........... $381,548 $338,482 $44,371 ($1,305)
======== ======== ======= =======
September 30, 1997:
Marketable equity securities........... $340,145 $264,678 $75,467 $ --
======== ======== ======= =======
</TABLE>
For the years ended September 30, 1998, 1997 and 1996, there were no sales
and gains or losses on marketable securities available for sale.
Note 4 Notes receivable for common stock
Notes receivable for common stock consists of two notes receivable
aggregating $604,000 ($695,000 at September 30, 1997) from officers of the
Company. These notes bear interest at the Internal Revenue adjusted applicable
federal rate (6% at September 30, 1998 and 1997) and mature in June, 2002.
F-9
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
Note 5 Long-term debt
<TABLE>
<CAPTION>
September 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Line of credit/Note payable, bank
The Company has available, pursuant to the terms of the
second amendment to revolving credit agreement dated
December 29, 1997, a $5,000,000 ($3,250,000 at
September 30, 1997) unsecured line of credit at
interest rates including prime less 3/8% (7.875% at
September 30, 1998) or LIBOR plus 2% (7.645% to a
maximum of $2,500,000 of the line of credit) as
selected by the Company. The interest rate at September
30, 1997 was prime less .125% (8.375%). Participation
in the line may be in the form of borrowing and/or
letters of credit up to a maximum of $5,000,000.
Outstanding letters of credit are considered as usage
of the line. The line of credit expires October 31,
1999. At September 30, 1998, the Company had an
outstanding letter of credit of $50,000 and the unused
portion of the line was $3,700,000..................... $1,250,000 $1,300,000
Term loans payable, bank
The Company has a term loan (original amount $1,650,000)
with interest payable at prime (8.25% and 8.5% at
September 30, 1998 and 1997, respectively). Principal
payments are due in amounts of $68,750 per quarter for
twenty-four quarters commencing October 2, 1996........ 1,100,000 1,375,000
In April 1997, the Company entered into a term loan for
$710,000, with interest payable at prime less .25%
(8.00% and $8.25% at September 30, 1998 and 1997,
respectively). Principal payments are due in amounts of
$35,500 per quarter for twenty quarters commencing July
1, 1997................................................ 532,500 674,500
In September, 1998, the Company entered into a term loan
for $1,200,000 with interest at 7.65% for the
acquisition of the TreSun Corporation. Principal and
interest payments are due in monthly installments of
$24,131 for sixty months commencing November 1, 1998... $1,200,000 $ --
Acquisition obligation
As part of the acquisition of TreSun Corporation (see
Note 2) the Company incurred an acquisition obligation
to the selling shareholders for $400,000. This
obligation is payable $200,000 on October 31, 1999 and
$200,000 on October 31, 2000. There is no stated
interest; inputed interest of 8% ($47,238) has been
recorded............................................... 352,762 --
---------- ----------
4,435,262 3,349,500
Less short-term and current portion of long-term debt... 604,183 417,000
---------- ----------
$3,831,079 $2,932,500
========== ==========
</TABLE>
The line of credit and term loans are uncollateralized but require the
Company to maintain certain financial covenants. In addition, the loan
agreements include certain restrictions on the sale of assets, pledging of
accounts receivable and borrowing by the Company.
F-10
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending September 30, 1999................................... $ 604,183
Year ending September 30, 2000................................... 2,071,362
Year ending September 30, 2001................................... 822,190
Year ending September 30, 2002................................... 637,386
Year ending September 30, 2003................................... 276,162
Year ending September 30, 2004................................... 23,979
----------
$4,435,262
==========
</TABLE>
Note 6 Income taxes
The Company has provided for the effects of income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred income taxes are provided in recognition of temporary
differences between financial and income tax reporting and consist of the
following:
<TABLE>
<CAPTION>
September 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax asset:
Deferred compensation.............................. $ 167,000 $ 108,800
Allowance for bad debts............................ 43,800 22,000
Vacation accrual................................... 171,500 147,000
--------- ---------
382,300 277,800
Valuation allowance.................................. -- --
--------- ---------
Net deferred tax assets.............................. 382,300 277,800
Deferred tax liability, depreciation and
amortization........................................ ( 489,000) ( 468,800)
--------- ---------
Net deferred tax liability........................... ($106,700) ($191,000)
========= =========
</TABLE>
In prior years, the Company reduced its effective state tax rate resulting
principally from a change in states where the Company conducts its business.
This change, which is expected to continue in the future, resulted in a
decrease in the Company's current and deferred income tax liabilities.
Accordingly, the Company's current and deferred income tax liabilities are
based on the reduced rate applicable to subsequent years.
The components of the provision for income tax expense are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current......................................... $473,300 $346,000 $518,000
Deferred........................................ ( 84,300) ( 43,000) 70,000
-------- -------- --------
$389,000 $303,000 $588,000
======== ======== ========
</TABLE>
Note 7 Salary redirection and savings plan
The Company established a Salary Redirection and Savings Plan under Section
401(k) of the Internal Revenue Code (the "Plan") in October 1984. All employees
are eligible to participate in the Plan at the beginning of the calendar
quarter following employment. The Company matches employee contributions which
F-11
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
can be up to a maximum of 50% of the first 6% of employee contributions. The
Plan establishes vesting requirements upon the Company's contribution based on
years of service. Forfeitures are returned to the Company. The Company's
contribution to the Plan for the year ended September 30, 1998 was
approximately $260,000, net of forfeitures of approximately $10,000. The
Company's contributions to the Plan for the years ended September 30, 1997 and
1996, were approximately $239,000 and $202,000, respectively.
Note 8 Stock option
Effective February 1, 1998, as part of a revised executive compensation
agreement for the Company's newly promoted President and Chief Operating
Officer, the Company granted a stock option for the purchase of 25,000 shares
of the Company's common stock. This option vested immediately at a price of
$6.00 per share and expires January 31, 2005. As of September 30, 1998, these
shares had not been exercised or forfeited and remain exercisable.
The Company applies APB Opinion #25 in accounting for this stock option.
Accordingly, no compensation was recognized for the year ended September 30,
1998. Had compensation costs been determined on the basis of fair value
pursuant to FASB Statement No. 123, net income would have reduced as follows:
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Net income:
As reported................................... $636,153 $477,800 $1,032,915
======== ======== ==========
Pro forma..................................... $570,153 $477,800 $1,032,915
======== ======== ==========
Earnings per share:
As reported................................... $ .76 $ .55 $ 1.21
======== ======== ==========
Pro forma..................................... $ .68 $ .55 $ 1.21
======== ======== ==========
</TABLE>
Because there is no market for the Company's stock, fair value of these
options was determined based on the value of treasury shares purchased prior to
and after the issuance of this stock option.
Note 9 Commitments and contingencies
Related party transactions
Operating leases
The Company's leasing arrangements are primarily for the use of office space
for its operations, equipment and vehicles. Total rental expense, including
short-term cancelable leases, for the years ended September 30, 1998, 1997 and
1996 were approximately $1,297,000, $1,086,000 and $931,000, respectively.
F-12
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
September 30, 1998, 1997 and 1996
Future minimum rental commitments as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Office
Year space Equipment Vehicles Total
---- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
1999............................... $ 835,000 $ 66,000 $344,000 $1,245,000
2000............................... 817,000 66,000 230,000 1,113,000
2001............................... 811,000 55,000 110,000 976,000
2002............................... 811,000 -- -- 811,000
2003............................... 659,000 -- -- 659,000
Thereafter......................... 3,679,000 -- -- 3,679,000
---------- -------- -------- ----------
Total.............................. $7,612,000 $187,000 $684,000 $8,483,000
========== ======== ======== ==========
</TABLE>
The information above includes data relating to leases of certain vehicles
and real estate from GLS, a partnership controlled by certain officers and
principal shareholders of the Company. Rental expense under the GLS leases for
the years ended September 30, 1998, 1997 and 1996 was $1,195,000, $995,000 and
$890,000, respectively. Minimum rental commitments at September 30, 1998, under
the GLS leases approximated $7,872,000, exclusive of operating costs which are
the responsibility of the Company and possible rent increases for consumer
price index adjustments.
Other commitments
The Company has entered into an agreement with its two major shareholders to
repurchase 200,000 shares of stock from each shareholder in the event of death,
permanent disability or retirement. Pursuant to the agreement, the purchase
price of such shares is 175% of the Company's net book value per share as of
the close of the latest fiscal year end. Payments under this agreement could be
extended by the Company for a period of 10 years. Disability and term life
insurance on each of the two major shareholders would fund a majority of this
purchase. This agreement terminates if the Company is purchased or merges with
another company in a pooling of interest transaction.
Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash.
Year 2000
Management has assessed the Company's exposure to date sensitive computer
software programs that may not be operative subsequent to 1999 and has
implemented a requisite course of action to minimize Year 2000 risk and ensure
that neither significant costs nor disruption of normal business operations are
encountered. However, because there is no guarantee that all systems of outside
vendors or other entities affecting the Company's operations will be 2000
compliant, the Company remains susceptible to consequences of the Year 2000
issue.
F-13
<PAGE>
Independent Accountants' Report
Board of Directors and Shareholders
Pentamation Enterprises, Inc. and Subsidiaries
Bethlehem, Pennsylvania
We have reviewed the accompanying balance sheets of Pentamation Enterprises,
Inc. and Subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, comprehensive income
and cash flows for the six months ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Halbert, Katz & Co., P.C.
May 19, 1999
F-14
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash............................................... $ 185,453 $ 17,389
Marketable securities available for sale........... 491,327 --
Trade receivables, less allowance for doubtful
accounts of $39,000 and $24,000 at March 31, 1999
and 1998, respectively............................ 7,140,346 3,650,064
Earned but unbilled receivables.................... 1,184,923 2,700,649
Prepaid expenses and other current assets.......... 1,575,524 1,137,492
Deferred income taxes.............................. 340,500 308,000
----------- -----------
Total current assets............................. 10,918,073 7,813,594
----------- -----------
Property and equipment, net of accumulated
depreciation of $5,465,574 and $4,715,465 at March
31, 1999 and 1998, respectively.................... 1,601,773 1,533,007
Software products, net of accumulated amortization
of $8,363,230 and $5,749,279 at March 31, 1999 and
1998, respectively................................. 8,127,817 6,939,693
----------- -----------
9,729,590 8,472,700
----------- -----------
Other assets:
Marketable securities available for sale........... -- 424,382
Deposits........................................... 72,475 63,900
----------- -----------
72,475 488,282
----------- -----------
Total assets..................................... $20,720,138 $16,774,576
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term and current portion of long-term debt... $ 1,196,562 $ 417,000
Accounts payable................................... 1,458,245 960,055
Accrued compensation and benefits.................. 2,213,084 1,691,410
Other accrued expenses............................. 1,044,161 671,194
Accrued income taxes............................... 45,584 44,830
Deferred revenue................................... 7,172,402 2,865,432
----------- -----------
Total current liabilities........................ 13,130,038 6,649,921
----------- -----------
Long-term debt...................................... 2,113,519 5,074,000
Deferred income taxes............................... 481,500 456,000
----------- -----------
2,595,019 5,530,000
----------- -----------
Total liabilities................................ 15,725,057 12,179,921
----------- -----------
Commitments and contingencies....................... -- --
----------- -----------
Shareholders' equity:
Common stock, authorized 5,000,000 shares; stated
value $.015; issued and outstanding 817,734 shares
in 1999, and 839,779 shares in 1998 (excluding
501,727 shares in 1999 and 479,682 shares in 1998,
held in the treasury)............................. 19,792 19,792
Additional paid-in capital......................... 1,771,739 1,771,739
Retained earnings.................................. 6,430,571 5,967,163
----------- -----------
8,222,102 7,758,694
Less:
Treasury stock, at cost........................... (2,756,267) (2,565,614)
Notes receivable for common stock................. (560,976) (684,871)
Net unrealized gain on marketable securities
available for sale................................ 90,222 86,446
----------- -----------
4,995,081 4,594,655
----------- -----------
Total liabilities and shareholders' equity....... $20,720,138 $16,774,576
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Six months ended March
31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues............................................ $17,531,334 $12,681,916
----------- -----------
Costs and expenses:
Cost of sales and direct operating................ 11,039,308 8,116,496
Sales marketing and administration................ 3,735,896 2,873,623
Product development............................... 228,389 210,733
Amortization and depreciation..................... 1,978,405 734,156
----------- -----------
16,981,998 11,935,008
----------- -----------
Income from operations.............................. 549,336 746,908
Interest and miscellaneous income................... 30,885 43,469
Interest expense.................................... (96,483) (49,894)
----------- -----------
Income before taxes................................. 483,738 740,483
Income taxes........................................ 184,000 268,000
----------- -----------
Net income.......................................... $ 299,738 $ 472,483
=========== ===========
Basic net income per common share................... $ .37 $ .56
=========== ===========
Shares used to compute basic net income per common
share.............................................. 817,734 849,340
=========== ===========
Diluted net income per common share................. $ .36 $ .55
=========== ===========
Shares used to compute diluted net income per common
share.............................................. 827,734 859,340
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Notes gain on
receivable marketable
Additional for securities Total
Common paid-in Retained Treasury common available shareholders'
stock capital earnings stock stock for sale equity
------- ---------- ---------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1997................... $19,792 $1,771,739 $5,494,680 $(2,434,228) $(694,645) $75,467 $4,232,805
Proceeds from collection
of notes receivable.... -- -- -- -- 9,774 -- 9,774
Purchase of 18,324
shares of treasury
stock at cost.......... -- -- -- (131,386) -- -- (131,386)
Net unrealized gain on
marketable securities
available for sale..... -- -- -- -- -- 10,979 10,979
Net income.............. -- -- 472,483 -- -- -- 472,483
------- ---------- ---------- ----------- --------- ------- ----------
Balance, March 31,
1998................... $19,792 $1,771,739 $5,967,163 $(2,565,614) $(684,871) $86,446 $4,594,655
======= ========== ========== =========== ========= ======= ==========
Balance, September 30,
1998................... $19,792 $1,771,739 $6,130,833 $(2,756,267) $(603,990) $43,066 $4,605,173
Proceeds from collection
of notes receivable.... -- -- -- -- 43,014 -- 43,014
Net unrealized gain on
marketable securities
available for sale..... -- -- -- -- -- 47,156 47,156
Net income.............. -- -- 299,738 -- -- -- 299,738
------- ---------- ---------- ----------- --------- ------- ----------
Balance, March 31,
1999................... $19,792 $1,771,739 $6,430,571 $(2,756,267) $(560,976) $90,222 $4,995,081
======= ========== ========== =========== ========= ======= ==========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net income........................................ $ 299,738 $ 472,483
Other comprehensive income:
Unrealized holding gains arising during the
period, net of income taxes of $46,000 and
$29,000 for the six months period ended March
31, 1999 and 1998, respectively................ 47,156 10,979
------------- -------------
Comprehensive income.............................. $ 346,894 $ 483,462
------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
March 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
Net income........................................... $ 299,738 $ 472,483
Reconciliation of net income to cash flow from
operations:
Depreciation and amortization...................... 1,978,405 734,156
Bad debts expense.................................. 45,000 40,612
Deferred income taxes.............................. (11,700) (43,000)
Accounts receivable and other current assets....... (583,691) 335,841
Accounts payable and accrued expenses.............. 409,553 (209,905)
Deferred revenue................................... 246,280 (1,410,379)
---------- ----------
Net cash provided by (used in) operating
activities...................................... 2,383,585 (80,192)
---------- ----------
Cash flows from investing activities:
Cash paid for property and equipment................. (279,387) (279,067)
Cash paid for software products...................... (1,229,482) (1,706,814)
Decrease in notes receivable for common stock........ 43,014 9,774
Purchase of marketable securities, available for
sale................................................ (16,623) (73,258)
---------- ----------
Net cash used in investing activities............ (1,482,478) (2,049,365)
---------- ----------
Cash flows from financing activities:
Repayment of debt.................................... (1,141,135) (208,500)
Borrowings from notes payable........................ -- 2,350,000
Purchase of treasury stock........................... -- (131,386)
---------- ----------
Net cash provided by (used in) financing
activities...................................... (1,141,135) 2,010,114
---------- ----------
Net decrease in cash................................... (240,028) (119,443)
Cash, beginning of year................................ 425,481 136,832
---------- ----------
Cash, end of year...................................... $ 185,453 $ 17,389
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year:
Interest, net of capitalized interest of $66,659 and
$133,954 for the years ended March 31, 1999, and
1998, respectively.................................. $ 96,483 $ 41,494
========== ==========
Income taxes......................................... $ 149,881 $ 275,170
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1999 and March 31, 1998
Note 1--Operations and summary of significant accounting policies
Nature of operations
Pentamation Enterprises, Inc. ("the Company"), which was organized in 1969,
markets application software and associated computer hardware, software
support, hardware maintenance and technical services primarily to K-12
education institutions and local governments throughout the United States.
Payments for software products can be extended beyond one year, depending on
customer's installation schedule. The Company grants credit in the normal
course of business to its customers in those sectors and requires no
collateral. There is no geographical concentration of credit risk.
The financial statements include the accounts of Pentamation Enterprises,
Inc. and its wholly-owned subsidiaries, individually and collectively referred
to as "the Company". All intercompany accounts and transactions have been
eliminated in consolidation.
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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.
Revenue recognition
Prior to October 1, 1998:
The Company recognizes revenue upon delivery of all software and
hardware portions of sales contracts. Revenue from installation of software
and hardware based on contractual agreements is recognized over the period
the installation is performed.
Software and hardware costs are accrued upon the recognition of the
related revenue. Installation costs are recognized as incurred.
The Company provides technical and maintenance services to its customers
under various contractual arrangements with the remaining terms ranging
from one month to five years. The Company recognizes revenue as services
are performed over the terms of the related contracts. Computer software
maintenance and customer support costs and the costs of developing computer
programs for customers for a fee under contractual arrangements are
expensed as incurred.
Subsequent to September 30, 1998:
Effective October 1, 1998, the Company adopted the provisions of
Statement of Position 97-2 Software Revenue Recognition, as amended.
Accordingly, the Company recognizes revenue upon delivery of all software
and hardware portions of sale contracts. For multiple element license
contracts, the license fee is allocated to the various elements based on
fair value. When a multiple element arrangement includes rights to
postcontract customer support (principally maintenance, technical and
training services) revenue is recognized as services are performed over the
term of the contract. For arrangements to deliver software that require
significant modifications or customization, as specified in the contract,
the application revenue is recognized on the percentage of completion
method.
F-20
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
Capitalized computer software development costs and research and development
expenditures
Capitalized computer software development costs consist of costs to
internally develop software and externally purchase software. Capitalization of
software development costs begins upon the establishment of technological
feasibility. The ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies. Management monitors the
estimates that affect the recoverability of these development costs.
Capitalized software development costs and amortization and accumulated
amortization of capitalized software development costs are as follows:
<TABLE>
<CAPTION>
Capitalized Software Development
Costs
-------------------------------------
Accumulated Amortization
Capitalized amortization expense
----------- ------------ ------------
<S> <C> <C> <C>
Six months ended March 31, 1999...... $1,137,000 $8,363,000 $1,593,000
========== ========== ==========
Six months ended March 31, 1998...... $1,600,000 $5,749,000 $ 380,000
========== ========== ==========
</TABLE>
Included in capitalized software development costs is capitalized interest
cost of $67,000 and $134,000 in 1999 and 1998, respectively.
Capitalized computer software in service includes externally purchased
computer software at its fair market value at the time of acquisition of
$3,465,000 and $2,189,000 at March 31, 1999 and 1998, respectively.
The Company amortizes capitalized software development costs over their
expected life (generally 5 to 7 years). Due to inherent technological changes
in the software development industry, the period over which such capitalized
software costs are being amortized may have to be accelerated.
During the six months ended March 31, 1999, management determined that the
net book value of certain Company capitalized software products had no
continuing value. Accordingly, an expense of approximately $922,000 for
acceleration of capitalized software in service was recorded.
Research and development costs are expensed as incurred and approximated
$228,000 and $211,000 for the six months ended March 31, 1999 and 1998,
respectively. Substantially all of the Company's research and development
activities relate to development of new computer software to be marketed and
sold. Research and development activities include costs incurred for the
conceptual formulation or translation of knowledge into a design to establish
technological feasibility.
Equipment, furniture and fixtures and depreciation
Equipment and furniture and fixtures are stated at cost. The cost and
accumulated depreciation of assets sold or retired is eliminated from the
accounts, and the resulting gain or loss is included in income.
Normal maintenance and repair expenditures are expensed as incurred; major
renewals or improvements which extend the life or increase the value of assets
are capitalized.
F-21
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
The cost of equipment and furniture and fixtures is depreciated over the
estimated useful lives of the related assets using the straight-line method.
The estimated useful lives generally used for major asset categories are as
follows:
<TABLE>
<CAPTION>
Estimated
Asset class useful life
----------- ------------
<S> <C>
Computer equipment in service................................... 3 to 5 years
Capitalized computer software in service........................ 5 to 7 years
Furniture and fixtures.......................................... 5 to 7 years
</TABLE>
Marketable securities available for sale
Marketable securities available for sale are valued at their market value in
accordance with Statement of Financial Accounting Standards No. 115. The gain
or loss on sale of marketable securities is computed using the specific
identification method.
Advertising
Advertising costs are charged directly to operations when incurred. Total
advertising costs incurred during the six months ended March 31, 1999 and 1998
was approximately $58,000 and $32,000, respectively.
Reclassifications
The financial statements for the year six months ended March 31, 1998 have
been reclassified to conform with the presentation for the six months ended
March 31, 1999.
Future adoption of Statement of Financial Standards No. 133
The Company anticipates the future adoption of Statement of Financial
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
will not have a material effect on the financial statements.
Note 2--Acquisition
On September 29, 1998, the Company acquired TreSun Corporation in a business
combination accounted for as a purchase. TreSun Corporation is primarily
engaged in designing, developing, selling, installing and maintaining
proprietary data processing software systems for local governments. The results
of operations of the TreSun Corporation have been included in the accompanying
financial statements since the date of acquisition. The cost of the acquisition
was approximately $1,724,000, which includes a value of $1,114,000 for the
capitalized software acquired (purchase software). This software is being
amortized over 7 years. The acquisition agreement also provided for contingent
consideration of 20% of the software revenues collected in excess of $200,000
during the first 12 months after the closing date; 20% of the software revenues
collected in excess of $200,000 during the second 12 months following the
closing date and a final payment of 20% of the software revenues collected
during the 36 months following the closing date less any contingency payments
previously paid. No accrual for contingent consideration has been recorded.
Note 3--Marketable securities available for sale
Marketable securities available for sale are Company assets held for certain
Company employees as part of a deferred compensation plan. As such, increases
and decreases in market value of these assets result in
F-22
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
increases and decreases in compensation expense and corresponding increases and
decreases in net unrealized gains on marketable securities available for sale.
Compensation expense for the six months ended March 31, 1999 was approximately
$136,000. No compensation expense was recorded for the six months ended March
31, 1998.
The following is a summary of marketable securities classified as available
for sale.
<TABLE>
<CAPTION>
Gross
unrealized
Fair holding
value Cost gains
-------- -------- ----------
<S> <C> <C> <C>
March 31, 1999:
Marketable equity securities.................. $491,327 $355,104 $136,222
======== ======== ========
March 31, 1998:
Marketable equity securities.................. $424,382 $337,936 $ 86,446
======== ======== ========
</TABLE>
For the six months ended March 31, 1999 and 1998, there were no sale of
securities or realized gains or losses from sale of securities.
Note 4--Comprehensive income
During the six months ended March 31, 1999, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 130, Reporting Comprehensive
Income. This statement requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is a more
comprehensive inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
At March 31, 1999, the Company's Other Comprehensive Income is the
unrealized holding gains on available for sale securities.
Note 5--Notes receivable, officers and employees
Included in notes receivable, officers and employees are two notes
receivable aggregating $560,976 ($685,000 at March 31, 1998) from officers of
the Company. These notes bear interest at the Internal Revenue adjusted
applicable federal rate (approximately 5% at March 31, 1999 and 1998) and
mature in June, 2002.
F-23
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
Note 6--Long-term debt
Line of credit/Note payable, bank
<TABLE>
<CAPTION>
March 31,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
The Company has available, pursuant to the terms of the
second amendment to revolving credit agreement dated
December 29, 1997, a $5,000,000 unsecured line of
credit at interest rates including prime less 3/8%
(7.375% and 8.125% at March 31, 1999 and 1998, respec-
tively) or LIBOR plus 2% as selected by the Company.
Participation in the line may be in the form of borrow-
ing and/or letters of credit up to a maximum of
$5,000,000. Outstanding letters of credit are consid-
ered as usage of the line. The line of credit expires
October 31, 1999. At March 31, 1999 and 1998, the Com-
pany had an outstanding letter of credit of $50,000 and
the unused portion of the line was $4,550,000 and
$1,300,000, respectively............................... $ 400,000 $3,650,000
The Company has a term loan (original amount $1,650,000)
with interest payable at prime (7.75% and 8.50% at
March 31, 1999 and 1998, respectively). Principal
payments are due in amounts of $68,750 per quarter for
twenty-four quarters commencing October 2, 1996........ 962,500 1,237,500
In April 1997, the Company entered into a term loan for
$710,000, with interest payable at prime less .25%
(7.50% and 8.25% at March 31, 1999 and 1998,
respectively). Principal payments are due in amounts of
$35,500 per quarter for twenty quarters commencing July
1, 1997................................................ 461,500 603,500
In September, 1998, the Company entered into a term loan
for $1,200,000 with interest at 7.65% for the
acquisition of the TreSun Corporation. Principal and
interest payments are due in monthly installments of
$24,131 for sixty months commencing November 1, 1998... 1,117,365 --
As part of the acquisition of TreSun Corporation (see
Note 2) the Company incurred an acquisition obligation
to the selling shareholders for $400,000. This
obligation is payable $200,000 on October 31, 1999 and
$200,000 on October 31, 2000. There is no stated
interest; inputed interest of 8% ($47,238) has been
recorded............................................... 368,716 --
---------- ----------
3,310,081 5,491,000
Less current portion.................................... 1,196,562 417,000
---------- ----------
$2,113,519 $5,074,000
========== ==========
</TABLE>
Acquisition obligation
The line of credit and term loans are uncollateralized but require the
Company to maintain certain financial covenants. In addition, the loan
agreements include certain restrictions on the sale of assets, pledging of
accounts receivable and borrowing by the Company.
F-24
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending March 31, 2000....................................... $1,196,562
Year ending March 31, 2001....................................... 845,854
Year ending March 31, 2002....................................... 663,314
Year ending March 31, 2003....................................... 438,831
Year ending March 31, 2004....................................... 165,520
----------
$3,310,081
==========
</TABLE>
Note 7--Income taxes
The Company has provided for the effects of income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred income taxes are provided in recognition of temporary
differences between financial and income tax reporting and consist of the
following:
<TABLE>
<CAPTION>
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax asset:
Deferred compensation............................... $ 178,600 $ 164,000
Allowance for bad debts............................. 28,700 15,000
Vacation accrual.................................... 179,200 158,000
--------- ---------
386,500 337,000
Valuation allowance................................... -- --
--------- ---------
Net deferred tax assets............................... 386,500 337,000
--------- ---------
Deferred tax liabilities:
Depreciation and amortization....................... (481,500) (456,000)
Unrealized gain on trading securities............... (46,000) (29,000)
--------- ---------
(527,500) (485,000)
--------- ---------
Net deferred tax liability............................ $(141,000) $(148,000)
========= =========
</TABLE>
In prior years, the Company reduced its effective state tax rate resulting
principally from a change in states where the Company conducts its business.
This change, which is expected to continue in the future, resulted in a
decrease in the Company's current and deferred income tax liabilities.
Accordingly, the Company's current and deferred income tax liabilities are
based on the reduced rate applicable to subsequent years.
The components of the provision for income tax expense are as follows:
<TABLE>
<CAPTION>
Six months ended
March 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Current................................................... $149,700 $311,000
Deferred.................................................. 34,300 (43,000)
-------- --------
$184,000 $268,000
======== ========
</TABLE>
F-25
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
Note 8--Salary redirection and savings plan
The Company established a Salary Redirection and Savings Plan under Section
401(k) of the Internal Revenue Code (the "Plan") in October 1984. All employees
are eligible to participate in the Plan at the beginning of the calendar
quarter following employment. The Company matches employee contributions which
can be up to a maximum of 50% of the first 6% of employee contributions. The
Plan establishes vesting requirements upon the Company's contribution based on
years of service. Forfeitures are returned to the Company. The Company's
contribution to the Plan for the six months ended March 31, 1999 was
approximately $151,000, net of forfeitures of approximately $27,000. The
Company's contribution to the Plan for the six months ended March 31, 1998 was
approximately $133,900.
Note 9--Stock option
Effective February 1, 1998, as part of a revised executive compensation
agreement for the Company's newly promoted President and Chief Operating
Officer, the Company granted a stock option for the purchase of 25,000 shares
of the Company's common stock. This option vested immediately at a price of
$6.00 per share and expires January 31, 2005. As of March 31, 1999, these
shares had not been exercised or forfeited and remain exercisable.
The Company applies APB Opinion #25 in accounting for this stock option.
Accordingly, no compensation was recognized in the financial statements for the
six months ended March 31, 1999 and 1998. Had compensation costs been
determined on the basis of fair value, pursuant to FASB Statement No. 123, net
income as reported would have been as follows.
<TABLE>
<CAPTION>
Six months ended
March 31,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Net income:
As reported.............................................. $299,738 $472,483
======== ========
Pro forma................................................ $299,738 $438,483
======== ========
Earnings per share:
As reported.............................................. $ .37 $ .56
======== ========
Pro forma................................................ $ .37 $ .52
======== ========
</TABLE>
Because there is no market for the Company's stock, fair value of these
options was determined based on the value of treasury shares purchased prior to
and after the issuance of this stock option.
Note 10--Commitments and contingencies
Related party transactions
Operating leases
The Company's leasing arrangements are primarily for the use of office space
for its operations, equipment and vehicles. Total rental expense, including
short-term cancelable leases, for the six months ended March 31, 1999 and 1998
was approximately $703,000 and $642,000, respectively.
F-26
<PAGE>
Pentamation Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
March 31, 1999 and March 31, 1998
Future minimum rental commitments as of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Office
Year space Equipment Vehicles Total
---- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
2000................................ $ 886,000 $ 95,000 $330,000 $1,311,000
2001................................ 826,000 95,000 238,000 1,159,000
2002................................ 811,000 50,000 94,000 955,000
2003................................ 753,000 23,000 -- 776,000
2004................................ 672,000 19,000 -- 691,000
Thereafter.......................... 3,368,000 -- -- 3,368,000
---------- -------- -------- ----------
Total............................. $7,316,000 $282,000 $662,000 $8,260,000
========== ======== ======== ==========
</TABLE>
The information above includes data relating to leases of certain vehicles
and real estate from GLS, a partnership controlled by certain officers and
principal shareholders of the Company. Rental expense under the GLS leases for
the six months ended March 31, 1999 and 1998 was $605,000 and $594,000,
respectively. Minimum rental commitments at March 31, 1999, under the GLS
leases approximated $7,590,000, exclusive of operating costs which are the
responsibility of the Company and possible rent increases for consumer price
index adjustments.
Other commitments
The Company has entered into an agreement with its two major shareholders to
repurchase 200,000 shares of stock from each shareholder in the event of death,
permanent disability or retirement. Pursuant to the agreement, the purchase
price of such shares is 175% of the Company's net book value per share as of
the close of the latest fiscal year end. Payments under this agreement could be
extended by the Company for a period of 10 years. Disability and term life
insurance on each of the two major shareholders would fund a majority of this
purchase. This agreement terminates if the Company is purchased or merges with
another company in a pooling of interest transaction.
Cash
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash.
Year 2000
Management has assessed the Company's exposure to date sensitive computer
software programs that may not be operative subsequent to 1999 and has
implemented a requisite course of action to minimize Year 2000 risk and ensure
that neither significant costs nor disruption of normal business operations are
encountered. However, because there is no guarantee that all systems of outside
vendors or other entities affecting the Company's operations will be 2000
compliant, the Company remains susceptible to consequences of the Year 2000
issue.
F-27
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
dated May 6, 1999
FOR THE ACQUISITION OF
PENTAMATION ENTERPRISES, INC.
BY
SUNGARD DATA SYSTEMS INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 1: Defined Terms............................................... A-1
Section 2: The Merger.................................................. A-5
Section 3: Representations of Pentamation and the Principal
Shareholders............................................... A-5
3.1 Organization................................................ A-5
3.2 Effect of Agreement......................................... A-6
3.3 Capital Stock and Ownership................................. A-6
3.4 Financial and Corporate Records............................. A-7
3.5 Compliance with Law......................................... A-7
3.6 Financial Statements........................................ A-7
3.7 Assets...................................................... A-8
3.8 Obligations................................................. A-8
3.9 Operations Since the Latest Balance Sheet Date.............. A-8
3.10 Accounts Receivable......................................... A-9
3.11 Tangible Property........................................... A-9
3.12 Real Property............................................... A-9
3.13 Environmental............................................... A-13
3.14 Software and Intangibles.................................... A-14
3.15 Contracts................................................... A-15
3.16 Employees and Independent Contractors....................... A-16
3.17 Employee Benefit Plans...................................... A-17
3.18 Customers, Prospects and Suppliers.......................... A-18
3.19 Taxes....................................................... A-18
3.20 Proceedings and Judgments................................... A-19
3.21 Insurance................................................... A-19
3.22 Questionable Payments....................................... A-19
3.23 Related Party Transactions.................................. A-19
3.24 Brokerage Fees.............................................. A-20
3.25 Acquisition Proposals....................................... A-20
3.26 Affiliate Matters........................................... A-20
3.27 Accounting Matters.......................................... A-20
3.28 Vote Required............................................... A-20
3.29 HSR Act..................................................... A-20
3.30 Full Disclosure............................................. A-20
Section 4: Representations of SunGard and Newco........................ A-21
4.1 Organization................................................ A-21
4.2 Agreement................................................... A-21
4.3 SunGard's Stock............................................. A-21
4.4 SEC Filings................................................. A-21
4.5 Investment Matters.......................................... A-21
Section 5: Securities Filings and Approval of the Pentamation
Shareholders............................................... A-21
5.1 Registration Statement...................................... A-21
5.2 Pentamation Shareholder Approval............................ A-22
5.3 Pentamation's and Principal Shareholders' Representations as
to the Registration Statement.............................. A-22
5.4 SunGard's and Newco's Representations as to the Registration
Statement.................................................. A-23
5.5 State Securities Filings.................................... A-23
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 6: Certain Obligations of Pentamation and Shareholders Pending
Closing.................................................... A-23
6.1 Voting and Cooperation Agreement............................ A-23
6.2 Management Representation Letter............................ A-23
6.3 Tax Representation Certificate.............................. A-23
6.4 Affiliate Agreements........................................ A-23
6.5 Conduct of the Pentamation Companies' Business.............. A-24
6.6 Interim Financial Statements................................ A-25
6.7 SunGard's General Due Diligence Investigation............... A-25
6.8 SunGard's Environmental Due Diligence Investigation......... A-25
6.9 Consents.................................................... A-25
6.10 Acquisition Proposals....................................... A-26
6.11 Advice of Changes........................................... A-26
6.12 S-4 Financial Statements.................................... A-26
6.13 Pooling of Interests........................................ A-26
6.14 HSR Act Filings............................................. A-27
6.15 Best Efforts................................................ A-27
Section 7: Certain Obligations of SunGard and Newco Pending Closing.... A-27
7.1 Corporate Status............................................ A-27
7.2 The Principal Shareholders' Due Diligence Investigation..... A-27
7.3 Consents.................................................... A-27
7.4 SEC Reports................................................. A-27
7.5 Advice of Changes........................................... A-27
7.6 HSR Act Filings............................................. A-28
7.7 Best Efforts................................................ A-28
Section 8: Conditions Precedent to Pentamation's and Principal
Shareholders' Closing Obligations.......................... A-28
8.1 Effectiveness of Registration Statement..................... A-28
8.2 Approval of the Pentamation Shareholders.................... A-28
8.3 SunGard's and Newco's Representations....................... A-28
8.4 SunGard's and Newco's Performance........................... A-28
8.5 Absence of Proceedings...................................... A-28
8.6 HSR Act..................................................... A-28
8.7 Average Stock Price......................................... A-28
Section 9: Conditions Precedent to SunGard's and Newco's Closing
Obligations................................................ A-28
9.1 Effectiveness of Registration Statement..................... A-28
9.2 Qualification for Pooling Treatment......................... A-29
9.3 Approval of the Pentamation Shareholders.................... A-29
9.4 Pentamation's and the Principal Shareholders'
Representations............................................ A-29
9.5 Pentamation's and the Principal Shareholders' Performance... A-29
9.6 Absence of Proceedings...................................... A-29
9.7 Adverse Changes............................................. A-29
9.8 Escrow Agreement............................................ A-29
9.9 Real Property Purchase Agreement............................ A-29
9.10 Automobile Purchase Agreement............................... A-29
9.11 HSR Act..................................................... A-29
9.12 Repayment of Company Loans by Principal Shareholders........ A-29
9.13 Real Estate Documents....................................... A-30
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 10: Closing.................................................... A-30
10.1 Closing.................................................... A-30
10.2 Principal Shareholders' Obligations at Closing............. A-31
10.3 SunGard's and Newco's Obligations at Closing............... A-32
Section 11: Certain Obligations of The Principal Shareholders after
Closing................................................... A-33
11.1 Receipts................................................... A-33
11.2 Restrictions on Dispositions of SunGard Stock.............. A-33
11.3 Cooperation with SunGard and Newco......................... A-33
11.4 Phantom Stock Plan......................................... A-33
Section 12: Certain Obligations of the Stockholders, SunGard and/or the
Surviving Corporation after Closing....................... A-33
12.1 Tax Periods Through the Closing Date....................... A-33
12.2 Tax Periods After and Including the Closing Date........... A-34
12.3 Audits..................................................... A-34
12.4 Disposition of Employee Benefit Plans...................... A-34
12.5 Delivery of Certificates................................... A-34
Section 13: Restrictive Covenants of the Principal Shareholders........ A-34
13.1 Certain Acknowledgments.................................... A-34
13.2 Nondisclosure Covenants.................................... A-35
13.3 Noncompetition Covenants................................... A-35
13.4 Certain Exclusions......................................... A-36
13.5 Enforcement of Covenants................................... A-36
13.6 Scope of Covenants......................................... A-36
Section 14: Indemnification............................................ A-36
14.1 Principal Shareholders' Indemnification.................... A-36
14.2 Indemnification Procedures................................. A-37
14.3 Limits on Indemnification.................................. A-38
14.4 Exceptions to Limitations.................................. A-38
14.5 Recovery................................................... A-38
14.6 Setoff and Holdback........................................ A-38
Section 15: Other Provisions........................................... A-39
15.1 Termination................................................ A-39
15.2 Publicity.................................................. A-39
15.3 Fees and Expenses.......................................... A-39
15.4 Notices.................................................... A-39
15.5 Survival................................................... A-40
15.6 Release for Joint and Several Liability.................... A-40
15.7 Interpretation of Representations.......................... A-40
15.8 Reliance by SunGard and Newco.............................. A-40
15.9 Entire Understanding....................................... A-40
15.10 Parties in Interest........................................ A-41
15.11 Waivers.................................................... A-41
15.12 Severability............................................... A-41
15.13 Counterparts............................................... A-41
15.14 Section Headings........................................... A-41
15.15 References................................................. A-41
15.16 Controlling Law............................................ A-41
15.17 Jurisdiction and Process................................... A-41
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
15.18 Post-Closing Actions by the Surviving Corporation............... A-41
15.19 No Third-Party Beneficiaries.................................... A-41
15.20 Nature of Transactions.......................................... A-41
15.21 Bankruptcy Qualification........................................ A-42
15.22 Right of Representative to Act for Principal Shareholder........ A-42
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PARTIES: PENTAMATION ENTERPRISES, INC.
a Pennsylvania corporation ("Pentamation")
One Bethlehem Plaza
Bethlehem, PA 18018
JEFFREY P. FEATHER ("Feather")
One Bethlehem Plaza
Bethlehem, PA 18018
DAVID P. BLOYS ("Bloys")
One Bethlehem Plaza
Bethlehem, PA 18018
DONALD V. APPLETON ("Appleton")
One Bethlehem Plaza
Bethlehem, PA 18018
SUNGARD DATA SYSTEMS INC.
a Delaware corporation ("SunGard")
1285 Drummers Lane
Wayne, Pennsylvania 19087
PEI ACQUISITION INC.
a Pennsylvania corporation ("Newco")
1285 Drummers Lane
Wayne, Pennsylvania 19087
DATE: May 6, 1999
Background: Pentamation and its wholly owned subsidiaries are in the
business of providing information support systems and software for financial,
human resources and revenue management for local governments and K-12
educational institutions (the "Pentamation Business"). Feather, Bloys and
Appleton (collectively, the "Principal Shareholders") own, collectively,
approximately 75% of the issued and outstanding shares of capital stock of
Pentamation (the "Pentamation Stock"). At Closing, the parties desire that
Newco, a wholly owned subsidiary of SunGard, be merged with and into
Pentamation (the "Merger") on the terms and subject to the conditions set forth
in this Agreement and Plan of Reorganization (the "Agreement") and the
Agreement and Plan of Merger dated this date and designated as Exhibit A hereto
(the "Plan"). The Board of Directors of Pentamation has determined that the
Merger, and the other transactions contemplated by this Agreement and the Plan
(collectively, the "Transactions") are in the best interests of Pentamation and
its shareholders. The respective Boards of Directors of SunGard and Newco have
determined that the Transactions are in the best interests of SunGard and Newco
and their respective stockholders.
Intending to be legally bound, in consideration of the mutual agreements
contained herein and subject to the satisfaction of the terms and conditions
set forth herein, the parties hereto agree as follows:
Section 1: Defined Terms
Certain defined terms used in this Agreement and not specifically defined in
context are defined in this Section 1 as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods sold,
leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not it is
evidenced by any Contract (as defined in Section 1.6); (b) any note
receivable; or (c) any other receivable or right to payment of any nature.
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1.2 "Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets (as defined in Section 1.3),
prepayments, deposits, escrows, Accounts Receivable, Tangible Property (as
defined in Section 1.38), Real Property (as defined in Section 1.32),
Software (as defined in Section 1.36), Contract Rights (as defined in
Section 1.7), Intangibles (as defined in Section 1.17) and goodwill, and
claims, causes of action and other legal rights and remedies.
1.3 "Cash Asset" means any cash on hand, cash in bank or other accounts,
readily marketable securities, and other cash-equivalent liquid assets of
any nature.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Consent" means any consent, approval, order or authorization of, or
any declaration, filing or registration with, or any application, notice or
report to, or any waiver by, or any other action (whether similar or
dissimilar to any of the foregoing) of, by or with, any Person (as defined
in Section 1.22), which is necessary in order to take a specified action or
actions in a specified manner and/or to achieve a specified result.
1.6 "Contract" means any written or oral contract, agreement,
instrument, order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data processing
agreements, maintenance agreements, license agreements, sublicense
agreements, loan agreements, promissory notes, security agreements, pledge
agreements, deeds, mortgages, guaranties, indemnities, warranties,
employment agreements, consulting agreements, sales representative
agreements, joint venture agreements, buy-sell agreements, options or
warrants.
1.7 "Contract Right" means any right, power or remedy of any nature
under any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance of
another party's Obligations (as defined in Section 1.19), rights to demand
that another party accept property or services or take any other actions,
and rights to pursue or exercise remedies or options.
1.8 "Employee Benefit Plan" means any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other plan, program, policy or arrangement for
or regarding bonuses, commissions, incentive compensation, severance,
vacation, deferred compensation, pensions, profit sharing, retirement,
payroll savings, stock options, stock purchases, stock awards, stock
ownership, phantom stock, stock appreciation rights, medical/dental expense
payment or reimbursement, disability income or protection, sick pay, group
insurance, self insurance, death benefits, employee welfare or fringe
benefits of any nature; but not including employment Contracts with
individual employees.
1.9 "Encumbrance" means any lien, superlien, security interest, pledge,
right of first refusal, mortgage, easement, covenant, restriction,
reservation, conditional sale, prior assignment, or other encumbrance,
claim, burden or charge of any nature.
1.10 "Environmental Laws" means all applicable Laws (including common
law, consent decrees and administrative orders) relating to the health,
safety and the protection of the environment, including those governing the
use, generation, handling, treatment, storage, transportation and disposal
or cleanup of Hazardous Substances, all as amended.
1.11 "GAAP" means generally accepted accounting principles under current
United States accounting rules and regulations, consistently applied. In no
event shall the consistent application of the historical accounting
policies used by the Pentamation Companies have priority over GAAP,
regardless of materiality.
1.12 "Governmental Authority" means any federal, state, county,
municipal or other Governmental department, entity, authority, commission,
board, bureau, court, agency or any instrumentality of any of the
foregoing.
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1.13 "Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by any United States federal
government authority, or any state or local government authority having
jurisdiction over any Real Property, to be capable of posing a risk of
injury or damage to health, safety, property or the environment, including
(a) all substances, wastes, contaminants, pollutants and materials defined,
designated or regulated as hazardous, dangerous or toxic pursuant to any
Law of any state in which any Real Property is located or any United States
Law, and (b) asbestos, polychlorinated biphenyls ("PCB's"), petroleum,
petroleum products and urea formaldehyde.
1.14 "Improvements" mean the buildings together with and including all
other structures, parking areas, fixtures or other improvements on, over or
under the Land.
1.15 "Including" means including but not limited to.
1.16 "Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life, hospital,
medical, dental, disability, worker's compensation, key man, fidelity bond,
theft, forgery, errors and omissions, directors' and officers' liability,
or other insurance policy of any nature.
1.17 "Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service mark, service mark application,
trade name, brand name, product name, slogan, trade secret, know-how,
patent, patent application, copyright, copyright application, design, logo,
formula, invention, product right, technology or other intangible asset of
any nature, whether in use, under development or design, or inactive.
1.18 "Judgment" means any order, writ, injunction, citation, award,
decree or other judgment of any nature of any foreign, federal, state or
local court, governmental body, administrative agency, regulatory authority
or arbitration tribunal.
1.19 "to the knowledge of the Principal Shareholders and Pentamation" or
"to the knowledge of Principal Shareholders, GLS and Pentamation" or "to
our knowledge" or similar terms means that none of the Principal
Shareholders, nor any of the directors, officers, partners or members of
any of the Pentamation Companies (as defined in Section 1.26) or GLS (as
defined in Section 3.11), as applicable, have any actual knowledge, implied
knowledge or belief that the statement made is incorrect. For this purpose,
"implied knowledge" means all information available in the books, records
and files of any of the Pentamation Companies or GLS, as applicable, and
all information that any of the stockholders, directors, officers,
partners, or members of any of the Pentamation Companies or GLS, as
applicable, should have known in the course of operating and managing the
business and affairs of any of the Pentamation Companies or GLS, as
applicable.
1.20 "Land" means, collectively, that certain real property more
particularly described in Schedule 1.20 attached hereto and made a part
hereof, together with all property rights, easements, tenements,
hereditaments, rights-of-way, development rights, air rights, entitlements,
unused densities, privileges and appurtenances thereto; all leases, rents
and profits derived therefrom, all right, title and interest of Seller in
and to any land lying in the bed of any street, road, highway or avenue,
open or proposed, public or private, in front of or adjoining all or any
part of the Land to the center line thereof, all right, title and interest
of Seller in and to any unpaid award or payment which may now or hereafter
be payable in respect of any taking, by condemnation of any portion of the
Land or Improvements by any Governmental Authority; and all right, title
and interest of Seller in and to any unpaid award for damage or destruction
to the Land or any part thereof by reason of any fire or other casualty, or
resulting from any change of grade of any street, road, highway or avenue
adjacent thereto; all strips and gores adjoining, and adjacent to the Land;
and all oil, gas and mineral rights.
1.21 "Law" means any provision of any foreign, federal, state or local
law, statute, ordinance, charter, constitution, treaty, code, rule,
regulation or guidelines (including those of self-regulatory organizations
such as the New York Stock Exchange and the National Association of
Securities Dealers, Inc.).
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1.22 "Leases" means all leases of space located within the Improvements
and upon the Land, which shall include all exhibits, amendments and
modifications thereof. A schedule of the Leases is included in the Rent
Roll attached as Schedule 1.33.
1.23 "Licenses" means all licenses, permits, approvals, certificates of
occupancy and authorizations which affect the Real Property, and its
operations, all of which are listed on Schedule 1.23 attached hereto and
made a part hereof, and all of which shall be in effect as of the date
hereof and as of the Closing Date.
1.24 [Intentionally Omitted].
1.25 "Obligation" means any debt, liability or obligation of any nature,
whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained,
unascertained, known, unknown or otherwise.
1.26 "Pentamation Companies" means Pentamation and any subsidiaries of
Pentamation.
1.27 "Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued, approved
or allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.28 "Permitted Use" means the use of the Property as office buildings
(with ancillary retail use), and accessory parking, in full compliance with
all applicable Laws.
1.29 "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, limited liability company, partnership,
association, cooperative, trust, estate, governmental body, administrative
agency, regulatory authority or other entity of any nature.
1.30 "Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing, condemnation or other
proceeding of any nature.
1.31 "Property" means the Tangible Property, Real Property, Land, Leases
and Improvements.
1.32 "Real Property" means any real estate, land, building, condominium,
town house, structure or other real property of any nature, all shares of
stock or other ownership interests in cooperative or condominium
associations or other forms of ownership or leasehold interest through
which interests in real estate may be held, and all appurtenant and
ancillary rights thereto, including easements, covenants, water rights,
sewer rights and utility rights.
1.33 "Rent Roll" means a complete and correct list of all the Leases,
setting forth with respect to each of the Leases the following information:
(a) the name of the Tenant; (b) the date of the Lease; (c) any
modifications or amendments to the Lease; (d) the term of the Lease; (e)
options to renew, expand or purchase, if any; (f) the rent Including, and
describing, base rent, percentage rent, if any, and any additional rentals
payable under the Lease; (g) the amount of the security deposit, if any;
(h) the square footage of the leased premises; and (i) a description of any
defaults under the Lease. The current Rent Roll for the Bethlehem Real
Property is attached hereto as Schedule 1.33.
1.34 "SEC" means the United States Securities and Exchange Commission.
1.35 "Service Contracts" means all service contracts, vendor agreements,
leases, equipment leases, installment sales contracts, maintenance
agreements, employment agreements, management agreements, utility
contracts, cable service agreements, collective bargaining agreements
and/or union contracts, yellow pages or other advertising agreements, and
any other agreements affecting the Property or any portion thereof, and any
and all contracts and agreements for any matters that relate to or could
impact revenues or expenses for the Property or any portion thereof. A
schedule of the Service Contracts is attached hereto as Schedule 1.35.
1.36 "Software" means any computer program, operating system,
applications system, firmware or software of any nature, whether
operational, under development or inactive, including all object code,
source code, technical manuals, user manuals and other documentation
therefor, whether in machine- readable form, programming language or any
other language or symbols, and whether stored, encoded, recorded or written
on disk, tape, film, memory device, paper or other media of any nature.
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1.37 "SunGard Stock" means shares of common stock, $0.01 par value per
share, of SunGard.
1.38 "Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other
equipment, machinery, tools, forms, supplies or other tangible personal
property of any nature.
1.39 "Tax" means (a) any foreign, federal, state or local income,
earnings, profits, gross receipts, franchise, capital stock, net worth,
sales, use, value added, occupancy, general property, real property,
personal property, intangible property, transfer, fuel, excise, payroll,
withholding, unemployment compensation, social security, retirement or
other tax of any nature; (b) any foreign, federal, state or local
organization fee, qualification fee, annual report fee, filing fee,
occupation fee, assessment, sewer rent or other fee or charge of any
nature; or (c) any deficiency, interest or penalty imposed with respect to
any of the foregoing.
1.40 "Tenants" means all of the respective parties who have executed the
Leases as tenants.
Section 2: The Merger
Subject to the terms and conditions of this Agreement and the Plan, Newco
shall be consolidated and merged with and into Pentamation (the "Surviving
Corporation") in accordance with the provisions of this Agreement and the
provisions of the Plan. The closing of the Merger and the other Transactions
shall take place on the Closing Date (as defined in Section 10.1) and shall be
effective on the Effective Date (as defined in Section 10.1).
Section 3: Representations of Pentamation and the Principal Shareholders
Knowing that SunGard and Newco rely thereon, Pentamation and each of the
Principal Shareholders, jointly and severally, represent and warrant to SunGard
and Newco as of the date of this Agreement, and covenant with SunGard and
Newco, as follows:
3.1 Organization. Each of the Pentamation Companies is a corporation
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its formation. Each of the Pentamation Companies possesses
the full corporate power and authority to enter into and perform this
Agreement. Each of the Pentamation Companies possesses the full corporate
power and authority to own its Assets and to conduct its business as and
where presently conducted. Each of the Pentamation Companies is duly
qualified or registered to do business in each jurisdiction where the
ownership or leasing of properties or assets by it, or the operation of the
Pentamation Business, requires such qualification. Schedule 3.1 lists all
subsidiaries of each of the Pentamation Companies. Except as set forth on
Schedule 3.1, none of the Pentamation Companies owns any securities of any
corporation or any other interest in any Person. None of the Pentamation
Companies has any predecessors other than as set forth on Schedule 3.1.
Schedule 3.1 states, for each of the Pentamation Companies (a) its exact
legal name; (b) its corporate business form and jurisdiction and date of
formation; (c) its federal employer identification number (if applicable);
(d) its headquarters address, telephone number and facsimile number; (e)
its directors and officers, indicating all current title(s) of each
individual; (f) its registered agent and/or office in its jurisdiction of
formation (if applicable); (g) all foreign jurisdictions in which it is
qualified or registered to do business, the date it so qualified or
registered, and its registered agent and/or office in each such
jurisdiction (if applicable); (h) all fictitious, assumed or other names of
any type that are registered or used by it or under which it has done
business at any time since such company's date of incorporation; and (i)
any name changes, recapitalizations, mergers, reorganizations or similar
events since its date of formation. Accurate and complete copies of
articles or certificates of incorporation, bylaws, operating agreements,
articles and memorandum of association and other organization and related
documents, each as amended to date, and all Contracts relating to the
acquisition, to the extent applicable, of each of the Pentamation Companies
(or their affiliates or predecessors) have been delivered to SunGard. Since
the date of its incorporation: (a) the activities of Pentamation Delaware,
Inc. have been confined to the maintenance and management of the
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corporation's intangible investments and the collection and distribution of
the income from such investments or from tangible property physically
located outside the State of Delaware; and (b) Pentamation Delaware, Inc.
has not engaged in any activity contrary to Section 1902(b)(8) of Title 30
of the Delaware Code. For purposes of the previous sentence, "intangible
investments" shall include, without limitation, investments in stocks,
bonds, notes and other debt obligations (including debt obligations of
affiliated corporations), patents, patent applications, trademarks,
trademark applications, trade names, copyrights and similar types of
intangible assets. Except for Pentamation and Pentamation Delaware, Inc.,
the other Pentamation Companies do not have any Assets or Obligations and
have not conducted business since January 1, 1989.
3.2 Effect of Agreement. Pentamation's execution, delivery and
performance of this Agreement and the Plan, and its consummation of the
Transactions have been duly authorized by all necessary corporate actions
by its board of directors and do not constitute a violation of or default
under its articles of incorporation, bylaws, articles and/or other
organizational documents. For Pentamation and each of the Principal
Shareholders, its or his execution, delivery and performance of this
Agreement and Plan, and its or his consummation of the Transactions, (a)
except as stated on Schedule 3.2, do not constitute a default or breach
(immediately or after the giving of notice, passage of time or both) under
any Contract to which he or any of the Pentamation Companies is a party or
by which he or any of the Pentamation Companies is bound, (b) do not
constitute a violation of any Law or Judgment that is applicable to him or
any of the Pentamation Companies, or to the business or Assets of any of
the Pentamation Companies, or to the Transactions, (c) do not accelerate or
otherwise modify any Obligation of any of the Pentamation Companies, (d)
except as stated on Schedule 3.2, do not result in the creation of any
Encumbrance upon, or give to any third party any interest in, any of the
business or Assets, or any of the capital stock of or interests in, any of
the Pentamation Companies, and (e) except (i) as stated on Schedule 3.2,
(ii) for the filing of the Articles of Merger with the proper officials of
the Commonwealth of Pennsylvania and (iii) for filings which may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), do not require the Consent of any Person. This
Agreement constitutes the valid and legally binding agreement of
Pentamation and each of the Principal Shareholders, enforceable against
Pentamation and each of the Principal Shareholders in accordance with its
terms. Certified copies of the resolutions duly adopted by the board of
directors of Pentamation, authorizing Pentamation to execute, deliver and
perform this Agreement and the Plan, are attached to Schedule 3.2. There
exists no right of first refusal or other preemptive right with respect to
any of the Pentamation Companies or the stock, business or Assets of any of
the Pentamation Companies.
3.3 Capital Stock and Ownership. The authorized capital stock of
Pentamation consists of 5,000,000 shares of common stock, no par value,
with a stated value of $.015 per share, of which 817,734 shares are issued
and outstanding and 501,727 as held in treasury (the "Pentamation Stock").
The capital structure of each of the other Pentamation Companies is set
forth on Schedule 3.3. With respect to Pentamation, Schedule 3.3 is an
accurate and complete list of (a) the full legal names of all shareholders,
(b) the addresses of their respective current principal residences, (c)
their social security numbers or federal tax identification numbers, and
(d) the numbers of, type of shares and tax basis in the shares owned of
record by them and the certificate numbers of the stock or share
certificates representing such shares or the date of subscription
agreements under which shares were acquired. Pentamation is the sole record
and beneficial owner of the shares of capital stock of each other
Pentamation Companies, and Pentamation has good and marketable title to
such shares, free and clear of any Encumbrance. Except as provided on
Schedule 3.3, none of the Pentamation Companies has ever authorized,
offered, sold or issued any securities other than ordinary shares of common
stock or membership interests as described in this Section. There are no
outstanding offers to issue or sell any capital stock of the Pentamation
Companies except pursuant to outstanding options to purchase Pentamation
Stock described on Schedule 3.3. Except for the Principal Shareholders and
the other shareholders listed on Schedule 3.3, there are no other record or
beneficial owners of any shares of Pentamation Stock or any other
securities of the Pentamation Companies. Except for the shares listed on
Schedule 3.3 with respect to each of the Pentamation Companies, there were
and currently are no other issued or outstanding shares of capital stock
and
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membership interests. All of the issued and outstanding shares of capital
stock of each of the Pentamation Companies have been duly authorized and
validly issued, and are fully paid and nonassessable, with no liability
attaching to the ownership thereof. All offerings, sales and issuances by
each of the Pentamation Companies of any shares of capital stock or
membership interests were conducted in compliance with all applicable
federal and state securities Laws and all applicable state corporation and
applicable foreign Laws. Schedule 33B is an accurate and complete list of
all outstanding options granted by Pentamation including the names of all
of the holders of record, their addresses of record, their social security
numbers, the number of options granted, the class of capital stock for
which such option may be exercised, the date of grant, the exercise price,
and whether or not such options have vested as of the date of this
Agreement. All options granted have been duly authorized. Attached to
Schedule 33B are complete and accurate copies of all options plans. Except
as described on Schedule 3.3B, there are no outstanding options, puts,
calls, warrants, subscriptions, stock appreciation rights, phantom stock,
or other Contracts or Contract Rights relating to the offering, sale,
issuance, redemption or disposition of any shares of capital stock, or
other securities of any of the Pentamation Companies. Upon the consummation
of the Merger, SunGard shall have good and marketable title to all of the
issued and outstanding capital stock of the Surviving Corporation, free and
clear of any Encumbrance.
3.4 Financial and Corporate Records. The books and records of each of
the Pentamation Companies are and have been properly prepared and
maintained in form and substance adequate for preparing financial
statements in accordance with GAAP, and such books and records fairly and
accurately reflect all of the Assets and Obligations of each of the
Pentamation Companies and all Contracts and other transactions to which
each of the Pentamation Companies is or was a party or by which each of the
Pentamation Companies or the business or Assets of each of the Pentamation
Companies is or was affected. Accurate and complete copies of the contents
of the minute books and stock books of each of the Pentamation Companies
have been delivered to SunGard and Newco. Such minute books and stock books
include (a) minutes of all meetings of the shareholders, board of directors
and any committees of the board of directors at which any material action
was taken, which minutes accurately record all material actions taken at
such meetings, (b) accurate and complete written statements of all actions
taken by the shareholders, board of directors and any committees of the
board of directors without a meeting, and (c) accurate and complete records
of the subscription, issuance, transfer and cancellation of all shares of
capital stock and all other securities since the date of incorporation or
formation. None of the shareholders, board of directors or any committee of
the board has taken any material action other than those actions reflected
in the records referenced in clauses (a) and (b) of the preceding sentence.
Schedule 3.4 is an accurate and complete list of all bank accounts, other
accounts, certificates of deposit, marketable securities, other
investments, safe deposit boxes, lock boxes and safes of each of the
Pentamation Companies and the names of all officers, employees or other
individuals who have access thereto or are authorized to make withdrawals
therefrom or dispositions thereof.
3.5 Compliance with Law. The operations of each of the Pentamation
Companies, the conduct of the business of each of the Pentamation
Companies, as and where such business has been or presently is conducted,
and the ownership, possession and use of the Assets of each of the
Pentamation Companies have complied and currently do comply with all
applicable Laws. Except as set forth on Schedule 3.5, each of the
Pentamation Companies has obtained and holds all Permits required for the
lawful operation of its business as and where such business is presently
conducted. All Permits held by the Pentamation Companies are listed on
Schedule 3.5, and copies of such Permits have been delivered to SunGard and
Newco.
3.6 Financial Statements. Pentamation's fiscal year ends on September
30. Schedule 3.6A includes accurate and complete copies of the following
audited consolidated financial statements ("Annual Financial Statements")
of the Pentamation Companies: (a) a balance sheet of the Pentamation
Companies as of the end of each of the two most recent fiscal years; and
(b) statements of income, statements of stockholders' equity, and
statements of cash flows for the two most recent fiscal years, and notes
thereto. Schedule 3.6B includes accurate and complete copies of all the
following unaudited consolidated financial statements ("Interim Financial
Statements") of the Pentamation Companies: an unaudited balance sheet
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(the "Latest Balance Sheet") as of December 31, 1998 (the "Latest Balance
Sheet Date") and related unaudited financial statements, included but not
limited to, unaudited statements of operations, unaudited statements of
stockholders' equity and unaudited statements of cash flows prepared by the
management of Pentamation on an ongoing basis since the Annual Financial
Statements. All of the Annual Financial Statements were (x) prepared in
accordance with GAAP; (y) fairly present the financial condition and
results of operations of the Pentamation Companies as of the dates and for
the periods indicated; and (z) were audited by Halbert, Katz & Co., P.C.
whose reports thereon are without qualification or explanatory paragraphs.
All of the Interim Financial Statements were prepared in accordance with
GAAP except as described on Schedule 3.6B, and all adjustments that are
necessary for a fair presentation thereof (consisting only of normal
recurring adjustments) have been made.
3.7 Assets. Schedule 3.7 includes detailed lists of all Assets of each
of the Pentamation Companies as reflected on the Latest Balance Sheet,
including (a) Cash Assets, itemized by bank or other account, showing cost
and market value if different from cost; (b) Accounts Receivable, showing
customer names, individual invoice dates, individual invoice amounts and
allowances for doubtful accounts, or, in the case of earned but not billed
receivables, customer names and individual dates on which the receivables
are billable; (c) other current Assets, itemized by category and with
appropriate explanation; (d) Tangible Property, grouped as to type, showing
cost, accumulated depreciation and net book value; and (e) Software and
Intangibles, showing cost or amount capitalized, accumulated amortization
and net book value. Each of the Pentamation Companies has good and
marketable title to all of its respective Assets and has the right to
transfer all rights, title and interest in such Assets, free and clear of
any Encumbrance. Except for the Assets listed on Schedule 3.7, no other
Assets are necessary to operate, or have been material to the operation of,
the business of any of the Pentamation Companies.
3.8 Obligations. Schedule 3.8 includes detailed lists of all Obligations
of each of the Pentamation Companies reflected on the Latest Balance Sheet,
itemized by balance sheet account, and with aggregate net balances equal to
the balances on the Latest Balance Sheet, including (a) accounts payable,
(b) accrued expenses and reserves, itemized by category and with
appropriate explanation, (c) deferred revenues, itemized by customer and
time periods, and (d) other current and long-term liabilities. None of the
Pentamation Companies has any Obligations other than (i) Obligations
reflected on the Latest Balance Sheet, (ii) Obligations set forth in
Schedule 3.8, (iii) Obligations under Contracts of the type listed or not
required to be listed on Schedule 3.15, provided that as of the Latest
Balance Sheet Date, no such Obligation consisted of or resulted from a
default under or violation of any such Contract, and (iv) Obligations
incurred since the Latest Balance Sheet Date and not in breach of any of
the representations and warranties made in Section 3.9. Except as described
on Schedule 3.8, none of the Obligations of any of the Pentamation
Companies are guaranteed by any Person. As of March 31, 1999, Pentamation
has accrued $316,914 of bonus payable under the Phantom Stock Plan (as
defined in Section 11.4).
3.9 Operations Since the Latest Balance Sheet Date. Except as set forth
on Schedule 3.9, from the Latest Balance Sheet Date to the date of this
Agreement:
(a) Except in the ordinary course of their respective businesses
consistent with their past practices, none of the Pentamation Companies
has (i) created or assumed any Encumbrance upon any of its business or
Assets, (ii) incurred any Obligation, (iii) made any loan or advance to
any Person; (iv) assumed, guaranteed or otherwise become liable for any
Obligation of any Person; (v) committed for any capital expenditure;
(vi) purchased, leased, sold, abandoned or otherwise acquired or
disposed of any business or Assets; (vii) waived any right or canceled
any debt or claim; (viii) assumed or entered into any Contract other
than this Agreement; (ix) increased, or authorized an increase in, the
compensation or benefits paid or provided to any of their directors,
officers, employees, salesmen, agents or representatives; or (x) done
anything else outside the ordinary course of business, whether or not
specifically described in any of the foregoing clauses.
(b) Even in the ordinary course of their respective businesses
consistent with their respective past practices, none of the
Pentamation Companies has incurred any Obligation, made any loan to any
Person, acquired or disposed of any business or Assets, entered into
any Contract (other than
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customer contracts) or other transaction, or done any of the other
things described in Section 3.9(a), involving an amount exceeding
$50,000 in any single case or $100,000 in the aggregate.
(c) There has been no material adverse change or material casualty
loss affecting any of the Pentamation Companies or their business,
Assets or financial condition, and there has been no adverse change in
the financial performance of any of the Pentamation Companies.
(d) None of the Pentamation Companies has (i) incurred any
outstanding bank debt or notes payable; (ii) incurred any outstanding
indebtedness to any current or former shareholder, member, director or
officer of any of the Pentamation Companies (excluding compensation and
benefits due to such Persons in their capacities as employees, officers
or directors of any of the Pentamation Companies and excluding
indebtedness described on Schedule 3.23) or to any affiliate (as such
term is defined for purposes of the Exchange Act) of any of the
Pentamation Companies or any of such company's shareholders, members,
directors or officers; or (iii) had any Obligation for any overdrafts
with respect to any of its bank accounts or other Cash Assets; or (iv)
paid any dividend or made any other distribution of Cash Assets or
other Assets to or on behalf of any of the shareholders or members of
any of the Pentamation Companies (excluding compensation and benefits
due to such Persons in their capacities as employees, officers or
directors of any of the Pentamation Companies ); or (v) accrued any
deferred bonuses or compensation due to any shareholder, member,
employee or agent of any of the Pentamation Companies, or paid any such
deferred bonuses or compensation except to the extent such deferred
bonuses or compensation was accrued on the Latest Balance Sheet.
3.10 Accounts Receivable. All Accounts Receivable listed in Schedule 3.7
arose in the ordinary course of business and are proper and valid accounts
receivable. There are no refunds, discounts, rights of setoff or assignment
affecting any such Accounts Receivable. Proper amounts of deferred revenues
appear on the books and records of each of the Pentamation Companies in
accordance with GAAP, with respect to all of the Pentamation Companies' (a)
billed but unearned Accounts Receivable; (b) previously billed and
collected Accounts Receivable still unearned; and (c) unearned customer
deposits.
3.11 Tangible Property. Each of the Pentamation Companies has good and
marketable title to all of its respective Tangible Property, free and clear
of any Encumbrances except as set forth in the Latest Balance Sheet or
Schedule 3.8. Except as set forth on Schedule 3.11, all of the Tangible
Property of each of the Pentamation Companies is located at the offices or
facilities of the Pentamation Companies and each of the Pentamation
Companies has the full and unqualified right to require the immediate
return of any of its respective Tangible Property which is not located at
its offices or facilities. All Tangible Property of each of the Pentamation
Companies, wherever located, is in good condition, ordinary wear and tear
excepted, and is sufficient for the respective operations and business of
each of the Pentamation Companies as presently conducted. A copy of the
Agreement dated May 6, 1999 between GLS, a Pennsylvania partnership,
("GLS") and Pentamation (the "Automobile Purchase Agreement") pursuant to
which Pentamation will purchase all of the automobiles owned by GLS and
used in the Pentamation Business (the "Automobiles") is attached to
Schedule 3.11. GLS has, and upon closing of the Automobile Purchase
Agreement will transfer to Pentamation, good and marketable title to the
Automobiles, free and clear of any Encumbrance except as set forth in the
Automobile Purchase Agreement.
3.12 Real Property.
(a) Schedule 3.12 is a detailed list of all Real Property owned, leased
or occupied by any of the Pentamation Companies ("Pentamation Real
Property"), identifying the particular location and, as applicable, rental
cost and name of landlord. Except as provided in the next sentence, none of
the Pentamation Companies owns any Real Property. With respect to the Real
Property known as "The Marketplace, Five Bethlehem Plaza" (the "Bethlehem
Real Property") Pentamation at Closing will have, good, marketable and
insurable legal title (at regular rates) in fee simple absolute to all of
the Bethlehem Real Property, free and clear of any Encumbrance except
current property taxes accrued but not yet due and payable, and rights of
tenants in possession under Leases set forth in the Rent Roll. A copy of
the Agreement dated May 6, 1999, between GLS and Pentamation (the "Real
Property Purchase Agreement") pursuant to which Pentamation will purchase
the Bethlehem Real Property is attached to Schedule 3.12.
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Pentamation has received the report of Imperial Realty that the fair market
value of the Bethlehem Real Property is $7,500,000, a copy of which has
been provided to SunGard. As of the date of this Agreement, the Bethlehem
Real Property is subject to indebtedness of approximately $3,650,000
Pentamation shall deliver accurate and complete copies of the deeds, most
recent title reports, title searches, title insurance policies, surveys,
plot plans, environmental reports, structural reports, Americans with
Disabilities Act ("ADA") compliance reports and most recent appraisals for
the Bethlehem Real Property to SunGard and Newco within thirty (30) days of
the date of this Agreement. Schedule 3.12 sets forth the cost, accumulated
depreciation and net book value for the Bethlehem Real Property. All of the
Pentamation Real Property is structurally sound and in good condition,
ordinary wear and tear excepted, and is sufficient to satisfy the current
operational requirements of the Pentamation Companies. None of the
Pentamation Real Property, nor the ownership, possession, occupancy,
maintenance or use thereof, is in violation of, or breach or default under,
any Contract or Law, and no notice or threat from any lessor, governmental
body or other Person has been received by any of the Pentamation Companies
or served upon any such Pentamation Real Property claiming any violation
of, or breach, default or liability under, any Contract or Law, or
requiring or calling attention to the need for any work, repairs,
construction, alteration, installations or environmental remediation. No
casualty has occurred with respect to any of the Pentamation Real Property
within the last six (6) months which has had a material adverse effect on
the use, operation or occupancy of the Pentamation Real Property. No
Proceedings are pending or to our knowledge threatened which would affect
the zoning or use any of the Pentamation Real Property. To our knowledge,
no portion of any Pentamation Real Property is within an identified flood
plain or other designated flood hazard area as established under any Law or
otherwise by any governmental authority. All of the Pentamation Real
Property has direct legal access to, abuts, and is served by a publicly
dedicated and maintained road, which road does and shall provide a valid
and legal means of ingress and egress thereto and therefrom, without
additional expense. All utilities, including water, gas, telephone,
electricity, sanitary and storm sewers, are currently available to all of
the Pentamation Real Property at normal and customary rates, and are
adequate to serve such Pentamation Real Property for each of the
Pentamation Companies' current operations and current use thereof.
(b) No Tenant or other occupant under any of the Leases, no licensor and
no other person, firm, corporation or other entity has any right or option
to acquire the Bethlehem Real Property or any portion thereof or lease or
occupy any space, except as specified in the Rent Roll. Pentamation has the
exclusive right to purchase the Bethlehem Real Property and Pentamation
shall not and the Principal Shareholders shall cause GLS not to engage in
any negotiations with or solicit offers from any other party relating to
the sale of the Bethlehem Real Property without the prior written consent
of SunGard, which consent SunGard may withhold in its sole and exclusive
discretion.
(c) There is no default or breach by Pentamation, GLS nor, to our
knowledge, any other party, under the Leases or under any other leases,
covenants, conditions, restrictions, rights-of-way or easements which may
affect the Pentamation Real Property or any portion(s) thereof which
require performance or compliance by the owner of the Pentamation Real
Property and no condition or circumstance exists which with the giving of
notice or the passage of time or both would constitute a default or breach
by Pentamation, GLS nor, to our knowledge, any other party, under any such
Leases or other leases, covenants, conditions, restrictions, rights-of-way
or easements.
(d) Schedule 3.12 includes a list of all of the Service Contracts
affecting the Bethlehem Real Property and there are no other Service
Contracts with respect to the Bethlehem Real Property. All of the Service
Contracts are in full force and effect, there is no default by any party
under any Service Contract and no event has occurred that with the giving
of notice or passage of time, or both, would constitute a default
thereunder. All of the Service Contracts are the result of bona fide arms
length negotiations between the parties thereto, and Pentamation has no
interest in any of the parties providing services thereunder. Neither
Pentamation nor its Principal Shareholders has received any notice that any
party to any Service Contract intends to cancel or terminate its Service
Contract. Except as set forth on Schedule 3.12, all of the Service
Contracts are cancelable by Pentamation upon thirty (30) days' notice. To
the best of our knowledge, there
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are no agreements (written or oral) other than the Leases, Service
Contracts, or the Licenses, any portion thereof or the use thereof or which
could impact the revenues or expenses of the Bethlehem Real Property.
(e) The Pentamation Companies and GLS are not, and to our knowledge no
other party is, currently contesting the real estate tax assessments for
the Bethlehem Real Property. The Land is separately assessed for real
property tax assessment purposes and is not combined with any other real
property for tax assessment purposes.
(f) Neither Pentamation, the Principal Shareholders, nor GLS has
received written notice from any Governmental Authority, any of the
Tenants, any insurer, or any other party (a) that either the Pentamation
Real Property or the use or operation thereof is currently in violation of
any Law and to our knowledge, including GLS, no such notice has been
issued; (b) that Pentamation or GLS is currently in violation or with the
passage of time will be in violation of any Laws or the recommendations of
any insurance carrier or board of fire underwriters affecting the
Pentamation Real Property or that any investigation has commenced or is
contemplated regarding any such possible violation, or (c) asserting that
Pentamation or GLS is required to perform work at the Pentamation Real
Property and no such notices have been issued.
(g) The Licenses at each Pentamation Real Property are in full force and
effect as of date hereof, have not been modified or amended, and there are
no defaults thereunder.
(h) Except for Tenants, there are no Persons other than Pentamation in
possession of any portion of the Pentamation Real Property as lessees,
tenants at sufferance or trespassers.
(i) The Leases described on the Rent Roll comprise all of the Leases
presently existing and each is in full force and effect as of date hereof.
None of the Leases has been modified, altered, or amended in any respect,
and no Tenant has the right to cancel or terminate its Lease, except as set
forth in the Rent Roll. No Tenant has any right to renew or extend its
Lease or any interest in the Bethlehem Real Property other than a leasehold
possessory interest. Except as specified on the Rent Roll, all of the
Leases are the result of bona fide arms length negotiations between the
parties thereto and Pentamation has no interest in any of the Tenants
except as identified on Schedule 3.12. There are no leases, tenancies or
other rights of occupancy or use for any portion of the Bethlehem Real
Property other than as set forth in the Rent Roll. Neither Pentamation, nor
GLS nor any Tenant is in default under any Lease and no event has occurred
that with the giving of notice or passage of time or both would constitute
a default thereunder. Except as specified on the Rent Roll each of the
Tenants is in possession of its respective premises. No Tenant has any
offsets, defenses, claims or causes of actions against GLS or Pentamation
arising out of matters occurring prior to Closing. There is no Tenant
contesting any tax, percentage rent, operating costs or other escalation
payments or occupancy charges or any other amounts payable under its
specific Lease. All Tenants have furnished insurance certificates
indicating that the insurance coverage required by their respective Leases
is in full force and effect.
(j) No brokerage or leasing commissions (including any renewals or
residuals) or other compensation are due or payable to any Person with
respect to or on account of any of the Leases or the leases for the
Pentamation Real Property, except as specified on the Rent Roll.
(k) All taxes with respect to any employee of GLS or with respect to any
of GLS's operations, required to be paid or collected by GLS in the
operation of the Bethlehem Real Property, or with respect to real estate
taxes and similar taxes have been collected and paid to the appropriate
Governmental Authority. GLS shall be responsible for the payment of all
such taxes due and owing through the date preceding the conveyance of the
Bethlehem Real Property to Pentamation. Further, GLS shall file all
necessary returns, petitions and request any statutory audits under state
and local law so as to release Pentamation and SunGard prior to or after
Closing from any transferee liability with respect to any such taxes.
(l) Except as identified on Schedule 3.12, there are no employees of GLS
or any management company at the Bethlehem Real Property or otherwise who,
by reason of any Law or by reason of any union or other employment
contract, written or otherwise or any other reason whatsoever, would become
employees of Pentamation or SunGard as a result of the purchase of the
Bethlehem Real Property by Pentamation.
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(m) The Bethlehem Real Property is presently zoned for the Permitted
Use, is in full compliance with all Laws, and the Improvements comply with
the zoning classification of, or other zoning requirements for, the Land.
Neither Pentamation, nor GLS nor the Principal Shareholders has any
knowledge of any fact, action or proceeding, whether actual, pending or
threatened, which would affect such zoning or could result in a
modification or termination of such zoning. Pentamation shall not take any
action prior to Closing which would affect the current zoning
classification of the Land.
(n) There are no outstanding special assessments or impact fees imposed
by any Governmental Authority which affects any portion of the Pentamation
Real Property.
(o) The Land has full, free and adequate vehicular and pedestrian access
to and from public highways and roads, and there are no facts or conditions
to our knowledge which would result in the termination of such access.
(p) No commitments relating to the Bethlehem Real Property have been
made to any Governmental Authority, utility company, school board, church
or other religious body or any owner or homeowners' association, merchant's
association or any other organization, group or individual which would
impose an obligation upon Pentamation or SunGard or its successors or
assigns to make any contribution or dedication of money or land or to
construct, install or maintain any improvements of a public or private
nature on or off the Land; and no Governmental Authority has imposed any
requirement that any owner of the Land pay directly or indirectly any
special fees or contributions or incur any expenses or obligations in
connection with the Land.
(q) The Pentamation Real Property and the present uses are in full
compliance with all applicable Laws and the requirements of any insurance
policy, board of fire underwriters or any board exercising similar
functions. Pentamation is in full compliance with all Laws in its
operation, use and management of the Pentamation Real Property. All
Licenses and Permits are in full force and effect and are registered in the
name of Pentamation. True and correct copies of all Licenses and Permits
are attached hereto as Exhibit 3.12.
(r) All of the insurance policies listed in Schedule 3.21 are in full
force and effect. No notice has been given by any insurer of the Bethlehem
Real Property or any portion thereof, with respect to any portion of the
Bethlehem Real Property, or by any board of fire underwriters (or other
body exercising similar functions) requesting the performance of any
repairs, alterations or other work on the Bethlehem Real Property.
(s) All Licenses, Permits and the requisite certificates of the local
board of fire underwriters (or other body exercising similar functions)
have been issued for the Improvements, have been paid in full and are in
full force and effect. Certificates of Occupancy have been issued for the
Improvements, and each of the premises which are subject to the Leases to
the extent required by applicable Law. No additional certificates of
occupancy, licenses or other permits are required for the current use or
operation of the Bethlehem Real Property. To the best of our knowledge and
the knowledge of GLS: (a) there are no structural defects in any of the
Improvements; (b) the heating, electrical, plumbing, air conditioning,
building equipment, and other Tangible Property contained in the Bethlehem
Real Property are free from defects, are in good condition and working
order and are adequate in quantity and quality for normal operations; and
(c) the roofs of all of the Improvements are free of physical leaks and are
watertight and the Improvements are free from termites.
(t) All water, storm and sanitary sewer, gas, electricity, telephone and
other utilities serving the Bethlehem Real Property are supplied directly
to the Bethlehem Real Property by facilities of public utilities and the
costs of installation of such utilities have been fully paid.
(u) The parking facilities at the Bethlehem Real Property comply with
all Laws and with all parking commitments made by the Pentamation under any
Leases or other documents. Except as stated on Schedule 3.12, there are no
offsite parking facilities used in connection with the operation of the
Pentamation Real Property. Pentamation does not own or lease any adjacent
property to the Pentamation Real Property.
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(v) Neither the air, mineral, oil or gas rights over the Bethlehem Real
Property nor any other "development rights" with respect to the Bethlehem
Real Property have been assigned, transferred, leased or encumbered.
(w) Neither Pentamation, GLS nor the Principal Shareholders has not
filed any fictitious name filings or registrations with respect to any
names used in connection with the Bethlehem Real Property. This includes,
but is not limited to, names used in connection with any restaurants,
lounges, bars, or any other portion of the Bethlehem Real Property.
(x) There are no property interests, buildings, structures, or other
improvements that are owned or held by GLS or the Principal Shareholders
and which are necessary or useful for the operation of the Pentamation
Business that are not being conveyed pursuant to the Real Property Purchase
Agreement or the Automobile Purchase Agreement.
(y) Feather and Bloys are the sole partners of GLS.
3.1 Environmental. Except as set forth in Schedule 3.13:
(a) (i) Neither the Pentamation Companies, GLS, nor the Principal
Shareholders has caused or permitted any Hazardous Substances to be
manufactured, refined, treated, discharged, disposed of, deposited or
otherwise released in, on, under or from any of the Pentamation Real
Property or any Real Property previously owned, leased, occupied, operated,
managed, possessed or otherwise held by any of the Pentamation Companies
("Former Pentamation Real Property"); and
(ii) To the knowledge of the Principal Shareholders, Pentamation and
GLS, before their ownership or lease of any of the Pentamation Real
Property or Former Pentamation Real Property, no Hazardous Substances have
been manufactured, refined, treated, discharged, disposed of, deposited or
otherwise released therein, thereon or therefrom.
(b) Neither the Pentamation Companies, GLS nor the Principal
Shareholders has not caused or permitted any Hazardous Substances to have
been stored, used, generated, transported, handled or otherwise present on
any of the Pentamation Real Property or Former Pentamation Real Property,
and no Hazardous Substances currently are stored, used, generated,
transported, handled or otherwise present thereon, except for (1) any
concentrations or quantities that occur naturally thereon or that are
present in construction materials, office equipment or other office
furnishings used in the existing improvements thereon, and (2) normal
quantities of those Hazardous Substances customarily used in the conduct of
general administrative and executive office activities and use and
maintenance of computer systems (e.g. copier fluids and cleaning supplies),
in accordance with applicable Law. Notwithstanding the foregoing
exceptions, no asbestos-containing materials, PCBs or urea formaldehyde are
present in or on any of the Pentamation Real Property; and
(c) To the knowledge of the Principal Shareholders, GLS and Pentamation,
before their ownership or lease of any of the Pentamation Real Property or
Former Pentamation Real Property, no Hazardous Substances were stored,
used, generated, transported, handled or otherwise present thereon except
for any concentrations or quantities that occur naturally thereon.
(d) All of the Former Pentamation Real Property and the operations of
the Pentamation Companies thereon were operated in compliance with
applicable Environmental Laws, and all of the Pentamation Real Property and
the operations of the Pentamation Companies thereon have been and currently
are being operated in compliance with applicable Environmental Laws. To the
knowledge of the Principal Shareholders, Pentamation and GLS, there is not
any radon, asbestos or PCB's or any condition with respect to surface soil,
subsurface soil, ambient air, surface waters, groundwaters, leachate, run-
on or run-off, stream or other sediments, wetlands or similar environmental
media on, in, under, above or off any of the Pentamation Real Property or
Former Pentamation Real Property, which radon, asbestos, PCB's or condition
does or may (a) require investigation and/or remedial or corrective action
on or off such Pentamation Real Property or Former Pentamation Real
Property, including off-site disposal locations, by any of the Pentamation
Companies or other owner thereof, (b) require compliance by any of the
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Pentamation Companies with permit requirements, standards or Environmental
Laws, and/or (c) result in any claim for personal injury, property damage
or natural resources damage or any other Proceeding against SunGard, Newco
or any of their affiliates by governmental entities or other Persons (any
such radon, asbestos, PCB's or condition is referred to as an "Pentamation
Environmental Condition"). None of the Pentamation Companies, GLS or the
Principal Shareholders has taken any action or omitted to take any action
that has caused or will cause a Pentamation Environmental Condition to
exist.
(e) None of the Pentamation Companies, the Principal Shareholders or GLS
has received any written notice that any part of the Pentamation Real
Property or the Former Pentamation Real Property or the operations of the
Pentamation Companies or GLS is the subject of any Proceeding or Judgment,
and, to the knowledge of the Principal Shareholders, GLS and Pentamation,
no part of the Pentamation Real Property or the Former Pentamation Real
Property or the operations of the Pentamation Companies or GLS is the
subject of any Proceeding or Judgment. None of the Pentamation Companies,
the Principal Shareholders or GLS has received any written notice from any
governmental authority or other Person regarding any environmental, health
or safety matters.
(f) There is no sinkhole, coastal zone, flood plain, flood hazard area
or wetlands in or on the Pentamation Real Property, which would restrict
any development or use of the Pentamation Real Property as an office, data
processing facility and electronic communications network facility.
(g) The Pentamation Companies and GLS will provide SunGard and Newco
within thirty (30) days from the date hereof with copies of any and all
applications, correspondence, affidavits, reports, forms, maps, plans,
studies and other documents relating to environmental, health and safety
matters in their possession, custody or control. These studies shall
include, but not be limited to, any environmental or engineering studies,
any tests or testing performed on the Pentamation Real Property or the
Former Pentamation Real Property, and copies of any reports issued by any
government authority regarding such Pentamation Real Property or Former
Pentamation Real Property.
(h) No Proceeding has been started, no Judgment has been issued and no
Encumbrance has been created against or affecting any of the Pentamation
Companies or GLS or any of the Pentamation Real Property or Former
Pentamation Real Property regarding any Pentamation Environmental Condition
or arising from any Environmental Law, nor is any such Proceeding, Judgment
or Encumbrance pending or anticipated by the Pentamation Companies, the
Principal Shareholders or GLS.
(i) No information request has been issued to any of the Pentamation
Companies or GLS pursuant to Section 104 of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. 9601 et
seq. or any other Environmental Laws with regard to the Pentamation Real
Property or Former Pentamation Real Property or any activities conducted
thereon, including off-site waste disposal.
(j) None of the Pentamation Real Property or the Pentamation Former Real
Property is or has ever been listed in the United States Environmental
Protection Agency's National Priorities List or in any other list,
schedule, log, inventory or record, however defined, maintained by any
governmental authority with respect to sites where there is, has been or
may be a release or threat of a release of any Hazardous Substances. To the
knowledge of the Pentamation Companies, the Principal Shareholders and GLS,
no off-site waste disposal location to which the such parties' wastes have
been taken appear or have appeared on any such list.
3.14 Software and Intangibles. Set forth on Schedule 3.14 is an accurate
and complete list and description of all Software and Intangibles owned,
marketed, licensed, supported, maintained, used or under development by any
of the Pentamation Companies, and, in the case of Software, a product
description, the language in which it is written and the type of hardware
platform(s) on which it runs. No other Software or Intangibles is used to
operate the business of any of the Pentamation Companies. Except as
explained on Schedule 3.14, each of the Pentamation Companies has good and
marketable title to, and has the full right to use, all of its respective
Software and Intangibles listed on Schedule 3.14, free and clear of any
Encumbrance. No rights of any third party are necessary to market, license,
sell, modify, update, and/or create derivative works for the Software or
Intangibles listed on Schedule 3.14. Except as
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set forth on Schedule 3.14, all of such Software and Intangibles were
created as a work for hire (as defined under U.S. copyright law) by regular
full time employees of the Pentamation Companies. To the extent that any
author or developer of any Software or Intangibles was not a regular full-
time salaried employee of any of the Pentamation Companies at the time such
person contributed to such Software or Intangibles, such author or
developer has irrevocably assigned to the Pentamation Companies in writing
all copyrights and other proprietary rights in such person's work on the
Software or Intangibles. With respect to the Software listed on Schedule
3.14, (a) the Pentamation Companies maintain machine-readable master-
reproducible copies, source code listings, technical documentation and user
manuals for the most current releases or versions thereof and for all
earlier releases or versions thereof currently being supported by them; (b)
in each case, the machine-readable copy substantially conforms to the
corresponding source code listing; (c) it is written in the language set
forth on Schedule 3.14, for use on the hardware set forth on Schedule 3.14
with standard operating systems; (d) it can be maintained and modified by
reasonably competent programmers familiar with such language, hardware and
operating systems; (e) in each case, it operates in accordance with the
user manual therefor without material operating defects; and (f) in each
case, each component of such Software that creates, accepts, displays,
stores, retrieves, accesses, recognizes, distinguishes, compares, sorts,
manipulates, processes, calculates, converts or otherwise uses dates or
date-related data, except as set forth on Schedule 3.14, will do so
accurately, without any operating defects, loss of functionality or
degradation in performance or volume capacity, using dates in the twentieth
and twenty-first centuries, and will not be adversely affected by the
advent of the year 2000, the advent of the twenty-first century, or the
transition from the twentieth century through the year 2000 and into the
twenty-first century. None of the Software or Intangibles listed on
Schedule 3.14, or their respective past or current uses, including the
preparation, distribution, marketing or licensing, has violated or
infringed upon, or is violating or infringing upon, any Software,
technology, patent, copyright, trade secret or other Intangible of any
Person. The Pentamation Companies have adequately maintained all trade
secrets and copyrights with respect to the Software. To the knowledge of
the Principal Shareholders and Pentamation, no Person is violating or
infringing upon, or has violated or infringed upon at any time, any of the
Software or Intangibles listed on Schedule 3.14. None of the Software or
Intangibles listed on Schedule 3.14 is owned by or registered in the name
of any current or former owner, shareholder, member, partner, director,
executive, officer, employee, salesman, agent, customer, representative or
contractor of any of the Pentamation Companies or any of the Principal
Shareholders nor does any such Person have any interest therein or right
thereto, including the right to royalty payments.
3.15 Contracts. Schedule 3.15 is an accurate and complete list of all of
the following types of Contracts to which any of the Pentamation Companies
is a party or by which any of the Pentamation Companies is bound
(collectively, the "Specified Contracts"), grouped into the following
categories and, where applicable, subdivided by product line or division:
(a) Software license, Software maintenance, services and other customer
Contracts; (b) Contracts for the purchase or lease of Real Property or
otherwise concerning Real Property owned or used by any of the Pentamation
Companies; (c) loan agreements, mortgages, notes, guarantees and other
financing Contracts; (d) Contracts for the purchase, lease and/or
maintenance of computer equipment and other equipment, Contracts for the
purchase, license, lease and/or maintenance of Software under which any of
the Pentamation Companies is the purchaser, licensee, lessee or user, and
other supplier Contracts; (e) employment, consulting and sales
representative Contracts (excluding Contracts which constitute Employee
Benefit Plans listed on Schedule 3.17, and excluding oral Contracts with
employees for "at will" employment); (f) Contracts under which any rights
in and/or ownership of any Software product, technology or other Intangible
of any of the Pentamation Companies, or any prior version thereof, or any
part of the customer base, business or Assets of any of the Pentamation
Companies, or any shares or other ownership interests in any of the
Pentamation Companies (or any of their predecessors) was acquired; and (g)
other material Contracts (excluding Contracts which constitute Insurance
Policies listed on Schedule 3.21 and excluding this Agreement and all other
Contracts entered into between any of the Pentamation Companies and
SunGard, or among any of the Pentamation Companies, SunGard and other
parties in connection herewith). A description of each oral Specified
Contract is included on Schedule 3.15, and copies of each written Specified
Contract have been delivered
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to SunGard and Newco. Except as set forth on Schedule 3.15, each of the
customers of the Pentamation Companies has signed and is bound by a written
Contract that is not materially different from the applicable form
agreement attached as part of Schedule 3.15 (including but not limited to
the provisions regarding Software ownership, use and disclosure and
limitations of liability), and the provisions of each such customer
Contract are binding on the customer and enforceable by the Pentamation
Companies. With respect to each applicable customer Contract, Schedule 3.15
includes, as of the dates specified in such Schedule, a complete
description of all work remaining to be performed under such Contracts
together with an estimate of the number of person hours required to
complete such work, and all credits granted to or other adjustments made
for the customer to be applied against future payments or purchases. Except
as provided on Schedule 3.15, all customers have accepted the Software,
products and/or services described in their respective customer Contracts.
Except as set forth on Schedule 3.15, with respect to each of the Specified
Contracts, none of the Pentamation Companies is in default thereunder nor
would be in default thereunder with the passage of time, the giving of
notice, or both. Except as set forth on Schedule 3.15, to the knowledge of
the Principal Shareholders and Pentamation, none of the other parties to
any Specified Contract is in default thereunder or would be in default
thereunder with the passage of time, the giving of notice or both. Except
as set forth on Schedule 3.15, none of the Pentamation Companies has given
or received any notice of default or notice of termination with respect to
any Specified Contract, and each Specified Contract is in full force and
effect in accordance with its terms. The Specified Contracts are all the
Contracts necessary and sufficient to operate the business of the
Pentamation Companies. Except as set forth on Schedule 3.15, there are no
currently outstanding proposals or offers submitted by any of the
Pentamation Companies to any customer, prospect, supplier or other Person
which, if accepted, would result in a legally binding Contract of such
company involving an amount or commitment exceeding $50,000 in any single
case or an aggregate amount or commitment exceeding $100,000 in the
aggregate.
3.16 Employees and Independent Contractors. Schedule 3.16A is a list of
all of the employees of each of Pentamation Companies and (a) their titles
or responsibilities; (b) their social security numbers and principal
residence address; (c) their dates of hire; (d) their current salaries or
wages and all bonuses, commissions and incentives paid at any time during
the past twelve months; (e) their last compensation changes and the dates
on which such changes were made; (f) any specific bonus, commission or
incentive plans or agreements for or with them; and (g) any outstanding
loans or advances made to them. Schedule 3.16B is a list of all sales
representatives and independent contractors engaged by each of the
Pentamation Companies and (a) their tax identification numbers and state or
country of residence; (b) their payment arrangements (if not set forth in a
Contract listed or described on Schedule 3.15); and (c) brief description
of their jobs or projects currently in progress. Except as limited by any
employment Contracts listed on Schedule 3.15 and except for any limitations
of general application which may be imposed under applicable employment
Laws, each of the Pentamation Companies has the right to terminate the
employment of each of its employees at will and to terminate the engagement
of any of its independent contractors without payment to such employee or
independent contractor other than for services rendered through termination
and without incurring any penalty or liability other than liability for
severance pay in accordance with such company's severance pay policy as
described on Schedule 3.16A. Each of the Pentamation Companies is in full
compliance with all Laws respecting employment practices. None of the
Pentamation Companies has ever been a party to or bound by any union or
collective bargaining Contract, nor is any such Contract currently in
effect or being negotiated by or on behalf of any of the Pentamation
Companies. Since the respective incorporation or formation dates of each of
the Pentamation Companies, none of the Pentamation Companies has
experienced any labor problem that was or is material to it. Each of the
Pentamation Companies' relations with its employees are currently on a good
and normal basis. Except as set forth on Schedule 3.16A, each of the
Pentamation Companies' current and past employees has signed an employee
agreement which contains certain restrictive covenants substantially in the
form attached to Schedule 3.16A. Except as set forth on Schedule 3.16B,
each of the Pentamation Companies' current and past contractors has signed
agreements with the Pentamation Companies containing restrictions that
adequately protect the proprietary and confidential information of the
Pentamation Companies and vest in the Pentamation Companies the full
ownership of items developed by such contractor. Except as
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indicated on Schedule 3.16A, since January 1, 1999, no employee of any of
the Pentamation Companies having an annual salary of $50,000 or more has
indicated an intention to terminate or has terminated his or her employment
with such company. To the knowledge of the Principal Shareholders and
Pentamation, the Transactions will not adversely affect relations with any
employees of any of the Pentamation Companies.
3.17 Employee Benefit Plans. Schedule 3.17 sets forth an accurate and
complete list of all of Pentamation Companies' Employee Benefit Plans
(collectively referred to as "Pentamation's Employee Benefit Plans").
Except as set forth on Schedule 3.17, none of the Pentamation Companies has
(a) established, maintained or contributed to (or has been obligated to
contribute to) any Employee Benefit Plans, (b) proposed any Employee
Benefit Plans which it plans to establish or maintain or to which it plans
to contribute, or (c) proposed any changes to any Employee Benefit Plans
now in effect. Accurate and complete copies and descriptions of all of
Pentamation's Employee Benefit Plans, all employees affected or covered by
Pentamation's Employee Benefit Plans, and all Liabilities and Obligations
thereunder are attached to Schedule 3.17. If permitted and/or required by
applicable Law, the Pentamation Companies have properly submitted all of
Pentamation's Employee Benefit Plans in good faith to meet the applicable
requirements of ERISA and/or the Code to the Internal Revenue Service (the
"IRS") for its approval within the time prescribed therefor under
applicable federal regulations. Favorable letters of determination of such
tax-qualified status from the IRS are attached to Schedule 3.17. With
respect to Pentamation's Employee Benefit Plans, the Pentamation Companies
will have made, on or before the Closing Date (as defined in Section 10.1),
all payments required to be made by them on or before the Closing Date and
will have accrued (in accordance with GAAP) as of the Closing Date all
payments due but not yet payable as of the Closing Date, so there will not
have been, nor will there be, any Accumulated Funding Deficiencies (as
defined in ERISA or the Code) or waivers of such deficiencies. The
Pentamation Companies have delivered to SunGard and Newco an accurate and
complete copy of the most current Form 5500 and any other form or filing
required to be submitted to any governmental agency with regard to any of
Pentamation's Employee Benefit Plans and the most current actuarial report
with regard to any of Pentamation's Employee Benefit Plans. All of
Pentamation's Employee Benefit Plans are, and have been, operated in full
compliance with their provisions and with all applicable Laws including
ERISA and the Code and the regulations and rulings thereunder. The
Pentamation Companies and all fiduciaries of Pentamation's Employee Benefit
Plans have complied with the provisions of Pentamation's Employee Benefit
Plans and with all applicable Laws including ERISA and the Code and the
regulations and rulings thereunder. There have been no Reportable Events
(as defined in ERISA), no events described in Sections 4062, 4063 or 4064
of ERISA, and no termination or partial termination (including any
termination or partial termination attributable to this sale) of any of
Pentamation's Employee Benefit Plans. There would be no Obligation of any
of the Pentamation Companies under Title IV of ERISA if any of
Pentamation's Employee Benefit Plans were terminated as of the Closing
Date. None of the Pentamation Companies has incurred, nor will incur, any
withdrawal liability, nor do any of the Pentamation Companies have any
contingent withdrawal liability, under ERISA to any Multiemployer Plan (as
defined in ERISA or the Code). None of the Pentamation Companies has
incurred, or will incur, any Obligation to the Pension Benefit Guaranty
Corporation (or any successor thereto). Neither the execution and delivery
of this Agreement nor the consummation of the Transactions will (x) result
in any payment (including any severance, unemployment compensation or
golden parachute payment) becoming due from any of the Pentamation
Companies under any of Pentamation's Employee Benefit Plans, (y) increase
any benefits otherwise payable under any of Pentamation's Benefit Plans, or
(z) result in the acceleration of the time of payment or vesting of any
such benefits to any extent. There are no pending Proceedings that have
been asserted or instituted against any of Pentamation's Employee Benefit
Plans, the Assets of any of the trusts under such plans, the plan sponsor,
the plan administrator or any fiduciary of any such plan (other than
routine benefit claims), and, to the knowledge of the Principal
Shareholders and Pentamation, there are no facts which could form the basis
for any such Proceeding. There are no investigations or audits of any of
Pentamation's Employee Benefit Plans, any trusts under such plans, the plan
sponsor, the plan administrator or any fiduciary of any such plan that have
been instituted or, to the knowledge of the Principal Shareholders and
Pentamation, threatened, and, to the knowledge of the
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Principal Shareholders and Pentamation, there are no facts which could form
the basis for any such investigation or audit. Except as disclosed in
Schedule 3.17, no event has occurred nor will occur which will result in
any of the Pentamation Companies having an Obligation in connection with
any Employee Benefit Plan established, maintained, contributed to or to
which there has been an obligation to contribute (currently or previously)
by it or by any other entity which, together with any of the Pentamation
Companies, constitute elements of either (i) a controlled group of
corporations (within the meaning of Section 414(b) of the Code), (ii) a
group of trades or businesses under common control (within the meaning of
Sections 414(c) of the Code or 4001 of ERISA), (iii) an affiliated service
group (within the meaning of Section 414(m) of the Code), or (iv) another
arrangement covered by Section 414(o) of the Code.
3.18 Customers, Prospects and Suppliers. Each customer of the
Pentamation Companies is listed in the list of customers included as part
of Schedule 3.18. Schedule 3.18 is a complete list of all current prospects
and suppliers of each of the Pentamation Companies. Except as set forth on
Schedule 3.18, since January 1, 1994, none of the customers or suppliers of
any of the Pentamation Companies has given notice or otherwise indicated to
such company that it will or intends to terminate or not renew its Contract
with such company before the scheduled expiration date or otherwise
terminate its relationship with such company. The relationship of each of
the Pentamation Companies with their respective customers is currently on a
good and normal basis, and none of the Pentamation Companies has
experienced any problems with customers or suppliers since January 1, 1994.
To the knowledge of the Principal Shareholders and Pentamation, the
Transactions will not adversely affect relations with any of the customers
or suppliers of any of the Pentamation Companies. Pentamation has delivered
to SunGard and Newco an accurate and complete copy of the most recent
customer surveys, if any, of each of the Pentamation Companies.
3.19 Taxes. Schedule 3.19 is an accurate and complete list of all
federal, state, local, foreign and other Tax returns and reports (including
information returns) (collectively "Returns") filed by each of the
Pentamation Companies with respect to its last five (5) fiscal years.
Accurate and complete copies of all federal, state, local and foreign
income, sales and use Tax Returns filed by each of the Pentamation
Companies with respect to its last five fiscal years are attached to
Schedule 3.19, and accurate and complete copies of all other Tax Returns
listed thereon have been delivered to SunGard and Newco. Except as
explained on Schedule 3.19, (a) each of the Pentamation Companies has
properly and timely filed all Tax Returns required to be filed by it, all
of which were accurately prepared and completed; (b) each of the
Pentamation Companies has properly withheld from payments to its employees,
agents, representatives, contractors, suppliers and other third parties all
amounts required by Law to be withheld for Taxes; (c) each of the
Pentamation Companies has paid all Taxes required to be paid by it; (d) no
audit of any of the Pentamation Companies by any governmental taxing
authority has ever been conducted, is currently pending or, to the
knowledge of the Principal Shareholders and Pentamation, is threatened; (e)
no notice of any proposed Tax audit, or of any Tax deficiency or
adjustment, has been received by any of the Pentamation Companies, and
there is no reasonable basis for any Tax deficiency or adjustment to be
assessed against any of the Pentamation Companies; and (f) there are no
agreements or waivers currently in effect that provide for an extension of
time for the assessment of any Tax against any of the Pentamation
Companies. None of the Pentamation Companies has filed a consent under Code
Section 341(f) concerning collapsible corporations. None of the Pentamation
Companies has made any payments, is obligated to make any payments, or is a
party to any agreement that could obligate it to make any payments that
will not be deductible under Code Section 280G. None of the Pentamation
Companies has been a member of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent of which is
Pentamation, or has any liability for the Taxes of any person or entity
other than any of the Pentamation Companies under Treas. Reg. (S)1.1502-6
or any similar provision of state, local or foreign law, as transferee or
successor, by contract or otherwise. The unpaid taxes of the Pentamation
Companies did not, as of the Latest Balance Sheet, exceed the reserve for
tax liability set forth on the face of the Latest Balance Sheet.
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3.20 Proceedings and Judgments. Except as described on Schedule 3.20,
(a) no Proceeding is currently pending or, to the knowledge of the
Principal Shareholders and Pentamation, threatened, nor has any Proceeding
occurred at any time since January 1, 1994, to which any of the Pentamation
Companies is or was a party, or by which any of the Pentamation Companies
or any Assets or business of any of the Pentamation Companies is or was
affected; (b) no Judgment is currently outstanding, nor has any Judgment
been outstanding at any time since January 1, 1994, against any of the
Pentamation Companies, or by which any of the Pentamation Companies or any
Assets or business of any of the Pentamation Companies is or was affected;
and (c) no breach of contract, breach of warranty, tort, negligence,
infringement, product liability, discrimination, wrongful discharge or
other claim of any nature has been asserted or, to the knowledge of the
Principal Shareholders and Pentamation, threatened by or against any of the
Pentamation Companies at any time since January 1, 1994, and there is no
basis for any such claim. As to each matter described on Schedule 3.20,
accurate and complete copies of all pertinent pleadings, judgments, orders,
correspondence and other legal documents have been delivered to SunGard and
Newco. The lien held by the Pennsylvania Department of Revenue and filed on
July 25, 1985 in the Court of Common Pleas of Northampton County,
Pennsylvania (the "1985 Lien") has been satisfied, discharged and paid in
full. If any of the Pentamation Companies is served with process or
receives notice that a Proceeding may be commenced against it, the
Pentamation Companies shall promptly notify SunGard.
3.21 Insurance. Schedule 3.21 is an accurate and complete list and
description of all Insurance Policies (excluding Insurance Policies that
constitute Pentamation's Employee Benefit Plans described on Schedule 3.17)
owned or maintained by any of the Pentamation Companies and/or any of their
predecessors at any time since January 1, 1994. Except as indicated on
Schedule 3.21, all such Insurance Policies are or were on an "occurrence"
rather than a "claims made" basis. None of the Pentamation Companies has
received notice of cancellation with respect to any such current Insurance
Policy, and there is no basis for the insurer thereunder to terminate any
such current Insurance Policy. Except as indicated on Schedule 3.21,
accurate and complete copies of all Insurance Policies described on
Schedule 3.21 have been delivered to SunGard and Newco. Each such Insurance
Policy is or was in full force and effect during the period(s) of coverage
indicated on Schedule 3.21. Except as described on Schedule 3.21, there are
no claims that are pending under any of the Insurance Policies described on
Schedule 3.21.
3.22 Questionable Payments. None of the Principal Shareholders, nor any
current or former partners, owners, shareholders, members, directors,
executives, officers, representatives, agents or employees of any of the
Pentamation Companies (when acting in such capacity or otherwise on behalf
of any of the Pentamation Companies or any of their predecessors), (a) has
used or is using any corporate funds for any illegal contributions, gifts,
entertainment or other unlawful expenses relating to political activity;
(b) has used or is using any corporate funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or
employees; (c) has violated or is violating any provision of the Foreign
Corrupt Practices Act of 1977, (d) has established or maintained, or is
maintaining, any unlawful or unrecorded fund of corporate monies or other
properties; (e) has made at any time since January 1, 1994, any false or
fictitious entries on the books and records of any of the Pentamation
Companies; (f) has made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment of any nature using corporate funds or
otherwise on behalf of any of the Pentamation Companies; or (g) made any
material favor or gift that is not deductible for federal income tax
purposes using corporate funds or otherwise on behalf of any of the
Pentamation Companies.
3.23 Related Party Transactions. Except as described on Schedule 3.23
and except for any employment Contracts listed on Schedule 3.15, there are
no real estate leases, personal property leases, loans, guarantees,
Contracts, transactions, understandings or other arrangements of any nature
between or among any of the Pentamation Companies and any current or former
partner, owner, stockholder, member, director, officer or controlling
Person of any of the Pentamation Companies (or any of their respective
predecessors) or any other Person affiliated with any of the Pentamation
Companies (or any of their respective predecessors). Schedule 3.23
identifies each person who is an "affiliate" (as that term is defined in
Rule 145 under the Securities Act of 1933, as amended (the "1933 Act")) of
the Pentamation Companies as of the date of this Agreement.
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3.24 Brokerage Fees. Except as set forth on Schedule 3.24, no Person
acting on behalf of any of the Pentamation Companies or any of the
Principal Shareholders is or shall be entitled to any brokerage or finder's
fee in connection with the Transactions.
3.25 Acquisition Proposals. Except as disclosed on Schedule 3.25, since
January 1, 1998, none of the Pentamation Companies nor any of the Principal
Shareholders has, directly or indirectly, solicited, initiated or responded
to any inquiries or proposals from, or participated in any discussions or
negotiations with, or provided any non-public information to, any Person or
group (other than SunGard and its officers, employees, representatives and
agents) concerning any sale of all or substantially all of the Assets of
any of the Pentamation Companies, any sale of shares of capital stock,
membership interests or other securities of any of the Pentamation
Companies, or any merger, consolidation or similar transaction involving
any of the Pentamation Companies.
3.26 Affiliate Matters. None of the shareholders of the Pentamation
Companies has or will sell any shares of capital stock or other securities
of the Pentamation Companies or of SunGard at any time during the 30-day
period ending on the Closing Date.
3.27 Accounting Matters. To the knowledge of Pentamation, none of the
Pentamation Companies nor any affiliate (as that term is used in Rule 145
under the 1933 Act) of any of the Pentamation Companies has taken or agreed
to take, or plans to take, any action that could prevent SunGard from
accounting for the merger as a "pooling of interests" in accordance with
generally accepted accounting principals, Accounting Principles Board
Opinion No. 16 and all published rules, regulations and policies of the
SEC. Halbert, Katz & Co., P.C. has confirmed in a letter dated the date of
this Agreement and addressed to Pentamation, an executed copy of which has
been delivered to SunGard, that Halbert, Katz & Co., P.C. concurs with the
Pentamation's management's conclusion that, as of the date of such letter,
no condition exists that would preclude SunGard from accounting for the
Merger as a "pooling of interests" in accordance with generally accepted
accounting principals, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC. Schedule 3.27
identifies each person who is an "affiliate" (as that term is defined in
Rule 145 under the 1933 Act) of the Pentamation Companies as of the date of
this Agreement.
3.28 Vote Required. The affirmative vote of the holders of a majority of
the shares of Pentamation Stock outstanding on the record date for the
Pentamation Shareholders' Meeting (the "Required Pentamation Shareholder
Vote") is the only vote of the holders of any class or series of the
Pentamation capital stock necessary to approve the Transactions.
3.29 HSR Act. Pentamation is the "ultimate parent" of Pentamation as
such term is defined in the HSR Act. Except as set forth on Schedule 3.29,
upon consummation of the transactions provided for herein, no shareholder
of Pentamation will hold an aggregate total amount of SunGard's voting
securities in excess of $15,000,000. Except as set forth on Schedule 3.29,
no Person is required to file a Premerger Notification and Report Form
pursuant to the HSR Act in connection with the Transactions.
3.30 Full Disclosure. No representation or warranty made by Pentamation
or the Principal Shareholders in this Agreement or pursuant hereto (a)
contains any untrue statement of any fact; or (b) omits to state any fact
that is necessary to make the statements made, in the context in which
made, not false or misleading in any respect. The copies of documents
attached as Schedules to this Agreement or otherwise delivered to SunGard
and Newco in connection with the Transactions, are accurate and complete,
and are not missing any amendments, modifications, correspondence or other
related papers which would be pertinent to SunGard's or Newco's
understanding thereof in any respect. To the knowledge of the Principal
Shareholders and Pentamation, there is no fact that has not been disclosed
to SunGard and Newco in the Schedules to this Agreement or otherwise in
writing, that was or is or, so far as any of the Principal Shareholders can
reasonably foresee, will have a material adverse effect on any of the
Pentamation Companies, the business, Assets or financial condition of any
of the Pentamation Companies or the ability of Pentamation or any of the
Principal Shareholders to perform their respective obligations under this
Agreement.
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Section 4: Representations of SunGard and Newco
Knowing that Pentamation and the Principal Shareholders rely thereon,
SunGard and Newco, jointly and severally, represent and warrant to Pentamation
and the Principal Shareholders as of the date of this Agreement, and covenant
with Pentamation and the Principal Shareholders, as follows:
4.1 Organization. SunGard and Newco each is a corporation that is duly
organized, validly existing and in good standing under the Laws of the
State of Delaware and the Commonwealth of Pennsylvania, respectively.
SunGard and Newco each possess the full corporate power and authority to
own its Assets, conduct its business as and where such business is
presently conducted, and enter into this Agreement. All of the issued and
outstanding shares of capital stock of Newco are owned by SunGard.
4.2 Agreement. Each of SunGard's and Newco's execution, delivery and
performance of this Agreement, and its consummation of the Transactions,
(a) have been duly authorized by all necessary corporate actions by their
respective boards of directors; (b) do not constitute a violation of or
default under their respective charters or bylaws; (c) do not constitute a
default or breach (immediately or after the giving of notice, passage of
time or both) under any Contract to which SunGard or Newco is a party or by
which SunGard or Newco is bound; (d) do not constitute a violation of any
Law or Judgment that is applicable to it or to their respective businesses
or Assets, or to the Transactions; and (e) except (i) as stated on Schedule
4.2, (ii) for the filing of the Articles of Merger with the proper
officials of the Commonwealth of Pennsylvania and (iii) for filings which
may be required under the HSR Act, do not require the Consent of any
Person. This Agreement constitutes the valid and legally binding agreement
of each of SunGard and Newco, enforceable against each of them in
accordance with its terms.
4.3 SunGard's Stock. The authorized capital stock of SunGard is
320,000,000 shares SunGard Stock, of which approximately 115,323,000 shares
were issued and outstanding as of December 31, 1998, and 5,000,000 shares
of preferred stock, $0.01 par value per share, none of which is issued or
outstanding. The shares of SunGard Stock to be issued as consideration for
the purchase, when issued, shall be validly authorized and validly issued.
4.4 SEC Filings. SunGard has provided to the Principal Shareholders
copies of the following reports and documents filed by SunGard with the
SEC: (a) SunGard's Annual Report on Form 10-K for the year ended December
31, 1998; (b) SunGard's 1998 Annual Report to Stockholders; and (c)
SunGard's April 3, 1999 Proxy Statement.
4.5 Investment Matters. SunGard is acquiring the Pentamation Stock for
its own account for investment purposes only and not with a view to, or for
sale in connection with, any resale or distribution thereof.
Section 5: Securities Filings and Approval of the Pentamation Shareholders
5.1 Registration Statement. As promptly as practicable after the
execution of this Agreement, SunGard shall prepare and file such
registration statement (the "Registration Statement") as shall be necessary
to register under the 1933 Act the shares of SunGard Stock to be issued and
delivered to the Shareholders in accordance with this Agreement and the
Plan. Pentamation and each of the Principal Shareholders shall promptly
provide to SunGard all information concerning the business, financial
condition and affairs of Pentamation and/or such Principal Shareholder that
may be required or reasonably requested by SunGard in connection with the
preparation or filing of the Registration Statement, including without
limitation the financial statements, financial statement schedules and
auditor's consents required to be included therein, and shall otherwise
cooperate and cause their representatives to cooperate with SunGard in the
preparation of the Registration Statement. As promptly as is practicable
after the date hereof, Pentamation shall cause Halbert, Katz & Co., P.C. to
conduct a review, in accordance with generally accepted auditing standards,
of the financial statements of Pentamation as of and for the period ended
March 31, 1999 (the "Reviewed Interim Financial Statements") and to deliver
such Reviewed Interim Financial Statements to SunGard (the delivery of
which is a condition precedent to SunGard's obligation to file the
Registration Statement). The parties shall use their best efforts to cause
the
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Registration Statement to become effective as soon as practicable and to
distribute copies of SunGard's prospectus and Pentamation's proxy statement
contained in such Registration Statement (the "Proxy Statement/Prospectus")
to the shareholders. After the execution of this Agreement and until the
Closing Date, Pentamation and each Principal Shareholder shall promptly
advise SunGard of any facts that should be set forth in an amendment or
supplement to the Proxy Statement/Prospectus or the Registration Statement,
and each party shall take all actions that may be necessary to keep the
Proxy Statement/Prospectus and the Registration Statement current and
effective until the Closing Date. Except with the prior written consent of
SunGard or except as provided in Section 152, neither Pentamation nor any
Principal Shareholder shall publish any communication, other than the Proxy
Statement/Prospectus, relating to this Agreement, the Plan or the
Transactions. SunGard shall not be required to maintain the effectiveness
of the Registration Statement or the Proxy Statement/Prospectus for the
purpose of resale by affiliates of Pentamation.
5.2 Pentamation Shareholder Approval. As promptly as practicable after
the Registration Statement becomes effective, and in accordance with
applicable law, Pentamation will duly hold a meeting of the shareholders
(the "Shareholders Meeting") for the purpose of voting on the Merger.
Pentamation and the Principal Shareholders shall recommend the Merger to
the shareholders for approval. Except with the prior written consent of
SunGard, neither Pentamation nor any Principal Shareholder shall distribute
any materials to the shareholders in connection with the Shareholders
Meeting other than the Proxy Statement/Prospectus. After the shareholders
shall have approved the Merger, such approval shall not be revocable.
Pentamation shall solicit proxies from the shareholders for use at the
Shareholders Meeting.
5.3 Pentamation's and Principal Shareholders' Representations as to the
Registration Statement. Pentamation and the Principal Shareholders, jointly
and severally, represent and warrant to SunGard and Newco and covenant with
SunGard and Newco that, at the time the Registration Statement shall become
effective and at all times subsequent to effectiveness up to and including
the Closing Date, the Registration Statement and all amendments or
supplements thereto, with respect to information furnished by Pentamation,
any Principal Shareholder or its or their representatives regarding
Pentamation, (a) will comply in all material respects with the provisions
of the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act") and the respective rules and regulations thereunder, and (b) will not
contain any untrue statement of any material fact, or omit to state any
fact required to be stated therein or necessary to make the statements made
therein, in the context in which made, not misleading in any material
respect. Each Principal Shareholder severally represents and warrants to
SunGard and Newco and covenants with SunGard and Newco that, at the time
the Registration Statement shall become effective and at all times
subsequent to effectiveness up to and including the Closing Date, the
Registration Statement and all amendments or supplements thereto, with
respect to information furnished by such Principal Shareholder regarding
such Principal Shareholder, (a) will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act and the respective rules and
regulations thereunder, and (b) will not contain any untrue statement of
any material fact, or omit to state any fact required to be stated therein
or necessary to make the statements made therein, in the context in which
made, not misleading in any material respect. Pentamation and the Principal
Shareholders, jointly and severally, represent and warrant to SunGard and
Newco and covenant with SunGard and Newco that the information furnished by
Pentamation, any Principal Shareholder or its or their representatives
regarding Pentamation for use in the filings described in or contemplated
by this Agreement will not contain any untrue statement of any material
fact, or omit to state any fact required to be stated therein or necessary
to make the statements made therein, in the context in which made, not
misleading in any material respect. Each Principal Shareholder severally
represents and warrants to SunGard and Newco and covenants with SunGard and
Newco that the information furnished by such Principal Shareholder
regarding such Principal Shareholder for use in the filings described in or
contemplated by this Agreement will not contain any untrue statement of any
material fact, or omit to state any fact required to be stated therein or
necessary to make the statements made therein, in the context in which
made, not misleading in any material respect. Pentamation and the Principal
Shareholders, jointly and severally, shall indemnify and hold harmless
SunGard, Newco, each Person who controls SunGard and/or Newco (within the
meaning of Section 15 of
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the 1933 Act) and SunGard's and Newco's respective directors, officers and
representatives, in accordance with the procedures set forth in Section
14.2, from and against any and all losses, claims, liabilities, damages and
expenses (including reasonable attorneys' fees and court costs) that arise
out of or are based upon a breach of any of the joint and several
warranties, representations and covenants of Pentamation and the Principal
Shareholders in this Section 53. Each Principal Shareholder severally shall
indemnify and hold harmless SunGard, Newco, each Person who controls
SunGard and/or Newco (within the meaning of Section 15 of the 1933 Act) and
SunGard's and Newco's respective directors, officers and representatives,
in accordance with the procedures set forth in Section 14.2, from and
against any and all losses, claims, liabilities, damages and expenses
(including reasonable attorneys' fees and court costs) that arise out of or
are based upon a breach of any of the several warranties, representations
and covenants of such Principal Shareholder in this Section 53.
5.4 SunGard's and Newco's Representations as to the Registration
Statement. SunGard and Newco, jointly and severally, warrant and represent
to Pentamation and the Principal Shareholders and covenant with Pentamation
and the Principal Shareholders that, at the time the Registration Statement
shall become effective and at all times subsequent to effectiveness up to
and including the Closing Date, the Registration Statement and all
amendments or supplements thereto, with respect to the information therein
furnished by SunGard, Newco or their representatives, (a) will comply in
all material respects with the provisions of the 1933 Act, the 1934 Act and
the respective rules and regulations thereunder, and (b) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading. SunGard and Newco, jointly and severally, warrant
and represent to Pentamation and the Principal Shareholders that all
information furnished by SunGard, Newco or their respective representatives
for use in the filings described in or contemplated by this Agreement and
the Plan shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading. SunGard and Newco, jointly
and severally, shall indemnify and hold harmless Pentamation, the Principal
Shareholders and the directors, officers and representatives of
Pentamation, in accordance with the procedures set forth in Section 14.2,
from and against any and all losses, claims, liabilities, damages and
expenses (including reasonable attorneys' fees and court costs) that arise
out of or are based upon a breach of any of the warranties, representations
and covenants of this Section 54.
5.5 State Securities Filings. SunGard shall make all filings under
applicable state securities laws that are required in connection with the
Transactions. Pentamation and each Principal Shareholder shall cooperate
with SunGard and furnish all information that may be required or reasonably
requested by SunGard in connection with such filings.
Section 6: Certain Obligations of Pentamation and Shareholders Pending Closing
6.1 Voting and Cooperation Agreement. At the time of execution of this
Agreement, each of the Principal Shareholders shall deliver to SunGard a
duly executed Voting and Cooperation Agreement in the form of Exhibit B
attached hereto ("Voting and Cooperation Agreement").
6.2 Management Representation Letter. At the time of execution of this
Agreement, Pentamation and the Principal Shareholders shall deliver to
SunGard a copy of the management representation letter from the Pentamation
Companies to PricewaterhouseCoopers L.L.P., in form and substance
satisfactory to PricewaterhouseCoopers L.L.P.
6.3 Tax Representation Certificate. Within ten (10) days of the date of
this Agreement, Pentamation and the Principal Shareholders shall deliver to
SunGard a tax representation certificate from Pentamation and the Principal
Shareholders in a form and substance satisfactory to SunGard's counsel, in
order to render a tax opinion relating to the Registration Statement on
Form S-4 under the 1933 Act and the 1934 Act to be filed in connection with
the transactions hereunder.
6.4 Affiliate Agreements. At the time of execution of this Agreement,
Pentamation and the Principal Shareholders shall deliver to SunGard duly
signed Affiliate Agreements, in the form of Exhibit C hereto
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("Affiliate Agreements") from each "affiliate" (as that term is defined in
Rule 145 under the 1933 Act) of the Pentamation Companies.
6.5 Conduct of the Pentamation Companies' Business. Between the date of
this Agreement and the Closing Date, except with the prior written consent
of SunGard:
(a) The Pentamation Companies shall, and the Principal Shareholders
shall cause the Pentamation Companies to, (i) conduct their business in
a diligent manner, (ii) not make any material change in their business
practices, and (iii) use their best efforts to preserve their business
organization intact, keeping available the services of their current
officers, employees, salesmen, agents and representatives, and
maintaining the goodwill of their customers, suppliers and other
Persons having business relations with any of the Pentamation
Companies. Each Principal Shareholder involved in the daily business
operations of any of the Pentamation Companies shall remain actively
involved in such daily business operations, consistent with his past
practices. The Principal Shareholders shall regularly consult with
SunGard as to the management of the business and affairs of the
Pentamation Companies.
(b) Except in the ordinary course of business of the Pentamation
Companies consistent with past practices, the Pentamation Companies
shall not, and the Principal Shareholders shall not permit any of the
Pentamation Companies to, (i) create or assume any Encumbrances upon
any of their business or Assets, (ii) incur any Obligation, (iii) make
any loan or advance, (iv) assume, guarantee or otherwise become liable
for any Obligation of any Person, (v) commit for any capital
expenditure, (vi) purchase, lease, sell, abandon or otherwise acquire
or dispose of any business or Assets, (vii) waive any right or cancel
any debt or claim, (viii) assume or enter into any Contract other than
this Agreement (and any other Contract contemplated herein), (ix)
increase, or authorize an increase in, the compensation or benefits
paid or provided to any of their directors, officers, employees,
salesmen, agents or representatives, or (x) do anything else outside
the ordinary course of their business consistent with its past
practices, whether or not specifically described in any of the
foregoing clauses.
(c) Even in the ordinary course of the business of the Pentamation
Companies consistent with their past practices, none of the Pentamation
Companies shall, and the Principal Shareholders shall not permit any of
the Pentamation Companies to, borrow any funds (excluding draws on
Pentamation's existing line of credit in the ordinary course of
business consistent with past practices), lend any funds, purchase any
goods or services, lease any equipment, incur any debt, Obligation, or
enter into any Contract (excluding Customer Contracts and related
commitments entered into in the ordinary course of business consistent
with past practices) or other transaction involving, in any single
case, an amount exceeding $50,000 or, in the aggregate, an amount
exceeding $100,000.
(d) The Pentamation Companies shall not, and the Principal
Shareholders shall not permit any of the Pentamation Companies to, (i)
permit or cause a breach or default by them under any of their
Contracts, Insurance Policies, licenses or Permits, (ii) adopt or enter
into any new Employee Benefit Plan or modify any existing Employee
Benefit Plan, (iii) participate in any merger, consolidation or
reorganization, (iv) begin to engage in any new type of business, (v)
acquire the business or any bulk assets of any other Person, (vi)
completely or partially liquidate or dissolve, or (vii) terminate any
part of their business.
(e) The Pentamation Companies shall and the Principal Shareholders
shall cause the Pentamation Companies to, (i) maintain their Real
Property and Tangible Property in good condition and repair, (ii)
maintain their Insurance Policies and Permits in full force and effect,
(iii) repair, restore or replace any of their Assets that are damaged,
destroyed, lost or stolen, (iv) comply with all applicable Contracts,
Permits and Laws, (v) properly file all Tax returns, annual reports and
other returns and reports required to be filed by them, and (vi) fully
pay when due all Taxes and fees payable by them.
(f) The Pentamation Companies shall and the Principal Shareholders
shall cause the Pentamation Companies to, maintain their corporate
existence and good standing in their respective jurisdictions of
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incorporation and their good standing in each jurisdiction where they
are currently qualified as a foreign corporation. The Pentamation
Companies shall not and the Principal Shareholders shall not permit the
Pentamation Companies to, amend their certificates of incorporation,
bylaws or similar organizational documents.
(g) The Pentamation Companies shall not, and the Principal
Shareholders shall not permit any of the Pentamation Companies to,
redeem, retire or purchase, or create, grant or issue any options,
warrants or other Contracts or Contract Rights with respect to, any
shares of Pentamation Stock, or any other capital stock or other
securities of any of the Pentamation Companies, or create, grant or
issue any stock options, stock appreciation rights, phantom shares or
other similar rights.
(h) Except in connection with the Pentamation Merger, the Principal
Shareholders shall not, nor shall any of the Pentamation Companies
sell, assign, give, pledge or otherwise transfer, dispose of or
encumber any shares of the Pentamation Stock, or any other capital
stock or other securities of any of the Pentamation Companies owned or
held by it or him.
(i) Each Pentamation Company and each Principal Shareholder shall
maintain all shares of the Pentamation Stock owned or held by it or him
free and clear of all Encumbrances.
(j) None of the Pentamation Companies shall, nor shall any Principal
Shareholder buy, sell or engage in any other transaction involving
SunGard Stock, other securities of SunGard or any equity interests in
SunGard, other than the Merger and the other Transactions.
(k) None of the Pentamation Companies shall, nor shall any of the
Principal Shareholders enter into any Contract that commits it or him
to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Section 6.5 or any
other provisions of this Agreement or the Plan.
6.6 Interim Financial Statements. For each calendar month that ends
between the Latest Balance Sheet Date and the Closing Date, Pentamation
shall, and the Principal Shareholders shall cause Pentamation to, promptly
prepare and deliver to SunGard monthly financial statements, which shall be
prepared in accordance with GAAP and shall reflect all adjustments
(consisting only of normal recurring adjustments) that are necessary for a
fair presentation of the financial condition of the Pentamation Companies
as of the end of such month and of the results of operations of the
Pentamation Companies for such month.
6.7 SunGard's General Due Diligence Investigation. Between the date of
this Agreement and the Closing Date, the Pentamation Companies and the
Principal Shareholders shall (a) permit SunGard and its authorized
representatives to have reasonable access to the facilities and offices of
the Pentamation Companies during normal business hours, to observe the
operations of the Pentamation Companies, to meet with the officers and
employees of the Pentamation Companies, to contact the customers, prospects
and suppliers of the Pentamation Companies, and to audit, examine and copy
the files, books and records and other documents and papers of the
Pentamation Companies, and (b) provide to SunGard and its authorized
representatives all information concerning the business, Assets and
financial condition of the Pentamation Companies, the Principal
Shareholders and the Pentamation Stock that SunGard reasonably requests.
6.8 Sungard's Environmental Due Diligence Investigation.
(a) Between the date of this Agreement and the Closing Date, SunGard
and Newco and their agents and representatives shall have the right,
without the obligation, to enter upon any or all of the Pentamation
Real Property for the purpose of testing and conducting such Phase 1,
Phase 2 or other environmental assessments as they deem necessary or
appropriate, including but not limited to taking soil borings and
undertaking groundwater investigations. The Pentamation Companies shall
notify SunGard and Newco of any dangerous conditions on the Pentamation
Real Property, including conditions which due to the nature of the
inspection or testing to be performed by or on behalf of SunGard and
Newco may pose a dangerous condition to them or their agents or
representatives.
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(b) Between the date of this Agreement and the Closing Date, the
Pentamation Companies shall provide SunGard and Newco and their agents
and representatives with access to the Pentamation Real Property at
reasonable times and shall cooperate in the conduct of the
environmental assessments, including complying fully and completely
with any reasonable requests for information and documents. SunGard's
and Newco's inspections and investigations shall be conducted in a
manner which does not unreasonably interfere with the Pentamation
Companies' operations.
(c) If SunGard and Newco receive a report with respect to the
environmental condition of any of the Pentamation Real Property which
is in any way unsatisfactory to SunGard or Newco, SunGard and Newco may
terminate this Agreement pursuant to Section 15.1 hereof.
6.9 Consents. Between the date of this Agreement and the Closing Date,
the Pentamation Companies and the Principal Shareholders shall in good
faith use their best efforts to obtain all Consents and approvals of all
lenders, lessors, vendors, customers and other Persons necessary to permit
the Merger and the other Transactions to be consummated without violating
any loan agreement, lease or other material contract to which any of the
Pentamation Companies is a party or by which any of the Pentamation
Companies is bound, and to give the notices and make the filings described
on Schedule 3.2.
6.10 Acquisition Proposals. Between the date of this Agreement and the
Closing Date, none of the Pentamation Companies, nor any of the Principal
Shareholders, nor any officer, employee, representative or agent of
Pentamation shall, directly or indirectly, solicit, initiate, encourage or
respond to any inquiries or proposals from, or participate in any
discussions or negotiations with, or provide any non-public information to,
any Person or group (other than SunGard and its officers, employees,
representatives and agents) concerning any bulk sale of any Assets of the
Pentamation Companies, any sale of shares of capital stock or other
securities of any of the Pentamation Companies, or any merger,
consolidation or similar transaction involving any of the Pentamation
Companies. Each Principal Shareholder shall immediately advise SunGard of,
and communicate to SunGard the terms of, any such inquiry or proposal
received by any of the Pentamation Companies or any Principal Shareholder.
6.11 Advice of Changes. Between the date of this Agreement and the
Closing Date, Pentamation and each Principal Shareholder shall promptly
advise SunGard, in writing, of any fact of which any of them obtains
knowledge and that, if existing or known as of the date of this Agreement,
would have been required to be set forth or disclosed in or pursuant to
this Agreement (it being understood that such advice shall not be deemed to
modify the representations, warranties and covenants of Pentamation and/or
of any Principal Shareholder contained in this Agreement).
6.12 S-4 Financial Statements. Pentamation shall prepare annual and
quarterly financial statements of the type and for the periods required for
use in the Registration Statement on Form S-4 under the 1933 Act and the
1934 Act (collectively, the "S-4 Financial Statements") which financial
statements shall be prepared in accordance with GAAP and applicable SEC
requirements. The S-4 Financial Statements shall be substantially identical
to the Annual Financial Statements and Interim Financial Statements
attached to Schedule 3.6A and Schedule 3.6B, respectively, except that the
S-4 Financial Statements shall not have the exceptions to GAAP noted in
Schedule 3.6A and 3.6B, respectively. The annual financial statements
contained in such S-4 Financial Statements shall be audited by Halbert,
Katz & Co., P.C., whose reports shall be without qualification or
explanatory paragraphs. Pentamation and each of the Principal Shareholders
represent and warrant and covenant that (a) all of the audited annual
financial statements contained in the S-4 Financial Statements will (i) be
prepared in accordance with GAAP; and (ii) fairly present the financial
condition and results of operations of Pentamation as of the dates and for
the periods indicated; and (b) the unaudited interim financial statements
contained in the S-4 Financial Statements will be prepared in accordance
with GAAP, and all adjustments that are necessary for a fair presentation
thereof (consisting only of normal recurring adjustments) will be made.
6.13 Pooling of Interests. Each of the Pentamation Companies and the
Principal Shareholders agree (a) not to take any action from the date of
this Agreement to the Closing Date that would adversely affect the ability
of SunGard to account for the Merger as a "pooling of interests," and (b)
to use its reasonable best efforts to attempt to ensure that none of its
"affiliates" (as that term is used in Rule 145 under the
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1933 Act) takes any action that could adversely affect the ability of
SunGard to account for the Merger as a "pooling of interests." Pentamation
agrees to provide to Halbert, Katz & Co., P.C. and PricewaterhouseCoopers
L.L.P. such letters as shall be reasonably requested by Halbert, Katz &
Co., P.C. and PricewaterhouseCoopers L.L.P. with respect to the letters
referred to in Sections 3.27 and 9.2.
6.14 HSR Act Filings. As soon as is practical after the date of this
Agreement, (a) Pentamation and the Principal Shareholders shall make all
filings under the HSR Act, that are required to be made by them in
connection with the transactions contemplated by this Agreement, and (b)
Pentamation and the Principal Shareholders shall cooperate with SunGard and
Newco in connection with the filings by the SunGard and Newco under the HSR
Act, including, but not limited to, providing all information reasonably
requested by the SunGard and Newco and taking all actions reasonably
requested by the SunGard and Newco to cause the early termination of all
applicable waiting periods under the HSR Act.
6.15 Best Efforts. Pentamation and each Principal Shareholder shall use
its or his best efforts to consummate the Merger and the other Transactions
(including without limitation the transactions contemplated by the Real
Property Purchase Agreement and the Automobile Purchase Agreement) as of
the earliest practicable date. Neither Pentamation nor any of the Principal
Shareholders shall take, or cause to be taken, or to the best of their
ability permit to be taken, any action that would impair the prospect of
completing the Merger and the other Transactions (including without
limitation the transactions contemplated by the Real Property Purchase
Agreement and the Automobile Purchase Agreement).
Section 7: Certain Obligations of SunGard and Newco Pending Closing
7.1 Corporate Status. Between the date of this Agreement and the Closing
Date:
(a) SunGard and Newco each shall maintain their corporate existence
and good standing in the State of Delaware, and the Commonwealth of
Pennsylvania, respectively, and shall not amend their respective
charters or bylaws in any manner that would be inconsistent with their
respective obligations under this Agreement.
(b) Neither SunGard nor Newco shall enter into any Contract that
commits them to take any action or omit to take any action that would
be inconsistent with any of the provisions of this Section 7.1 or any
other provisions of this Agreement.
7.2 The Principal Shareholders' Due Diligence Investigation. Between the
date of this Agreement and the Closing Date, upon the Pentamation
Companies' request, SunGard shall (a) permit Pentamation, the Principal
Shareholders and their authorized representatives to visit SunGard's
facilities during normal business hours, to meet with SunGard's key
officers, and (b) provide to Pentamation, the Principal Shareholders and
their authorized representatives all publicly available information
concerning SunGard and its subsidiaries and their businesses, assets and
financial condition, that Pentamation and the Principal Shareholders
reasonably request.
7.3 Consents. Between the date of this Agreement and the Closing Date,
SunGard and Newco shall in good faith cooperate with the Pentamation
Companies and the Principal Shareholders in their efforts to obtain the
consents and approvals, and to give the notices and make the filings,
described in Schedule 4.2.
7.4 SEC Reports. Between the date of this Agreement and the Closing
Date, SunGard shall file all reports and other filings required to be filed
by it under the 1934 Act, and SunGard shall deliver to the Principal
Shareholders, promptly after they become publicly available, all
registration statements, proxy statements, reports and other filings, and
all amendments thereto, that SunGard files with the SEC.
7.5 Advice of Changes. Between the date of this Agreement and the
Closing Date, SunGard shall promptly advise Pentamation and the Principal
Shareholders, in writing, of any fact of which it obtains knowledge and
that, if existing or known as of the date of this Agreement, would have
been required to be set forth or disclosed pursuant to a representation or
warranty in this Agreement (it being understood that such advice shall not
be deemed to modify the representations, warranties and covenants of
SunGard and/or Newco contained in this Agreement).
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7.6 HSR Act Filings. As soon as is practical after the date of this
Agreement, (a) SunGard and Newco shall make all filings under the HSR Act
that are required to be filed by them in connection with the transactions
contemplated by this Agreement, and (b) SunGard and Newco shall cooperate
with Pentamation and the Principal Shareholders, in connection with the
filings by Pentamation and the Principal Shareholders under the HSR Act,
including, but not limited to, providing all information reasonably
requested by Pentamation and the Principal Shareholders and taking all
actions reasonably requested by Pentamation and the Principal Shareholders
to cause the early termination of all applicable waiting periods.
7.7 Best Efforts. SunGard and Newco shall use their best efforts to
consummate the Merger and the other Transactions as of the earliest
practicable date, and neither SunGard nor Newco shall take, or cause to be
taken, or to the best of their ability permit to be taken, any action that
would impair the prospect of completing the Merger and the other
Transactions.
Section 8: Conditions Precedent to Pentamation's and Principal Shareholders'
Closing Obligations
Each obligation of Pentamation and the Principal Shareholders to be
performed on the Closing Date shall be subject to the satisfaction of each of
the conditions stated in this Section 8, except to the extent that such
satisfaction is waived by the Principal Shareholders in writing.
8.1 Effectiveness of Registration Statement. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending or threatened.
8.2 Approval of the Pentamation Shareholders. The Merger shall have been
duly approved by the affirmative vote of Pentamation shareholders entitled
to cast at least a majority of the votes entitled to be cast by the holders
of outstanding shares of Pentamation Stock.
8.3 SunGard's and Newco's Representations. All representations,
warranties and certifications made by SunGard and/or Newco in this
Agreement or pursuant hereto shall not have been false or misleading in any
material respect.
8.4 SunGard's and Newco's Performance. All of the terms and conditions
of this Agreement to be satisfied or performed by SunGard and/or Newco on
or before the Closing Date shall have been substantially satisfied or
performed.
8.5 Absence of Proceedings. No Proceeding shall have been instituted
(excluding any Proceeding instituted by or on behalf of any of the
Pentamation Companies or any Stockholder), no Judgment shall have been
issued, and no new Law shall have been enacted, on or before the Closing
Date, that seeks to or does prohibit or restrain, or that seeks damages as
a result of, the consummation of the Merger or any of the other
Transactions.
8.6 HSR Act. All applicable waiting periods with respect to the
transactions contemplated by this Agreement shall have expired under the
HSR Act, and neither the Federal Trade Commission nor the Antitrust
Division of the Department of Justice shall have (a) required any party to
divest itself of any assets in order to consummate such transactions, or
(b) taken any actions to prohibit the consummation of such transactions.
8.7 Average Stock Price. The Market Value of SunGard Stock (as defined
in the Plan) shall be greater than or equal to $32.00.
Section 9: Conditions Precedent to SunGard's and Newco's Closing Obligations
Each obligation of SunGard and Newco to be performed on the Closing Date
shall be subject to the satisfaction of each of the conditions stated in this
Section 9, except to the extent that such satisfaction is waived by SunGard in
writing.
9.1 Effectiveness of Registration Statement. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending or threatened.
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9.2 Qualification for Pooling Treatment. SunGard shall have received (i)
letters from PricewaterhouseCoopers L.L.P., dated as of a date prior to the
date that the Registration Statement is filed with the SEC and as of the
Closing Date and (ii) a letter from Halbert, Katz & Co. P.C. dated as of
the Closing Date, to the effect that, based on the facts known to such
accountants as of such date, the Merger will qualify as a "pooling of
interests" in accordance with generally accepted accounting principles,
Accounting Principles Board Opinion No. 16 and all published rules,
regulations and policies of the SEC, if closed and consummated in
accordance with this Agreement and the Plan. The receipt of such a letter
from PricewaterhouseCoopers L.L.P. dated as of a date prior to the date
that the Registration Statement is filed with the SEC shall also be a
condition precedent to SunGard's and Newco's obligation to file the
Registration Statement.
9.3 Approval of the Pentamation Shareholders. The Merger shall have been
duly approved by the affirmative vote of Pentamation shareholders entitled
to cast at least a majority of the votes entitled to be cast by the holders
of outstanding shares of Pentamation Stock.
9.4 Pentamation's and the Principal Shareholders' Representations. All
representations, warranties and certifications made by Pentamation and/or
any Principal Shareholder in this Agreement or pursuant hereto shall not
have been false or misleading in any material respect.
9.5 Pentamation's and the Principal Shareholders' Performance. All of
the terms and conditions of this Agreement to be satisfied or performed by
Pentamation and/or any Principal Shareholder on or before the Closing Date
shall have been substantially satisfied or performed.
9.6 Absence of Proceedings. No Proceeding shall have been instituted
(excluding any such Proceeding initiated by or on behalf SunGard or any of
its subsidiaries), no Judgment shall have been issued, and no new Law shall
have been enacted, on or before the Closing Date, that seeks to or does
prohibit or restrain, or that seeks damages as a result of, the
consummation of the Merger or any of the other Transactions.
9.7 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting the Pentamation Companies or
their business, Assets or financial condition, between the date of this
Agreement and the Closing Date, and there shall not have been any material
adverse change in the financial performance of the Pentamation Companies
between the date of this Agreement and the Closing Date.
9.8 Escrow Agreement. The Escrow Agreement (as defined in Section
10.2(h)) shall have been signed by the holders of at least 90% of the
outstanding Pentamation Stock.
9.9 Real Property Purchase Agreement. Closing of the transactions
contemplated under the Real Property Purchase Agreement shall been
completed in accordance with the terms of such agreement.
9.10 Automobile Purchase Agreement. Closing of the transactions
contemplated under the Automobile Purchase Agreement shall been completed
in accordance with the terms of such agreement.
9.11 HSR Act. All applicable waiting periods with respect to the
transactions contemplated by this Agreement shall have expired under the
HSR Act, and neither the Federal Trade Commission nor the Antitrust
Division of the Department of Justice shall have (a) required any party to
divest itself of any assets in order to consummate such transactions, or
(b) taken any actions to prohibit the consummation of such transactions.
9.12 Repayment of Company Loans by Principal Shareholders. Each of the
Principal Shareholders shall have made payment in full of all outstanding
principal and accrued and unpaid interest with respect to all loans made by
the Company to such Principal Shareholder. Any amount which remains unpaid
on the Closing Date shall be repaid by withholding from the shares of
SunGard Stock to be issued to such Principal Shareholder at the Closing
that number of shares of SunGard Stock (rounded to the nearest whole share)
equal to (a) the amount which remains unpaid divided by (b) the Market
Value of SunGard Stock, as defined in the Plan.
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9.13 Real Estate Documents. On or prior to the Closing Date:
9.13.1 Title. Pentamation shall own the Bethlehem Real Property in fee
simple absolute and possess good and marketable title to the Bethlehem Real
Property subject only to those easements, restrictions, or encumbrances
approved by SunGard, in its sole and absolute discretion, prior to Closing.
9.13.2 Title Insurance. Pentamation shall furnish SunGard with a 1992
ALTA owner's title insurance policy issued by a national title insurance
company acceptable to SunGard, dated within 90 days prior to the Closing
Date, insuring the Bethlehem Real Property in the amount of $7,500,000 and
naming Pentamation as the insured owner. Said title insurance policy shall
have the standard and general exceptions deleted, as well as the creditors'
rights exception, and shall include the survey, access, tax parcel,
contiguity, and restrictions (PA Endorsement 104) endorsements.
9.13.3 Survey. Pentamation shall provide to SunGard an "as-built" survey
completed within 90 days prior to the Closing Date, and prepared in
accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land
Title Surveys, including Items 1-11 and 13 from Table A of the Optional
Survey Responsibilities and Specifications. The survey shall show the
Bethlehem Real Property free and clear of any easements and encroachments
unless otherwise acceptable to SunGard and shall be prepared with reference
to the title insurance policy.
9.13.4 Tenant Estoppel Letters. Pentamation shall provide SunGard with
original, executed estoppel letters in the form attached hereto as Exhibit
D from all Tenants, licensees and occupants of the Bethlehem Real Property.
9.13.5 Landlord Estoppel Letters. Pentamation shall provide SunGard with
original, executed estoppel letters in the form attached hereto as Exhibit
E from all landlords of any Pentamation Real Property, along with any
consents required under any leases for the Pentamation Real Property.
9.13.6 Mortgagor's Consent. Pentamation shall furnish SunGard with proof
of the consent by the mortgagee on the Bethlehem Real Property to the
assignment and assumption of the debt on that property, to the extent that
such consent is required in connection with Pentamation's acquisition of
the Bethlehem Real Property from GLS and any subsequent consent required as
a result of this Reorganization Agreement.
9.13.7 Environmental Report. SunGard shall have the right to obtain a
Phase I, and, to the extent required, a Phase II environmental assessment
of the Bethlehem Real Property within ninety (90) days prior to the Closing
Date. In the event that SunGard elects to obtain such environmental
reports, it is a condition precedent to SunGard's obligations hereunder
that such reports show that the Bethlehem Real Property is free and clear
of any Hazardous Substances and in compliance with Environmental Laws.
9.13.8 Miscellaneous. Pentamation shall provide SunGard with proof of
payment of any transfer taxes owed as a result of Pentamation's acquisition
of the Bethlehem Real Property, proof that all condominium fees and dues
have been paid in full through the Closing Date and proof of the receipt of
any other consents required in connection with the Pentamation Real
Property (for example, from any condominium association).
Section 10: Closing
10.1 Closing. The closing of the Merger (the "Closing") shall be held on
a date designated by SunGard which shall be no later than the second
business day after the satisfaction or waiver of the conditions contained
in Sections 8 and 9 (the "Closing Date"), at a time and location that is
mutually acceptable to the parties. On the Closing Date or as soon
thereafter as is practicable, the parties shall cause the Plan and proper
Articles of Merger to be filed with the proper officials of the
Commonwealth of Pennsylvania, and the parties shall take such further
actions as may be required by the Commonwealth of Pennsylvania, and any
other applicable Laws in connection with the consummation of the Merger.
The Merger shall be effective on the date such filing is made with the
Commonwealth of Pennsylvania (the "Effective Date").
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10.2 Principal Shareholders' Obligations at Closing. At the Closing, the
Principal Shareholders shall deliver the following to SunGard:
(a) Stock certificates, or affidavits of loss in form reasonably
acceptable to SunGard and duly executed, representing all of the issued
and outstanding shares of Pentamation Stock held by the Principal
Shareholders and their affiliates, together with assignments separate
from certificate in blank, dated the Effective Date and duly executed
by the Pentamation shareholder.
(b) Stamps or other proper evidence of the payment of any stock
transfer or similar Taxes due as a result of the transfer of
Pentamation Stock by any Principal Shareholder pursuant to the
Transactions.
(c) All instruments or documents necessary to change the names of
the individuals who have access to or are authorized to make
withdrawals from or dispositions of all bank accounts, other accounts,
certificates of deposits, marketable securities, other investments,
safe deposit boxes, lock boxes and safes of the Pentamation Companies
described on Schedule 34 and all keys and combinations to all safe
deposit boxes, lock boxes and safes of the Pentamation Companies and
other depositories described on Schedule 34.
(d) A certificate, dated the Closing Date, in form and substance
satisfactory to SunGard, signed by the President and Chief Financial
Officer of Pentamation and by each of the Principal Shareholders,
certifying, jointly and severally, that (i) all representations and
warranties made by Pentamation and/or the Principal Shareholders in
this Agreement are correct in all material respects as of the Closing
Date, as if made on and as of the Closing Date, except for changes
contemplated or permitted by this Agreement, (ii) all of the terms and
conditions of this Agreement to be satisfied or performed by
Pentamation and/or any Principal Shareholder on or before the Closing
Date have been substantially satisfied or performed, and (iii) there
has not been any material adverse change or material casualty loss
affecting any of the Pentamation Companies, or their business, Assets
or financial condition, between the date of this Agreement and the
Closing Date, and there has not been any material adverse change in the
Pentamation Companies' financial performance between the date of this
Agreement and the Closing Date.
(e) Proper documentary evidence that the transaction contemplated by
the Real Property Purchase Agreement and the Automobile Purchase
Agreement have been completed in accordance with the terms of this
agreement.
(f) Articles of Merger for the Commonwealth of Pennsylvania, in form
and substance, acceptable to the parties ("Articles of Merger"), dated
the Closing Date and duly executed by Pentamation.
(g) The original signed copies of all Consents listed on Schedule
32.
(h) An escrow agreement, substantially in the form attached hereto
as Exhibit F ("Escrow Agreement"), dated the Closing Date, and duly
executed by Pentamation, each of the Principal Shareholders and the
holders of at least 90% of the outstanding Pentamation Stock.
(i) All of the original minute books, stock and share books and
similar records of the Pentamation Companies (including those of any
applicable predecessors and including original stock or share
certificates evidencing Pentamation's ownership of each of its
subsidiaries) and duly executed resignations, dated the Effective Date,
of all directors and officers of the Pentamation Companies other than
as specified by SunGard.
(j) Good standing certificates or equivalent for each of the
Pentamation Companies, dated no earlier than ten (10) days before the
Closing Date, from the applicable jurisdiction of formation or
organization and from each other jurisdiction in which it is qualified
or registered to do business as a foreign corporation or company
limited by shares.
(k) A certificate of Secretary of Pentamation as to the incumbency
and signatures of the officers of Pentamation executing this Agreement
and the documents delivered pursuant hereto.
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(l) Copies of the resolutions duly adopted by the board of directors
and shareholders of Pentamation authorizing Pentamation to execute,
deliver and perform this Agreement and the Plan and to consummate the
Transactions, certified by an officer of Pentamation as in full force
and effect, without modification or rescission, on and as of the
Closing Date.
(m) Such opinions of counsel representing Pentamation and the
Principal Shareholders, addressed to SunGard and dated the Closing
Date, in form and substance acceptable to SunGard.
(n) A General Release of the Pentamation Companies in form
acceptable to SunGard, dated the Closing Date and duly executed by each
of the Principal Shareholders and the directors and officers of the
Pentamation Companies.
(o) Proper documentary evidence that the 1985 Lien has been
satisfied, discharged and paid in full.
(p) A Share Conversion Table after calculating the Number of Fully
Diluted Common Shares and the Merger Exchange Ratio (as defined in the
Plan) setting forth: (i) the name of each Pentamation shareholder, (ii)
the number of shares of Pentamation Stock owned by such shareholder and
(iii) the number of shares of SunGard Stock to be received by each such
shareholder in connection with the transactions hereunder, executed by
Pentamation and the Principal Shareholders.
(q) All of the documents required to be delivered pursuant to
Section 9.13.
(r) A report from Asset Control Services addressed to Pentamation as
to the fair market value of the Automobiles as of the date of transfer
of the Automobiles to Pentamation pursuant to the Automobile Purchase
Agreement (the "Automobile FMV").
(s) Proper documentary evidence of the amount of indebtedness to
which the Automobiles were subject as of the date of transfer of the
Automobiles to Pentamation pursuant to the Automobile Purchase
Agreement (the "Automobile Indebtedness").
(t) Proper documentary evidence of the amount of indebtedness to
which the Bethlehem Real Property was subject as of the date of
transfer of the Bethlehem Real Property to Pentamation pursuant to the
Real Property Purchase Agreement (the "Bethlehem Real Property
Indebtedness").
10.3 SunGard's and Newco's Obligations at Closing. At the Closing,
SunGard and Newco shall deliver the following to the Principal
Shareholders:
(a) The Certificate of Merger duly executed by Newco.
(b) The Escrow Agreement duly executed by SunGard.
(c) A certificate, dated the Closing Date, in form and substance
satisfactory to the Principal Shareholders, signed by a Vice President
and the Chief Financial or Chief Accounting Officer of SunGard,
certifying that (i) all representations and warranties made by SunGard
and/or Newco in this Agreement are correct in all material respects as
of the Closing Date, as if made on and as of the Closing Date, except
for changes contemplated or permitted by this Agreement and (ii) all of
the terms and conditions of this Agreement to be satisfied or performed
by SunGard and/or Newco on or before the Closing Date have been
substantially satisfied or performed.
(d) Good standing certificates for SunGard and Newco, dated no
earlier than ten (10) days before the Closing Date, from the State of
Delaware.
(e) Copies of the resolutions duly adopted by the board of directors
of SunGard and by the board of directors and the sole shareholder of
Newco, authorizing SunGard and Newco, respectively, to execute, deliver
and perform this Agreement and to consummate the Transactions,
certified by an officer of SunGard or Newco, respectively, as in full
force and effect, without modification or rescission, on and as of the
Closing Date.
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(f) A certificate of Secretary of each of SunGard and Newco as to
the incumbency and signatures of the officers of SunGard and Newco
executing this Agreement and the documents delivered pursuant hereto.
(g) All other agreements, certificates, instruments, opinions of
counsel and documents reasonably requested by the Principal
Shareholders in order to fully consummate the Transactions and carry
out the purposes and intent of this Agreement.
Section 11: Certain Obligations of the Principal Shareholders after Closing
11.1 Receipts. The Principal Shareholders shall deliver to SunGard
receipts acknowledging receipt of certificates representing the shares of
SunGard Stock.
11.2 Restrictions on Dispositions of SunGard Stock. From and after the
Closing Date, none of the Principal Shareholders shall sell, assign, give,
pledge (except in connection with fully recourse bank loans) or otherwise
transfer, dispose of or reduce his or its risk relating to any of his or
its shares of capital stock or other securities of SunGard until SunGard
shall have published financial results covering at least 30 days of post-
Merger combined operations of SunGard and the Pentamation Companies, and,
thereafter, except in compliance with applicable federal and state
securities laws.
11.3 Cooperation with SunGard and Newco. From and after the Closing
Date, (a) each of the Principal Shareholders shall fully cooperate to
transfer to SunGard and Newco the full control and enjoyment of the
Pentamation Business and Assets of the Pentamation Companies, (b) none of
the Principal Shareholders shall take any action, directly or indirectly,
alone or together with others, that obstructs or impairs the smooth
assumption by SunGard and Newco of the Pentamation Business; (c) each
Principal Shareholder shall fully cooperate with SunGard and Newco in
connection with the preparation and audit of any financial statements of
the Pentamation Companies for periods before the Closing Date, including,
where appropriate, the signing of such management representation letters
are required in connection with such audit; and (d) the Principal
Shareholders shall promptly deliver to SunGard and Newco all
correspondence, papers, documents and other items and materials received by
any of the Principal Shareholders or found to be in the possession of any
of the Principal Shareholders which pertain to the Pentamation Business or
the Assets. At any time and from time to time after the Closing Date, at
SunGard's request and without further consideration (but at SunGard's
expense), each of the Principal Shareholders shall promptly execute and
deliver all such further agreements, certificates, instruments and
documents and perform such further actions as SunGard may reasonably
request, in order to fully consummate the Merger and the other Transactions
and to fully carry out the purposes and intent of this Agreement,
including, but not limited to, such documents and actions as may be
required in connection with the continuation or termination of the employee
benefit plans of the Pentamation Companies, the adoption by the Surviving
Corporation of SunGard's employee benefit plans, and the filing of tax
returns of the Pentamation Companies for all periods ending on, before or
including the Closing Date.
11.4 Phantom Stock Plan. The Company's FY '97 Three Year Phantom Stock
Plan ("Phantom Stock Plan") shall continue through and until September 30,
1999 at which time it shall be terminated and no further awards shall be
granted or made thereunder by the Company; provided however, that any
properly accrued obligations of the Company with respect to the Phantom
Stock Plan as of termination (without giving effect to any extraordinary
changes to Pentamation's net book value per share as a result of the
consummation of the Merger and the other Transactions contemplated hereby)
shall be paid in accordance with the terms of the Phantom Stock Plan.
Section 12: Certain Obligations of the Stockholders, SunGard and/or the
Surviving Corporation after Closing
12.1 Tax Periods Through the Closing Date. The Principal Shareholders
shall prepare or cause to be prepared all Tax Returns with respect to the
Surviving Corporation and each of its subsidiaries for taxable periods
ending on or before the Closing Date ("Short-Period Returns") and shall
provide the
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Short-Period Tax Returns to SunGard at least thirty (30) days before the
due date therefor, as extended by any proper extension. The Principal
Shareholders shall include on the Short-Period Returns the income of the
Surviving Corporation and each of its subsidiaries for all applicable
periods ending on or before the Closing Date. SunGard shall review the
Short-Period Returns but shall not change their content without the
Principal Shareholders' consent (which shall not be unreasonably withheld),
and shall cause the Surviving Corporation and each of its subsidiaries to
timely file the Short-Period Returns. The income of the Surviving
Corporation and each of its subsidiaries through the Closing Date shall be
computed as if its taxable year ended on and included the Closing Date.
12.2 Tax Periods After and Including the Closing Date. SunGard shall
timely prepare and file or cause to be timely prepared and filed all Tax
Returns for the Surviving Corporation and its subsidiaries required to be
filed for taxable periods ending after the Closing Date. SunGard shall
timely pay or cause to be paid the amount of Taxes due shown on such
Returns.
12.3 Audits. SunGard shall have sole control over all audits and other
proceedings that relate to Taxes of the Surviving Corporation and any of
its subsidiaries.
12.4 Disposition of Employee Benefit Plans. As soon as is practicable
after the Effective Date, SunGard and the executives of the Pentamation
Companies shall review the Employee Benefits Plans of the Pentamation
Companies to determine which such plans should remain in effect as plans of
the Surviving Corporation and which should be replaced with SunGard's
Employee Benefit Plans, with a view toward replacing all of the Employee
Benefit Plans of the Pentamation Companies with SunGard's Employee Benefit
Plans except where cost factors or unusual circumstances dictate otherwise.
If such termination of the Pentamation Companies' employee benefit plans
causes any timing gap in comparable SunGard coverage, then the Pentamation
Companies' relevant benefit plan will be continued until such timing gap
does not exist.
12.5 Delivery of Certificates. As soon as practicable, SunGard shall
deliver to the shareholders certificates representing the shares of SunGard
Stock to which the shareholders are entitled in accordance with the Plan,
which provides that SunGard shall promptly deliver to the Principal
Shareholders certificates representing 90% of the number of shares of
SunGard Stock into which shares of Pentamation Stock are converted, with
the balance of the shares to be held in escrow pursuant to the Escrow
Agreement, provided, however, that SunGard may withhold such certificate
from any Pentamation shareholder until such shareholder has executed the
Escrow Agreement.
Section 13: Restrictive Covenants of the Principal Shareholders.
13.1 Certain Acknowledgments. Each of the Principal Shareholders
expressly acknowledges that:
(a) The Enterprise Resource Planning businesses (collectively,
"SunGard's ERP Business") conducted by the Pentamation Companies and
that conducted by other subsidiaries of SunGard, now or in the future
(SunGard and all such existing and future subsidiaries of SunGard,
including the Pentamation Companies post-Closing are referred to as the
"SunGard Group") involve the provision of information support systems
and software for financial, human resources and revenue management for
governments and educational institutions and all related Software and
services which SunGard may in the future develop internally or obtain
through acquisition.
(b) SunGard's ERP Business is highly competitive, is marketed
throughout the United States, throughout Europe and in many other
locations worldwide, and requires long sales "lead times" often
exceeding one year.
(c) The SunGard Group expends substantial time and money, on an
ongoing basis, to train its employees, maintain and expand its customer
base, and improve and develop its Software, technology, databases,
products and services.
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(d) In connection with the Transactions, during his tenure as a
shareholder, director and/or employee of the Pentamation Companies
before Closing, and, if applicable, during his or her tenure as an
employee of the SunGard Group after Closing, he has had and will
continue to have access to, receive, learn, develop and/or conceive
proprietary and confidential knowledge and information of the SunGard
Group; such knowledge and information must be kept in strict confidence
to protect SunGard's ERP Business and maintain the SunGard Group's
competitive positions in the marketplace; and such knowledge and
information would be useful to competitors of the SunGard Group for
indefinite periods of time.
(e) The covenants of this Section 13 (the "Covenants") are a
material part of the agreement among the parties hereto and are an
integral part of the obligations of the Principal Shareholders
hereunder; the Covenants are supported by good and adequate
consideration; and the Covenants are reasonable and necessary to
protect the legitimate business interests of the SunGard Group.
13.2 Nondisclosure Covenants. At all times after the Closing Date,
except with SunGard's prior written consent, or except in connection with
the proper performance of services for and as an employee of the SunGard
Group, the Principal Shareholders shall not, directly or indirectly, in any
capacity:
(a) Communicate, publish or otherwise disclose to any Person, or use
for the benefit of any Person, any confidential or proprietary
property, knowledge or information of the SunGard Group or concerning
any of its business, Software, Assets or financial condition, no matter
when or how such knowledge or information was acquired, including (i)
the identity of customers and prospects, their specific requirements,
and the names, addresses and telephone numbers of individual contacts
at customers and prospects; (ii) prices, renewal dates and other
detailed terms of customer and supplier contracts and proposals; (iii)
pricing policies, marketing and sales strategies, methods of delivering
products and services, and product and service development projects and
strategies; (iv) source code, object code, formats, user manuals,
technical manuals and other documentation for Software products; (v)
screen designs, report designs and other designs, concepts and visual
expressions for Software products; (vi) designs, concepts, know-how,
user manuals, technical manuals and other documentation for trading
systems, communications networks and related technologies; (vii)
employment and payroll records; (viii) forecasts, budgets and other
nonpublic financial information; and (ix) expansion plans, management
policies, methods of operation, and other business strategies and
policies.
(b) Disclose, use or refer to any proprietary Software, technology,
products or services or other confidential or proprietary knowledge or
information of the SunGard Group, no matter when or how acquired, for
any purpose not in furtherance of the businesses and interests of the
SunGard Group, including the purposes of designing, developing,
marketing and/or selling any Software, technology, products or services
that are similar to (visually or functionally) or competitive with any
proprietary Software, technology, products or services of the SunGard
Group.
13.3 Noncompetition Covenants. During the period beginning on the
Closing Date and ending on the fifth anniversary of the Closing Date or, if
later, two years after termination of employment with the SunGard Group,
except with SunGard's prior written consent, none of the Principal
Shareholders shall, directly or indirectly, in any capacity, at any
location worldwide:
(a) Communicate with or solicit any Person who is or during such
period becomes a customer, prospect, supplier, employee, salesman,
agent or representative of, or a consultant to, the SunGard Group, in
any manner that interferes or might interfere with such Person's
relationship with the SunGard Group, or in an effort to obtain any such
Person as a customer, employee, supplier, salesman, agent or
representative of, or a consultant to, any other Person that conducts a
business competitive with or similar to all or any part of SunGard's
ERP Business.
(b) Market or sell, in any manner other than in furtherance of the
business and interests of the SunGard Group, any Software, technology,
products or services that is similar to (visually or
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functionally) or competitive with any proprietary Software, technology,
products or services of the SunGard Group.
(c) Establish, own, manage, operate, finance or control, or
participate in the establishment, ownership, management, operation,
financing or control of, or be a director, officer, employee, salesman,
agent or representative of, or be a consultant to, any Person that
conducts a business competitive with or similar to all or any part of
SunGard's ERP Business.
13.4 Certain Exclusions. For purposes of this Section 13, confidential
and proprietary knowledge and information of the SunGard Group shall not
include any knowledge and information that is now known by or readily
available to the general public, or that becomes known by or readily
available to the general public other than as a result of any breach of
this Section 13. The ownership by any of the Principal Shareholders of not
more than one percent of the outstanding securities of any public company
shall not, by itself, constitute a breach of the Covenants of Section 13.3,
even if such public company competes with the SunGard Group. The provisions
of Section 13.3(b) and Section 13.3(c) shall not apply to Appleton in the
event that his employment with the SunGard Group is terminated by the
SunGard Group without cause.
13.5 Enforcement of Covenants. Each of the Principal Shareholders
expressly acknowledges that it would be extremely difficult to measure the
damages that might result from any breach of the Covenants, and that any
breach of the Covenants will result in irreparable injury to the SunGard
Group for which money damages could not adequately compensate. If a breach
of the Covenants occurs, SunGard shall be entitled, in addition to all
other rights and remedies that SunGard may have at law or in equity, to
have an injunction issued by any competent court enjoining and restraining
any or all of the Principal Shareholders and all other Persons involved
therein from continuing such breach. The existence of any claim or cause of
action that any or all of the Principal Shareholders or any such other
Person may have against any member of the SunGard Group shall not
constitute a defense or bar to the enforcement of any of the Covenants. If
SunGard must resort to litigation to enforce any of the Covenants that has
a fixed term, then such term shall be extended for a period of time equal
to the period during which a breach of such Covenant was occurring,
beginning on the date of a final court order (without further right of
appeal) holding that such a breach occurred or, if later, the last day of
the original fixed term of such Covenant.
13.6 Scope of Covenants. If any Covenant, or any part thereof, or the
application thereof, is construed to be invalid, illegal or unenforceable,
then the other Covenants, or the other portions of such Covenant, or the
application thereof, shall not be affected thereby and shall be enforceable
without regard thereto. If any of the Covenants is determined to be
unenforceable because of its scope, duration, geographical area or other
factor, then the court making such determination shall have the power to
reduce or limit such scope, duration, area or other factor, and such
Covenant shall then be enforceable in its reduced or limited form.
Section 14: Indemnification
14.1 Principal Shareholders' Indemnification. From and after the Closing
Date, each of the Principal Shareholders, jointly and severally, shall
indemnify and hold harmless the members of the SunGard Group, and their
respective successors and assigns, and their respective directors,
officers, employees, agents and representatives, from and against any and
all actions, suits, claims, demands, debts, liabilities, obligations,
losses, damages, costs and expenses, including reasonable attorney's fees
and court costs, arising out of or caused by, directly or indirectly, any
of the following:
(a) Any misrepresentation, breach or failure of any warranty or
representation made by Pentamation and/or the Principal Shareholders in
or pursuant to this Agreement.
(b) Any failure or refusal by Pentamation and/or the Principal
Shareholders to satisfy or perform any covenant, term or condition of
this Agreement required to be satisfied or performed by any or all of
them.
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(c) Any matters disclosed in Schedule 3.20 to the extent that such
matters result in liability or losses in excess of those contemplated
in such Schedule.
(d) Any Proceeding against the SunGard Group by any Person (other
than the Principal Shareholders) arising out of or caused by, directly
or indirectly, any act or omission of any of the Pentamation Companies,
or any of their stockholders, members, directors, officers, employees,
agents or representatives, occurring at any time on or before the
Closing Date.
(e) Any deficiency, adjustment or assessment for Taxes made against
or imposed upon any of the Pentamation Companies (or any of their
predecessors or successors) with respect to any period ending on or
before the Closing Date. The right of the SunGard Group to
indemnification under this Section 14.1(e) shall not be affected by the
fact that such deficiency, adjustment or assessment is made against or
imposed upon SunGard as a result of the fact that, after the Closing
Date, the Pentamation Companies shall be included in the consolidated
federal income tax returns filed by SunGard.
(f) Any Proceeding against the SunGard Group arising under any
Environmental Laws in connection with or arising from any Pentamation
Environmental Conditions existing at any time on or before the Closing
Date.
14.2 Indemnification Procedures. With respect to each event, occurrence
or matter (an "Indemnification Matter") as to which the SunGard Group (the
"Indemnitee") is entitled to indemnification from the Principal
Shareholders (the "Indemnitor") under Section 14.1:
(a) Within ten (10) days after the Indemnitee receives written
documents underlying the Indemnification Matter or, if the
Indemnification Matter does not involve a third party action, suit,
claim or demand, promptly after the Indemnitee first has actual
knowledge of the Indemnification Matter, the Indemnitee shall give
notice to the Indemnitor ("Claim Notice") of the nature of the
Indemnification Matter and the amount demanded or claimed in connection
therewith ("Claim Amount"), together with copies of any such written
documents.
(b) If a third party action, suit, claim or demand is involved,
then, upon receipt of the Indemnification Notice, the Indemnitor shall,
at its expense and through counsel of its choice, promptly assume and
have sole control over the litigation, defense or settlement (the
"Defense") of the Indemnification Matter, except that (i) the
Indemnitee may, at its option and expense and through counsel of its
choice, participate in (but not control) the Defense; (ii) if the
Indemnitee reasonably believes that the handling of the Defense by the
Indemnitor may have a material adverse effect on the Indemnitee, its
business or financial condition, or its relationship with any customer,
prospect, supplier, employee, salesman, consultant, agent or
representative, then the Indemnitee may, at its option and expense and
through counsel of its choice, assume control of the Defense, provided
that the Indemnitor shall be entitled to participate in the Defense at
its expense and through counsel of its choice; (iii) the Indemnitor
shall not consent to any Judgment, or agree to any settlement, without
the Indemnitee's prior written consent; and (iv) if the Indemnitor does
not promptly assume control over the Defense or, after doing so, does
not continue to prosecute the Defense in good faith, the Indemnitee
may, at its option and through counsel of its choice, but at the
Indemnitor's expense, assume control over the Defense. In any event,
the Indemnitor and the Indemnitee shall fully cooperate with each other
in connection with the Defense, including by furnishing all available
documentary or other evidence as is reasonably requested by the other.
(c) The final amount owed by the Indemnitor to the Indemnitee (if
any) shall be determined by a final Judgment (without further right of
appeal) or by a settlement agreement or similar Contract executed by
the parties involved ("Indemnification Amount"). At any time after such
Judgment is rendered or such settlement agreement or similar Contract
is executed, the Indemnitee may give notice to the Indemnitor ("Payment
Notice") demanding payment of the Indemnification Amount.
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14.3 Limits on Indemnification. Indemnitor's liability under this
Section 14 shall be limited as follows (except as provided in Section
14.4):
(a) Threshold. No amount shall be payable by the Indemnitor under
this Section 14 unless and until the aggregate amount otherwise payable
by the Indemnitor under this Section 14 exceeds One Hundred Thousand
Dollars ($100,000), in which event the Indemnitor shall pay such
aggregate amount and all future amounts payable by the Indemnitor under
this Section 14.
(b) Ceiling. The Indemnitor's total liability under this Section 14
shall not exceed the product of (i) the number of shares of SunGard
Stock issued pursuant to the Plan on the Closing Date and (ii) the
Market Value of SunGard Stock (as defined in the Plan); provided
however, that the total liability of any Principal Shareholder under
this Section 14 shall not exceed the product of (i) number of shares of
SunGard Stock issued pursuant to the Plan to such Principal Shareholder
(including any shares of SunGard Stock issued to shareholders who are
affiliates (as defined in the 1933 Act) of such Principal Shareholder
and any shares of SunGard Stock issued to such Principal Shareholder or
his affiliates held pursuant to the Escrow Agreement) and (ii) the
Market Value of SunGard Stock (as defined in the Plan).
(c) Time Periods.
(i) With respect to Indemnification Matters expected to be
encountered in the routine audit process of a wholly owned
subsidiary of SunGard, the Indemnitor shall not be liable as to any
such Indemnification Matter for which the Indemnitee does not give
an Indemnification Notice to the Indemnitor in accordance with
14.2(a) by April 30, 2000.
(ii) With respect to Indemnification Matters set forth in Section
14.1(c), there shall be no time limit.
(iii) With respect to all other Indemnification Matters, the
Indemnitor shall not be liable as to any such Indemnification Matter
for which the Indemnitee does not give an Indemnification Notice to
the Indemnitor in accordance with Section 14.2(a) within twelve (12)
months after the Closing Date.
14.4 Exceptions to Limitations. None of the limitations set forth in
Section 14.3 shall apply in the case of any Indemnification Matter
involving (a) intentional misrepresentation, fraud or a criminal matter,
(b) title to or infringement caused by any Software, technology, service or
product which, at any time before Closing, was marketed, licensed,
maintained, supported, owned, or claimed to have been owned by any of the
Pentamation Companies; (c) record or beneficial ownership of any shares of
capital stock or membership interests in any of the Pentamation Companies;
(d) Taxes, (e) Environmental Matters or (f) covenants or other obligations
to be performed after Closing.
14.5 Recovery. The SunGard Group shall be entitled to recover from any
or all of the Principal Shareholders and/or the other shareholders of
Pentamation, any applicable amounts for indemnification payments hereunder
as follows:
(a) To the extent that the Escrowed Stock (as defined and valued in
the Escrow Agreement) is available and sufficient to cover the
Indemnification Amount, the Indemnification Amount shall be satisfied
by a distribution of Escrowed Stock to SunGard in accordance with the
Escrow Agreement.
(b) To the extent that the Escrowed Stock is not available or
sufficient to cover the Indemnification Amount, each of the Principal
Shareholders shall, jointly and severally, pay all or the remaining
balance of the Indemnification Amount to SunGard within five (5)
business days after the Payment Notice is given.
14.6 Setoff and Holdback. In addition to all other rights and remedies
that the Indemnitee may have, the Indemnitee shall have the right to
setoff, against any cash or liquid assets due to the Indemnitor (whether
under this Agreement, any of the other Contracts contemplated by this
Agreement, or otherwise),
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<PAGE>
any Indemnification Amounts for which the Indemnitee is entitled to
indemnification under this Section 14. The Indemnitee's rights to
indemnification under this Section 14 shall not be in any manner limited by
or to this right of setoff. If any Indemnification Matters are pending at a
time when the Indemnitee is required to pay or deliver any such cash or
liquid assets due to the Indemnitor, then the Indemnitee shall have the
right, upon notice to the Indemnitor, to withhold from such payment or
delivery, until final determination of such pending Indemnification
Matters, the total amount for which the Indemnitor may become liable as a
result thereof, as determined by the Indemnitee reasonably and in good
faith. Any payment or delivery by the Indemnitee to the Indemnitor of cash
or liquid assets held back by the Indemnitee in accordance with this
Section 14.6 shall be accompanied by interest (in like kind) from the date
on which such payment or delivery was originally due, calculated at an
annual rate equal to the Eurodollar rate published in the "Money Rates"
section (or such future section as may replace it) of The Wall Street
Journal (Eastern Edition) on such original due date.
Section 15: Other Provisions
15.1 Termination. At any time before the Closing, whether or not the
Merger has been approved by Pentamation's shareholders, this Agreement may
be terminated and the Merger abandoned in accordance with any of the
following methods:
(a) By the mutual written consents of SunGard and Pentamation,
authorized by their respective boards of directors.
(b) By written notice from SunGard to Pentamation, or from
Pentamation to SunGard, if it becomes certain (for all practical
purposes) that any of the conditions to the closing obligations of the
party giving such notice cannot be satisfied on or before August 31,
1999, for a reason other than such party's default, and such party is
not willing to waive the satisfaction of such condition.
(c) By written notice from SunGard to Pentamation, or from
Pentamation to SunGard, if the Closing does not occur on or before
August 31, 1999 for any reason other than a breach of this Agreement by
the party giving such notice.
15.2 Publicity. At all times after the Closing Date, without the prior
written consent of SunGard, neither Pentamation nor any of the Principal
Shareholders shall make any public announcement regarding the Transactions,
nor shall they in any manner disseminate any information regarding the
Pentamation Companies, SunGard or the Transactions.
15.3 Fees and Expenses. SunGard shall pay all of the fees and expenses
incurred by it and/or Newco and the Principal Shareholders shall pay any
fees and expenses incurred by any of them, or the Pentamation Companies in
negotiating and preparing this Agreement (and all other Contracts and
documents executed in connection herewith or therewith) and in consummating
the Transactions. The Pentamation Companies and the Principal Shareholders
shall not, collectively, incur legal fees and expenses, accounting fees and
expenses, valuation fees and expenses and investment banking fees and
expenses with respect to the Transactions exceeding a total of $200,000
(excluding real estate transfer taxes payable with respect to the Real
Property Purchase Agreement and sales taxes payable with respect to the
Automobile Purchase Agreement). All legal fees and accounting fees incurred
by the Pentamation Companies and the Principal Shareholders shall be
reasonable and based upon the actual time spent on the Transactions and on
standard hourly rates.
15.4 Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one (1)
business day after being sent by a nationally recognized overnight delivery
service, postage or delivery charges prepaid or five (5) business days
after being sent by registered or certified mail, return receipt requested,
postage charges prepaid. Notices also may be given by prepaid facsimile and
shall be effective on the date transmitted if confirmed within 48 hours
thereafter by a signed original
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<PAGE>
sent in one of the manners provided in the preceding sentence. Notices to
Pentamation (prior to Closing) and each of the Principal Shareholders shall
be sent to their respective addresses stated on Page 1 of this Agreement,
and copies of notices to Pentamation (prior to Closing) and the Principal
Shareholders shall be sent simultaneously to Fredric C. Jacobs, Esquire,
214 Bushkill Street, Easton, PA 18042-1886. Notices to SunGard, Newco
and/or Pentamation (after Closing) shall be sent to SunGard's address
stated on page one of this Agreement to the attention of its General
Counsel, with a copy sent simultaneously to the same address to the
attention of its Chief Financial Officer. Any party may change its address
for notice and the address to which copies must be sent by giving notice of
the new addresses to the other parties in accordance with this Section
15.4, provided that any such change of address notice shall not be
effective unless and until received.
15.5 Survival. All representations, warranties and covenants made in
this Agreement or pursuant hereto shall survive the date of this Agreement,
the Closing Date and the consummation of the Transactions, subject to the
provisions of Sections 14.3 and 14.4.
15.6 Release for Joint and Several Liability. Effective from and after
the Closing Date, each of the Principal Shareholders hereby releases,
remises and forever discharges Pentamation, and its predecessors,
successors and assigns, and the directors, officers, employees, agents and
representatives of the foregoing, of and from any and all actions, causes
of action, suits, claims, demands, debts, liabilities and obligations of
any nature, fixed or contingent, known or unknown, whether at law or in
equity, by reason of any representation, warranty, and/or covenant made, or
any obligation undertaken, by Pentamation, jointly and severally with the
Principal Shareholders, pursuant to this Agreement or any other agreements
or documents executed in connection with the Transactions, including but
not limited to, any claim or cause of action that any of the Principal
Shareholders may have against Pentamation for contribution or
indemnification. Without limiting the generality of the foregoing, each of
the Principal Shareholders release, remise and discharge Pentamation and
the Surviving Corporation from any claim for indemnification or
contribution for Indemnification Matters for which such Principal
Shareholders may be liable arising under Section 14.
15.7 Interpretation of Representations. Each representation and warranty
made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same parties, whether or not
covering related or similar matters, and must be independently and
separately satisfied. Exceptions or qualifications to any such
representation or warranty shall not be construed as exceptions or
qualifications to any other representation or warranty.
15.8 Reliance by SunGard and Newco. Notwithstanding the right of SunGard
and Newco to investigate the business, Assets and financial condition of
the Pentamation Companies, and notwithstanding any knowledge obtained or
obtainable by SunGard and Newco as a result of such investigation, SunGard
and Newco have the unqualified right to rely upon, and have relied upon,
each of the representations and warranties made by the Principal
Shareholders and Pentamation in this Agreement or pursuant hereto.
15.9 Entire Understanding. This Agreement, together with the Exhibits
and Schedules hereto, the Plan, the Affiliate Agreements, the Voting and
Cooperation Agreement and the Escrow Agreement, state the entire
understanding among the parties with respect to the subject matter hereof,
and supersede all prior oral and written communications and agreements, and
all contemporaneous oral communications and agreements, with respect to the
subject matter hereof, including all confidentiality letter agreements and
letters of intent previously entered into among some or all of the parties
hereto. No amendment or modification of this Agreement shall be effective
unless in writing and signed by the party against whom enforcement is
sought.
Pentamation may agree to any amendment or supplement to this Agreement,
or a waiver of any provision of this Agreement, either before or after the
approval of the shareholders of Pentamation is obtained (as contemplated by
this Agreement) and without seeking further shareholder approval, so long
as such amendment, supplement or waiver does not result in a decrease in
the Merger Exchange Ratio (as defined in the Plan) or have a material
adverse effect on the shareholders of Pentamation.
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<PAGE>
15.10 Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against Pentamation, SunGard and Newco and their
respective successors and assigns, and the Principal Shareholders and their
respective heirs, estates and personal representatives. No party shall in
any manner assign any of its or his rights or obligations under this
Agreement without the express prior written consent of the other parties.
15.11 Waivers. Except as otherwise expressly provided herein, no waiver
with respect to this Agreement shall be enforceable unless in writing and
signed by the party against whom enforcement is sought. Except as otherwise
expressly provided herein, no failure to exercise, delay in exercising, or
single or partial exercise of any right, power or remedy by any party, and
no course of dealing between or among any of the parties, shall constitute
a waiver of, or shall preclude any other or further exercise of, any right,
power or remedy.
15.12 Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof
shall not be affected thereby and shall be enforceable without regard
thereto.
15.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one counterpart hereof.
15.14 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part
of this Agreement, and shall not affect its interpretation.
15.15 References. All words used in this Agreement shall be construed to
be of such number and gender as the context requires or permits.
15.16 Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY
THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
15.17 Jurisdiction and Process. In any action between or among any of
the parties, whether arising out of this Agreement or otherwise, (a) each
of the parties irrevocably consents to the exclusive jurisdiction and venue
of the federal and state courts located in the Commonwealth of
Pennsylvania, (b) if any such action is commenced in a state court, then,
subject to applicable law, no party shall object to the removal of such
action to any federal court located in the Commonwealth of Pennsylvania,
(c) each of the parties irrevocably waives the right to trial by jury, (d)
each of the parties irrevocably consents to service of process by first
class certified mail, return receipt requested, postage prepaid, to the
address at which such party is to receive notice in accordance with Section
15.4, and (e) the prevailing parties shall be entitled to recover their
reasonable attorneys' fees and court costs from the other parties.
15.18 Post-Closing Actions by the Surviving Corporation. No action taken
by the Surviving Corporation after the Closing, with respect to this
Agreement, the Plan, or the Transactions, including any waiver, consent or
approval, shall be effective unless approved in writing by a majority of
the Surviving Corporation's Board of Directors.
15.19 No Third-Party Beneficiaries. No provision of this Agreement is
intended to or shall be construed to grant or confer any right to enforce
this Agreement, or any remedy for breach of this Agreement, to or upon any
Person other than the parties hereto, including any customer, prospect,
supplier, employee, contractor, salesman, agent or representative of any of
the Pentamation Companies.
15.20 Nature of Transactions. The parties intend that the Merger and the
other Transactions shall constitute a pooling-of-interests under GAAP and a
tax-free reorganization under the Internal Revenue Code of 1986, as
amended.
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<PAGE>
15.21 Bankruptcy Qualification. Each representation or warranty made in
or pursuant to this Agreement regarding the enforceability of any Contract
shall be qualified to the extent that such enforceability may be effected
by bankruptcy, insolvency and other similar Laws or equitable principles
(but not those concerning fraudulent conveyance) generally affecting
creditors' rights and remedies.
15.22 Right of Representative to Act for Principal Shareholder. Each of
the Principal Shareholders expressly grants to Feather (the
"Representative") the full power and authority to represent such Principal
Shareholder and to take any and all actions with respect to this Agreement
on behalf of such Principal Shareholder including, but not limited to, (a)
administering any Indemnification Matter on behalf of the Principal
Shareholders, agreeing to the settlement of any Indemnification Matter and
otherwise handling and negotiating Indemnification Matters; and (b)
agreeing to any waiver, consent or amendment under or to this Agreement,
provided that no such waiver, consent or amendment shall affect the amount
or allocation of payments of Merger Consideration to any Principal
Shareholder who does not expressly consent thereto in writing. Each of the
Principal Shareholders acknowledges that this Section 15.22 is intended to
have the broadest possible scope for the purpose of promoting the efficient
negotiation and handling of all matters which arise under or in connection
with this Agreement.
Witness the due execution and delivery hereof, intending to be legally bound
hereby, as of the date first stated above.
Sungard Data Systems Inc. Pei Acquisition Inc.
/s/ Richard Tarbox /s/ Richard Tarbox
By: _________________________________ By: _________________________________
Richard Tarbox Richard Tarbox
Name: _______________________________ Name: _______________________________
Vice President Vice President
Title: ______________________________ Title: ______________________________
Pentamation Enterprises, Inc.
/s/ Jeffrey P. Feather
By: _________________________________
Jeffrey P. Feather
Name: _______________________________
Chairman & CEO
Title: ______________________________
Principal Shareholders:
/s/ Jeffrey P. Feather
- -------------------------------------
Jeffrey P. Feather
/s/ David P. Bloys
- -------------------------------------
David P. Bloys
/s/ Donald V. Appleton
- -------------------------------------
Donald V. Appleton
A-42
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
PARTIES: PENTAMATION ENTERPRISES, INC.
a Pennsylvania corporation ("Pentamation")
One Bethlehem Plaza
Bethlehem, PA 18018
SUNGARD DATA SYSTEMS INC.
a Delaware corporation ("SunGard")
1285 Drummers Lane
Wayne, Pennsylvania 19087
PEI ACQUISITION INC.
a Pennsylvania corporation ("Newco")
1285 Drummers Lane
Wayne, Pennsylvania 19087
DATE: May 6, 1999
BACKGROUND: Newco is a wholly-owned subsidiary of SunGard. Pentamation,
SunGard, Newco and Jeffrey P. Feather, David P. Bloys and Donald V. Appleton
(collectively, the "Principal Shareholders") have entered into an Agreement and
Plan of Reorganization, dated this date (the "Reorganization Agreement"), that
contemplates the consolidation and merger of Newco with and into Pentamation
(the "Merger") in accordance with the provisions of the Reorganization
Agreement and the provisions of this Agreement and Plan of Merger (this
"Plan").
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and subject to the satisfaction of the terms and conditions set forth herein
and in the Reorganization Agreement, the parties hereto, intending to be
legally bound, agree as follows:
1. Merger. On the Effective Date (as defined below), Newco shall be
consolidated and merged with and into Pentamation in accordance with the
provisions of this Plan and in compliance with the Pennsylvania Business
Corporation Law and any other applicable corporate laws (the "Corporation
Laws"), and the Merger shall have the effect provided for in the
Corporation Laws. Pentamation (sometimes referred to as the "Surviving
Corporation") shall be the surviving corporation of the Merger and shall
continue to exist and to be governed by the laws of the Commonwealth of
Pennsylvania. The corporate existence and identity of Pentamation, with its
purposes and powers, shall continue unaffected and unimpaired by the
Merger, and Pentamation shall become a wholly owned subsidiary of SunGard
after the Effective Date. On the Effective Date, Pentamation shall succeed
to and be fully vested with the corporate existence and identity of Newco,
and the separate corporate existence and identity of Newco shall cease.
2. Name. The name of the Surviving Corporation shall be "Pentamation
Enterprises, Inc."
3. Articles. Immediately after the Merger, the Articles of Incorporation
of the Surviving Corporation shall be the Articles of Incorporation of
Pentamation immediately prior to the Merger.
4. Bylaws. Immediately after the Merger, the Bylaws of the Surviving
Corporation shall be the Bylaws of Pentamation immediately prior to the
Merger.
5. Directors. Immediately after the Merger, the directors of the
Surviving corporation shall be the following persons, who shall serve in
accordance with the Bylaws of the Surviving Corporation:
Robert F. Clarke
Lawrence A. Gross
Michael J. Ruane
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<PAGE>
6. Officers. Immediately after the Merger, the officers of the Surviving
Corporation shall be the following persons, who shall serve in accordance
with the Bylaws of the Surviving Corporation:
<TABLE>
<S> <C>
Jeffrey P. Feather......... Chief Executive Officer
Donald V. Appleton......... President, Chief Operating Officer
David Madea................ Vice President--Finance, Chief Financial Officer
Sara G. Armstrong.......... Vice President, Assistant Secretary
Andrew P. Bronstein........ Vice President, Assistant Secretary, Treasurer
Lawrence A. Gross.......... Vice President, Secretary
Michael J. Ruane........... Assistant Vice President, Assistant Secretary
</TABLE>
7. Conversion of Newco Stock. On the Effective Date, all of the shares
of common stock of Newco, issued and outstanding immediately before the
Effective Date shall, by virtue of the Merger and without any action on the
part of the holder thereof, be automatically converted into and become that
total number of shares of common stock, no par value, with a stated value
of $.015 per share, of the Surviving Corporation as shall be equal to the
total number of shares of Pentamation Stock (as defined in Section 8(a))
issued and outstanding on the Effective Date. It is the intention of the
parties that, immediately after the Merger, SunGard shall own all of the
issued and outstanding capital stock of the Surviving Corporation.
8. Conversion of Pentamation Capital Stock.
(a) On the Effective Date, each share of Pentamation capital stock
("Pentamation Stock") issued and outstanding immediately before the
Effective Date, shall, by virtue of the Merger and without any action on
the part of the holder thereof, be automatically converted into and become
that number of shares of common stock of SunGard, $0.01 par value per share
("SunGard Stock") as shall be equal to the result of the following formula
with the result rounded off to seven decimal places (such result is
hereinafter referred to as the "Merger Exchange Ratio"):
(i) If the Market Value of SunGard Stock (as hereinafter defined) is
greater than or equal to $34.00 and less than or equal to $46.00, then
the Merger Exchange Ratio shall be equal to the result of the following
formula:
915,000 + Additional Shares
Number of Fully Diluted Pentamation
Shares
(ii) If the Market Value of SunGard Stock is less than $34.00, then
the Merger Exchange Ratio shall be equal to the result of the following
formula; provided that the total shares of SunGard Stock issued in
consideration for the Pentamation Shares shall not exceed 972,188 plus
the Additional Shares:
$31,110,000 + Additional Sharesx 1
Market Value of Number of Fully Diluted Pentamation
SunGard Stock Shares
(iii) If the Market Value of SunGard Stock is greater than $46.00,
then the Merger Exchange Ratio shall be equal to the result of the
following formula; provided that the total shares of SunGard Stock
issued in consideration for the Pentamation Shares shall not exceed
876,875 plus the Additional Shares:
$42,090,000 + Additional Sharesx
Market Value of 1
SunGard Stock Number of Fully Diluted Pentamation
Shares
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<PAGE>
As used in this Plan:
(b) the "Market Value of SunGard Stock" shall equal the arithmetic
average of the last reported sale prices of one share of SunGard Stock, as
reported on The New York Stock Exchange during the twenty (20) trading days
ending on and including the trading day two days before the Closing Date;
and
(c) the "Number of Fully Diluted Pentamation Shares" shall equal the sum
of (i) the shares of Pentamation Stock issued and outstanding on the
Effective Date and (ii) that number of additional shares of Pentamation
Stock that would be issued and outstanding on the Effective Date assuming
the exercise or conversion of all options, warrants or rights (whether
exercisable or convertible then or in the future) to purchase or acquire
Pentamation Stock which options, warrants or rights are outstanding on the
Effective Date. As of the date of the Plan, the Number of Fully Diluted
Pentamation Shares is 842,734.
(d) Additional Shares means that number of shares of SunGard Stock as
shall be determined by the following formula:
[$7,500,000 - Bethlehem Real Property Indebtedness] + [Automobile FMV -
Automobile Indebtedness]
Market Value of SunGard Stock
The terms "Automobile FMV," "Automobile Indebtedness" and "Bethlehem Real
Property Indebtedness" shall be as determined pursuant to Sections 10.2(r), (s)
and (t), respectively, of the Reorganization Agreement.
(e) If, between the date of the Reorganization Agreement and the
Effective Date, there is a change in the number of issued and outstanding
shares of SunGard Stock as a result of a stock split, reverse stock split,
stock dividend, reclassification, exchange of shares or similar
recapitalization, then the number of shares of SunGard Stock and prices per
share of SunGard Stock set forth in Section 8(a) and the Market Value of
SunGard Stock shall be appropriately adjusted. The number of shares of
SunGard Stock and prices per share of SunGard Stock set forth in Section
8(a) and the Market Value of SunGard Stock shall not be adjusted as a
result of any other changes in the number of issued and outstanding shares
of SunGard Stock, such as changes resulting from acquisitions or offerings
or changes resulting from exercises of stock options, purchases or awards
of stock, or similar transactions under SunGard's stock option, purchase
and award plans.
(f) No fractional shares of SunGard Stock shall be issued as a result of
the Merger. In lieu of the issuance of fractional shares, the number of
shares of SunGard Stock to be issued to each shareholder in accordance with
this Plan shall be rounded up or down to the nearest whole number of shares
of SunGard Stock.
9. Stock Options. On the Effective Date, all options to acquire shares of
Pentamation Stock that are issued and outstanding immediately before the
Effective Date and which have been described in Schedule 3.3B to the
Reorganization Agreement (collectively, the "Options"), by virtue of the Merger
and without any action on the part of the holder thereof, shall be
automatically exchanged for and substituted with options to purchase SunGard
Stock under the applicable SunGard stock option plan except that (a) the number
of shares issuable upon exercise of such Options shall be that number of shares
of SunGard Stock (rounded off to the nearest whole number of shares) equal to
the number of shares of Pentamation Stock issuable upon exercise of such
Options immediately before the Effective Date, multiplied by the Merger
Exchange Ratio, (b) the exercise price per share of SunGard Stock under such
Options shall be that amount (rounded up to the nearest whole cent) equal to
the exercise price per share of Pentamation Stock under such Options
immediately before the Effective Date, divided by the Merger Exchange Ratio and
(c) the terms of the Options as to exerciseability, vesting and termination
shall be as provided in the Options.
10. Pentamation Stock held by Pentamation. On the Effective Date, any shares
of Pentamation Stock that are held by Pentamation (as treasury shares)
immediately before the Effective Date shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically
canceled.
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<PAGE>
11. Exchange Procedures. SunGard shall designate its transfer agent to act
as the "Exchange Agent" under this Plan. As soon as is practicable after the
Effective Date, SunGard or the Exchange Agent shall mail, to each shareholder,
instructions for use in effecting the surrender of their respective
certificates representing shares of Pentamation Stock to the Exchange Agent.
Upon the surrender of all of such certificates to the Exchange Agent by a
shareholder in accordance with such instructions, the Exchange Agent shall
exchange such certificates for (a) a new certificate representing 90% of the
SunGard Stock to be issued to such shareholder pursuant to this Plan ("Closing
Stock"), which shall be promptly delivered to the shareholder (or in accordance
with instructions provided by the shareholder) provided, however, that SunGard
may withhold such certificate from any shareholder until such shareholder has
executed the Escrow Agreement (as hereafter defined); and (b) a new certificate
for the balance of the SunGard Stock to be issued to such shareholder pursuant
to this Plan ("Escrow Stock"), which shall be held in escrow and distributed in
accordance with the terms of the Escrow Agreement attached as Exhibit F to the
Reorganization Agreement ("Escrow Agreement"). The term of the Escrow Agreement
shall be binding on each Pentamation shareholder by virtue of the Merger and
regardless of whether such Pentamation shareholder has executed the Escrow
Agreement. If applicable, such certificates shall be accompanied by any
distributions due with respect to shares of SunGard Stock that were paid to
SunGard's stockholders of record as of a date between the Effective Date and
the date of distribution of either the certificate representing the Closing
Stock or the certificate representing the Escrow Stock. Until all of a
shareholder's certificates representing shares of Pentamation Stock are
surrendered in accordance with the foregoing, the outstanding certificates
which have not been surrendered shall be deemed to evidence ownership of the
number of shares of SunGard Stock to be issued to such shareholder pursuant to
this Plan, subject to the escrow requirement described above.
12. Effective Date. As used in this Plan, the "Effective Date" shall mean
the date upon which proper Articles of Merger for the Merger have been duly
signed and filed with the proper officials of the Commonwealth of Pennsylvania.
13. Entire Understanding. This Plan, together with the Reorganization
Agreement (and the Exhibits and Schedules thereto), states the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written communications and agreements,
and all contemporaneous oral communications and agreements, with respect to the
subject matter hereof. No amendment or modification of this Plan, and no waiver
of any provision of this Plan, shall be effective unless in writing and signed
by the party against whom enforcement is sought. Pentamation may agree to any
amendment or supplement to this Plan, or a waiver of any provision of this
Plan, either before or after the approval of the shareholders is obtained (as
contemplated by the Reorganization Agreement) and without seeking further
shareholder approval, so long as such amendment, supplement or waiver does not
have a material adverse effect on the shareholders. The obligations of the
parties under this Plan shall be subject to all of the terms and conditions of
the Reorganization Agreement. If the Reorganization Agreement is terminated in
accordance with its terms, then this Plan shall simultaneously terminate, and
the Merger shall be abandoned without further action by the parties hereto.
14. Parties in Interest. This Plan shall bind, benefit and be enforceable by
and against the parties hereto and their respective successors and assigns. No
party hereto shall in any manner assign any of its rights or obligations under
this Plan without the express prior written consent of the other parties.
Nothing in this Plan or the Reorganization Agreement is intended to confer, or
shall be deemed to confer, any rights or remedies upon any persons other than
the parties hereto and their respective stockholders and directors.
15. Severability. If any provision of this Plan is construed to be invalid,
illegal or unenforceable, then the remaining provisions hereof shall not be
affected thereby and shall be enforceable without regard thereto.
16. Counterparts. This Plan may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original hereof, and
it shall not be necessary in making proof of this Plan to produce or account
for more than one counterpart hereof.
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<PAGE>
17. Section Headings. Section and subsection headings in this Plan are for
convenience of reference only, do not constitute a part of this Plan, and shall
not affect its interpretation.
18. References. All words used in this Plan shall be construed to be of such
number and gender as the context requires or permits.
IN TESTIMONY WHEREOF, each undersigned corporation has caused this Agreement
and Plan of Merger to be signed by a duly authorized officer as of the date
first stated above.
PENTAMATION ENTERPRISES, INC.
/s/ Jeffrey P. Feather
By:__________________________________
Jeffrey P. Feather
Name:________________________________
Chairman & CEO
Title:_______________________________
SUNGARD DATA SYSTEMS INC.
/s/ Richard Tarbox
By:__________________________________
Richard Tarbox
Name:________________________________
Vice President
Title:_______________________________
PEI ACQUISITION INC.
/s/ Richard Tarbox
By:__________________________________
Richard Tarbox
Name:________________________________
Vice President
Title:_______________________________
B-5
<PAGE>
APPENDIX C
ESCROW AGREEMENT
PARTIES:
PENTAMATION ENTERPRISES, INC.
a Pennsylvania corporation ("Pentamation")
One Bethlehem Plaza
Bethlehem, PA 18018
JEFFREY P. FEATHER ("Feather")
One Bethlehem Plaza
Bethlehem, PA 18018
DAVID P. BLOYS ("Bloys")
One Bethlehem Plaza
Bethlehem, PA 18018
DONALD V. APPLETON ("Appleton")
One Bethlehem Plaza
Bethlehem, PA 18018
THE SHAREHOLDERS OF PENTAMATION
LISTED ON THE SIGNATURE PAGES HERETO
SUNGARD DATA SYSTEMS INC.
a Delaware corporation ("SunGard")
1285 Drummers Lane
Wayne, Pennsylvania 19087
NORWEST BANK, MINNESOTA, N.A. ("Escrow Agent")
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0069
DATE: [ ,] 1999
BACKGROUND:
A. Feather, Bloys and Appleton (collectively, the "Principal Shareholders"),
Pentamation, SunGard and Newco are parties to an Agreement and Plan of
Reorganization dated as of May 6, 1999 (the "Reorganization Agreement") and a
related Plan of Merger dated as of May 6, 1999 ("Plan of Merger"), providing
for the merger of Newco with and into Pentamation with the conversion of all
outstanding shares of Pentamation Stock (as defined in the Reorganization
Agreement) into shares of SunGard Stock (as defined in the Plan of Merger), ten
percent (10%) of which, or [ ] shares of SunGard Stock (the "Escrowed
Stock"), are being deposited with the Escrow Agent to be held in accordance
with this Agreement.
B. Pentamation and SunGard have delivered to the Escrow Agent a list of
names and addresses of Pentamation shareholders (hereinafter, the
"Shareholders") showing as to each the number of shares of SunGard Stock
(including fractional shares) to be deposited in respect of the shares of
Pentamation Stock owned by such Shareholder.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Shareholders General Indemnification. From and after the Closing Date
(as defined in the Reorganization Agreement), each of the Shareholders,
jointly and severally, joins in and agrees to be bound by the obligations
of the Principal Shareholders to indemnify and hold harmless, and hereby
agrees to indemnify and hold harmless, the members of the SunGard Group (as
defined in the Reorganization
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Agreement), and their respective successors and assigns, and their
respective directors, officers, employees, agents and representatives, from
and against any and all actions, suits, claims, demands, debts,
liabilities, obligations, losses, damages, costs and expenses, including
without limitation reasonable attorney's fees and court costs, arising out
of or caused by, directly or indirectly, any of the matters set forth in
Section 5.3 or Section 14.1 of the Reorganization Agreement, subject to the
terms, conditions and limitations set forth in Section 14 of the
Reorganization Agreement; provided, however, that the liability of any
Shareholder hereunder (other than the Principal Shareholders) shall be
limited to their shares of Escrowed Stock held hereunder. Nothing in this
Agreement shall be deemed to modify, limit or affect the Obligations (as
defined in the Reorganization Agreement) of any Principal Shareholder under
the Reorganization Agreement.
2. Shareholder Accounts. The Escrow Agent shall maintain an account
("Escrow Account") for each Shareholder showing the number of shares of the
Escrowed Stock held by the Escrow Agent for him or her. As soon as
practicable after the date hereof, the Escrow Agent shall mail to each
Shareholder a statement showing the number of shares of the Escrowed Stock
held by the Escrow Agent in his or her Escrow Account. Subsequent Escrow
Account statements shall be mailed to the Shareholders following any
reservation in accordance with Section 3 hereof or any distribution in
accordance with Section 4 hereof. All reservations and distributions of the
Escrowed Stock shall be against the Shareholders' Escrow Accounts on a pro
rata basis, based upon the respective numbers of shares of the Escrowed
Stock initially deposited therein, and in all cases rounded to the nearest
whole share. If, between the date of this Agreement and date on which the
last share of Escrowed Stock is distributed pursuant to Section 5, there is
a change in the number of issued and outstanding shares of SunGard Stock as
a result of a stock split, reverse stock split, stock dividend,
reclassification, exchange of shares or similar recapitalization, then any
SunGard Stock payable with respect thereto shall be added to and become
part of the Escrow Account.
3. Valuation of Escrowed Stock. For all purposes of this Agreement, the
value of each share of the Escrowed Stock shall be $[ ] ("Valuation
Price") the arithmetic average of the last reported sale prices of one
share of SunGard Stock as reported on the New York Stock Exchange during
the twenty (20) trading days ending on and including the trading day two
days before the Closing Date (as defined in the Reorganization Agreement).
If, between the date of this Agreement and date on which the last share of
Escrowed Stock is distributed pursuant to Section 5, there is a change in
the number of issued and outstanding shares of SunGard Stock as a result of
a stock split, reverse stock split, stock dividend, reclassification,
exchange of shares or similar recapitalization, then the Valuation Price
shall be appropriately adjusted.
4. Reservations of Escrowed Stock. Whenever SunGard gives an Claim
Notice (as defined in the Reorganization Agreement) to the Shareholders, it
shall send a copy thereof to the Escrow Agent. Promptly after receipt of an
Indemnification Notice, the Escrow Agent shall reserve on the records of
the Escrow Accounts such number of shares of the Escrowed Stock (rounded to
the nearest whole share) as is equal to the Claim Amount (as defined in the
Reorganization Agreement) set forth in such Indemnification Notice divided
by the Valuation Price, or, if less, all remaining shares of the Escrowed
Stock ("Reserved Shares").
5. Distributions of Escrowed Stock. The Escrow Agent shall distribute
the Escrowed Stock in accordance with the following provisions:
a. The Escrow Agent shall distribute shares of the Escrowed Stock at
such time and in such manner as is set forth in any written agreement
or written instructions signed by SunGard and the Representative (as
defined in Section 16) and delivered to the Escrow Agent.
b. Whenever SunGard gives a Payment Notice (as defined in the
Reorganization Agreement) to the Representative, it shall send a copy
thereof to the Escrow Agent. Within five (5) business days after
receipt of a Payment Notice, the Escrow Agent shall distribute from the
Escrow Accounts to SunGard (by delivery of a proper share certificate
therefor) such number of shares of the Escrowed Stock (rounded to the
nearest whole share) as is equal to the Indemnification Amount (as
defined in
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the Reorganization Agreement) set forth in such Payment Notice divided
by the Valuation Price, or, if less, all remaining shares of the
Escrowed Stock.
c. If there are no Claim Notices outstanding on the first
anniversary of the date of this Agreement ("Anniversary"), then, within
five (5) business days after the Anniversary, the Escrow Agent shall
distribute to each of the Shareholders (by delivery of a proper share
certificate therefor) any remaining shares of the Escrowed Stock then
held in his or her Escrow Account.
d. If there are Indemnification Notices outstanding on the
Anniversary, then (i) within five (5) business days after the
Anniversary, the Escrow Agent shall distribute to each of the
Shareholders (by delivery of a proper share certificate therefor) any
remaining shares of the Escrowed Stock then held in his Escrow Account
other than Reserved Shares, (ii) as each such outstanding
Indemnification Notice is resolved, the Escrow Agent shall distribute
to SunGard any Escrowed Stock to which SunGard becomes entitled in
accordance with Section 4b hereof, and (iii) within five (5) business
days after the last such outstanding Indemnification Notice is resolved
and any corresponding distributions to SunGard are made, the Escrow
Agent shall distribute to each of the Shareholders (by delivery of a
proper share certificate therefor) any remaining shares of the Escrowed
Stock then held in his or her Escrow Account.
6. Voting of Escrowed Shares. Shareholders shall have the right to vote
their respective shares of Escrowed Stock held by the Escrow Agent.
7. Resignation and Removal of Escrow Agent. The Escrow Agent may resign
at any time or be removed by the mutual consent of SunGard and the
Representative upon notice given at least 30 days before the effective date
of such resignation or removal; provided that no resignation or removal of
the Escrow Agent and no appointment of a successor Escrow Agent shall be
effective unless and until the successor Escrow Agent accepts its
appointment as Escrow Agent in accordance with this Section 7. If the
Escrow Agent resigns or is removed but SunGard and the Representative fail
to agree upon a successor Escrow Agent within 30 days after they receive
notice of such resignation or removal, then SunGard shall have the right to
appoint a successor Escrow Agent which shall be a commercial bank or trust
company having a combined capital and surplus of at least $100,000,000. Any
successor Escrow Agent, whether appointed by the mutual agreement of
SunGard and the Representative or otherwise, shall execute and deliver to
the predecessor Escrow Agent an instrument accepting such appointment, and
thereupon such successor Escrow Agent shall, without further act, become
vested with all the estates, properties, rights, powers and duties of the
predecessor Escrow Agent as if originally named herein.
8. Liability of Escrow Agent; Expenses. The Escrow Agent shall have no
liability or obligation hereunder except for its willful misconduct or
gross negligence. The Escrow Agent may rely upon any instrument, not only
as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by the person or persons purporting to sign the same, and to
conform to the provisions of this Agreement. The Escrow Agent may consult
legal counsel selected by it in the event of any dispute or question of the
construction of any of the provisions hereof or of the Reorganization
Agreement or of its duties hereunder, and shall incur no liability and
shall be fully protected in acting in accordance with the opinion or
instruction of such counsel. The fees and expenses of the Escrow Agent
charged and incurred in performing its obligations hereunder shall be borne
by SunGard. Escrow Agent shall be entitled to compensation for its services
as stated in the fee schedule attached hereto as Exhibit A, which such
compensation shall be paid by SunGard. The fee agreed upon for the services
rendered hereunder is intended as full compensation for Escrow Agent's
services as contemplated by this Agreement; provided that, if the
conditions for the disbursement of funds under this Agreement are not
fulfilled, or Escrow Agent renders any material service not contemplated in
this Agreement, or there is any assignment of interest in the subject
matter of this Agreement, or any material modification hereof, or if any
material controversy arises hereunder, or Escrow Agent is made a party to
any litigation pertaining to this Agreement or the subject matter hereof,
then Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs and expenses,
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including reasonable attorneys fees, occasioned by any such delay,
controversy, litigation or event, and the same shall be recoverable from
SunGard.
9. Indemnification of Escrow Agent. SunGard and each of the
Shareholders, jointly and severally, hereby indemnify and hold harmless
Escrow Agent from and against any and all loss, liability, cost, damage and
expense, including, without limitation, reasonable attorneys fees, which
Escrow Agent may suffer or incur by reason of any action, claim or
proceeding brought against Escrow Agent arising out of or relating in any
way to this Agreement or any transaction to which this Agreement relates,
unless such action, claim or proceeding is the result of the willful
misconduct or gross negligence of Escrow Agent.
10. Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one business
day after being sent by a nationally recognized overnight delivery service,
or three business days after being sent by registered or certified mail,
return receipt requested, in each case postage or delivery charges prepaid.
Notices may also be given by prepaid facsimile and shall be effective on
the date transmitted if confirmed within 48 hours thereafter by a signed
original sent in the manner provided in the preceding sentence. Notices to
SunGard and Newco shall be sent to their respective addresses stated on
page one of this Agreement to the attention of SunGard's General Counsel,
with a copy sent simultaneously to the same address to the attention of
SunGard's Chief Financial Officer. Notices to the Shareholders shall be
sent to the Principal Shareholders as representative of the Shareholders at
their respective addresses stated on page one of this Agreement and counsel
to the Principal Shareholders (at their respective addresses set forth in
the Reorganization Agreement). Notices to the Escrow Agent (including any
Payment Notice), shall be sent to its address stated on page one of this
Agreement to the attention of [ ], with copies sent simultaneously to,
as applicable, SunGard or the Principal Shareholders and counsel to the
Principal Shareholders (at their respective addresses set forth in the
Reorganization Agreement).
11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT THAT THE
FIDUCIARY DUTIES AND RESPONSIBILITIES OF THE ESCROW AGENT SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF MINNESOTA.
12. Assignment; Binding Effect. The rights of the Shareholders hereunder
are personal and may not be assigned or otherwise transferred except by
operation of law. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
13. Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original and all of which together shall
constitute one and the same instrument.
14. Entire Agreement. This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and cannot
be changed, modified or terminated except by written amendment.
15. Severability. If any provision of this Agreement is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof
shall not be affected thereby and shall be enforceable without regard
thereto. Each Shareholder agrees that the failure of any other Shareholder
to execute and deliver this Agreement shall not affect in any way the
validity or enforceability of this Agreement or the rights of SunGard or
Pentamation under this Agreement, the Plan of Merger or the Reorganization
Agreement.
16. Right of Representative to Act for Shareholders. Each of the
Shareholders expressly grants to the Principal Shareholder designated
pursuant to this Section (the "Representative") the full power and
authority to represent such Shareholder and to take any and all actions
with respect to this Agreement on behalf of such Shareholder including, but
not limited to, (a) administering any Indemnification Matter (as defined in
the Reorganization Agreement) on behalf of the Shareholders, agreeing to
the settlement of any Indemnification Matter and otherwise handling and
negotiating Indemnification Matters; and (b) agreeing
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to any waiver, consent or amendment under or to this Agreement, provided
that no such waiver, consent or amendment shall affect the method of
allocation of payments from the Escrowed Stock as set forth in Section 5
hereof with respect to any Shareholder who does not expressly consent
thereto. Each of the Shareholders acknowledge that this Section 16 is
intended to have the broadest possible scope of the purpose of promoting
the efficient negotiation and handling of all matters which arise under or
in connection with this Agreement. The Representative shall be Jeffrey P.
Feather.
WITNESS THE DUE EXECUTION AND DELIVERY OF THIS ESCROW AGREEMENT AS OF THE
DATE FIRST STATED ABOVE.
Sungard Data Systems Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
Pentamation Enterprises, Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
PRINCIPAL SHAREHOLDERS:
_____________________________________
Jeffrey P. Feather
_____________________________________
David P. Bloys
_____________________________________
Donald V. Appleton
Norwest Bank, Minnesota, N.A.
By: _________________________________
Name: _______________________________
Title: ______________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
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PENTAMATION SHAREHOLDERS
(Please sign and print your name exactly as it appears on your certificate)
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APPENDIX D
SUBCHAPTER D. DISSENTERS RIGHTS
[Pa.C.S.] (S) 1571. Application and effect of subchapter
(A) GENERAL RULE.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(B) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at the meeting at which a
plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention
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of another corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless of
the fact, if it be the case, that the acquisition was accomplished by the
issuance of voting shares of the corporation to be outstanding immediately
after the acquisition sufficient to elect a majority or more of the directors
of the corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(D) NOTICE OF DISSENTERS RIGHTS.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(E) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may not be
relaxed by any provision of the articles.
(G) CROSS REFERENCES.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
[Pa.C.S.] (S) 1572. Definitions
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities under
this subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
[Pa.C.S.] (S) 1573. Record and beneficial holders and owners
(A) RECORD HOLDERS OF SHARES.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
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(B) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
[Pa.C.S.] (S) 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
[Pa.C.S.] (S) 1575. Notice to demand payment
(A) GENERAL RULE.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the corporation
shall send to all shareholders who are entitled to dissent and demand payment
of the fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
[Pa.C.S.] (S) 1576. Failure to comply with notice to demand payment, etc.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(B) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
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[Pa.C.S.] (S) 1577. Release of restrictions or payment for shares
(A) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(B) RENEWAL OF NOTICE TO DEMAND PAYMENT.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance
under this section will be made. The remittance or notice shall be accompanied
by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(D) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had
after making demand for payment of their fair value.
[Pa.C.S.] (S) 1578. Estimate by dissenter of fair value of shares
(A) GENERAL RULE.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(B) EFFECT OF FAILURE TO FILE ESTIMATE.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
[Pa.C.S.] (S) 1579. Valuation proceedings generally
(A) GENERAL RULE.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
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(3) timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(B) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(C) JURISDICTION OF THE COURT.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(D) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
[Pa.C.S.] (S) 1580. Costs and expenses of valuation proceedings
(A) GENERAL RULE.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
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